Juergen Stark - Chief Executive Officer John Hanson - Chief Financial Officer.

Eric Wold - B. Riley Mark Argento - Lake Street Capital Markets.

Good afternoon, ladies and gentlemen and welcome to the Turtle Beach Fourth Quarter and Full Year 2016 Conference Call. [Operator Instructions] Before we get started, we will be referring to the press release filed today with details of results which can be downloaded from the Investor Relations page of our website at corp.turtlebeach.com.

In addition, a recording of the call will be available on the Investor Relations section of the company’s website later this evening. Please be aware that some of the comments made during our call may include forward-looking statements within the meaning of the federal securities laws.

Statements about our beliefs and expectations containing words such as may, will, could, believe, expect, anticipate and similar expressions constitute forward-looking statements.

These statements involve risks and uncertainties regarding our operations and future results that could cause Turtle Beach Corporation’s results to differ materially from the management’s current expectations.

We encourage you to review the Safe Harbor statements and risk factors contained in today’s press release and in our filings with the Securities and Exchange Commission, including without limitation, our most recent annual report on Form 10-K and our other periodic reports, which identify specific risk factors that may cause actual results or events to differ materially from those described in forward-looking statements.

We do not undertake to publicly update or revise any forward-looking statements after the date of this conference call. We also note that on this call we will be discussing non-GAAP financial information.

We are providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States, or GAAP. You can find a consolation of these metrics to our reported GAAP results and the reconciliation table provided in today’s earnings release.

And now I will turn the call over to Juergen Stark, the company’s Chief Executive Officer.

Juergen?.

Thank you and good afternoon everyone. I will share some highlights of a strong year before passing the call to our CFO, John Hanson, who will provide details on our Q4 financial performance. I will then expand upon our business performance and speak to our outlook for 2017.

Our fourth quarter closed out a strong year highlighted by solid demand for our entry-level RECON series headsets, our new STEALTH 520 and 420X+ wireless headsets and good overall performance across the rest of our line.

In fact, Q4 new-gen headset sales were up 8%, highlighting the continued strength of the portfolio, especially considering the year ago quarter represented the significant new-gen sell-in period. In addition, we launched our innovative Elite Pro headset and tournament audio controller, which delivered a whole new level of gaming audio performance.

2016 also marked our entrance into two small but burgeoning new markets in virtual reality and live streaming with our STEALTH 350VR headset, the first and only headset created specifically for use with the new virtual reality devices like PlayStation VR and HTC Vive, and our STREAM MIC, the first professional quality live streaming microphone that works with Xbox One as well as with PlayStation 4, PC and Mac.

These results were achieved despite the overall console gaming market slowing significantly and uncharacteristically in the holiday season. We believe lower sales of marquee games as well as the November 2016 debut of PlayStation Pro, and the yet to be announced launch date of Xbox Scorpio disrupted the consumers typical holiday purchasing behavior.

Despite this softening, we achieved fourth quarter and full year profitability that exceeded the guidance we provided last quarter. In fact, we met or exceeded every financial goal we laid out for our headset segment in our investor presentation materials from April of last year.

This was due to our strong lineup of new-gen headsets, gross margin enhancing supply chain and logistics improvements implemented over the past 2 years as well as effective operating expense management across the entire business.

In the fourth quarter, we largely converted our HyperSound business to a license model and wound down operating expenses to under 300k per month.

While we are still pursuing additional revenue-generating opportunities for HyperSound, including licensing the technology for HyperSound Glass and other applications, we have reduced and plan to continue to reduce operating expenses to a point where it becomes immaterial to our overall business.

We are also continuing to explore strategic alternatives for the HyperSound business, but considering the material expense reduction that’s already taken place, we now have more flexibility in terms of the timing of any alternative we may pursue.

Before speaking more about our 2016 performance and our 2017 outlook, I would like to turn the call over to John.

John?.

Thanks, Juergen and good afternoon everyone. As Juergen indicated, we largely converted HyperSound to a license model in the fourth quarter and wrote down the business on our balance sheet to the point where there remains approximately $0.7 million in total HyperSound assets on our books.

So with that, net revenue in the fourth quarter of 2016 was $82.2 million compared to $84.6 million in the same year ago quarter. And on a constant currency basis, net revenue was essentially unchanged. Old-gen year-over-year declines impacted Q4 ‘16 sales by approximately $7.7 million.

We expect our old-gen business to decline to essentially zero in 2017. This assumption is accounted for Juergen’s revenue outlook, which he will discuss shortly. Sales of our new-gen headsets increased 8% to $77.5 million. On a constant currency basis, new-gen sales were up 11%.

For the full year, net revenue increased 7% to $174 million due to the success of the new-gen headset portfolio. And on a constant currency basis, net revenue was up 9%. Gross margin in the fourth quarter was up 760 basis points to 36.7% compared to 29.1% in the year ago quarter.

Gross margin in the headset segment increased 630 basis points to 37.2% as higher margin new-gen headsets contributed 94% of revenues in the fourth quarter of 2016, up from 86% during the same period in 2015. We are also realizing benefits from our supply chain strategy and other business improvement actions implemented over the past 2 years.

For the full year, gross margin in the headset segment increased 540 basis points to 31.9% due to higher margin new-gen headsets contributing 92% of revenues in 2016, up from 77% in 2015 as well as the supply chain and logistics improvement.

Operating expenses in the fourth quarter were reduced by 19% to $14.9 million compared to $18.3 million in the fourth quarter of 2015, which excludes the $49.8 million HyperSound goodwill impairment charge we took in the year ago quarter. The reduction in operating expenses was due to continued cost management across the business.

HyperSound related operating expenses in the fourth quarter of 2016 were $0.9 million. On a full year basis, operating expenses were comprised of headset-related expenses of $46.6 million, HyperSound impairment of $63.2 million and HyperSound-related expenses of $10.5 million.

Compared to 2015, headset operating expenses declined 10% and HyperSound expenses, excluding the impairment, decreased 24% through the continued cost management, including the transition to a license-only model for HyperSound.

This reduction combined with our strong new-gen headset growth drove $9 million in operating income for our headset business in 2016 compared to an operating loss of $9 million in 2015.

Net income in the fourth quarter improved significantly to $12.2 million or $0.25 per diluted share compared to a net loss of $46.5 million or a loss of $1.09 per diluted share in the year ago quarter. Excluding a 2015 impairment charge, net income in the fourth quarter of 2015 was $3.3 million or $0.08 per diluted share.

The year-over-year increase even when excluding the impairment charge was due to the aforementioned gross margin improvement and continued cost management. For modeling purposes, fully diluted share count was 49.3 million in Q4 2016, with a weighted average count of 48.6 million for the full year.

Adjusted EBITDA on a consolidated basis increased 63% to $16.1 million, primarily driven by strong new-gen headset sales and successful business improvement initiatives. Adjusted EBITDA for the headset business was up 23% to $17.2 million in the fourth quarter.

In 2016, adjusted EBITDA improved significantly to $4 million compared to an adjusted EBITDA loss of $11.4 million in 2015. Adjusted EBITDA for the headset business increased over 500% to $14.4 million in 2016 compared to $2.4 million in 2015.

This exceeded the 4x EBITDA improvement we laid out as a key goal for the year in our April investor presentation. Now turning to the balance sheet, we ended the year with cash and cash equivalents of $6.2 million compared to $7.1 million a year ago.

As a result of the availability under our $60 million revolving credit line, we generally do not hold a large cash balance. In addition, we ended the year with inventory down 17%, with higher new-gen inventory more than offset by inventory and reserve reductions in the other inventory categories.

Outstanding principal debt at December 31 was $69.7 million compared to $68.1 million, 1 year ago. The 2016 amount included $35.9 million of borrowings under our revolving credit facility. Historically, the outstanding balance fluctuates throughout the year, being closed to zero early in the year before it ramps up ahead of the holiday.

Subordinated debt totaled $19.4 million and term loans totaled $14.4 million. The addition of the term loan and subordinated debt in 2015 provided the company permanent capital, reducing our dependency on the ABL revolver.

Taking into consideration the availability on our line of credit and our expectation to be significantly more profitable on a consolidated basis in 2017, which Juergen will walk through shortly, we believe we have sufficient capital to fund our business plan. This is further supported by our continuing business improvement initiatives.

And now, I will turn the call back over to Juergen for some additional comments on the business and our updated outlook.

Juergen?.

Thanks John. Please note that we have also posted an investor presentation that summarizes some of the materials we are going through on our investor website along with the earnings release from today.

We are certainly pleased with our fourth quarter performance, particularly our margins and profits as well as the role the quarter played in delivering a very successful year of new-gen product growth in spite of the holiday season market slowdown. In support of this, recent NPD data confirms that our number one U.S. market share has grown higher.

Our U.S. unit share has grown 90 basis points to 34.2%, and 2016 U.S. revenue share was up slightly to 42% compared to 41.9% in 2015. Q4 2016 unit share was 37.9% and revenue share was 43.7%. In the UK, Chart-Track data shows our 2016 revenue share grew 200 basis points to 47%.

Among several other leading product propositions, NPD confirmed that we continue to have all five of the top five selling third-party headsets domestically. Our Recon 50X was the highest selling third-party headset in 2016 and our XO ONE headset was number two.

Several million gamers from the entry level to hard-core are enjoying our latest new-gen products and the quality and innovations they provide. In addition to our RECON series headsets, the new STEALTH 520 and 420X+ wireless headsets we had success with our new Stealth 350VR and streamline products, albeit of a small base.

Both were announced last June at the Electronic Entertainment Expo and began selling before holiday. These products are focused on what we believe our two hard growth markets in gaming today.

In our view, audio is half of the overall virtual reality experience and our Stealth 350VR is designed specifically to elevate VR audio from good to great with features like large over-the-ear 50-millimeter speakers, amplified audio with base boost and full 3D surround sound.

This is a small category, but we expect it to grow significantly in the coming years. Our Stream Mic product also represents a new category of gaming audio accessories for our company.

While a much smaller market than headset, it has grown recently at a rapid pace with more and more gamers live-streaming their matches for friends and fans to watch or creating game walk-throughs or how-to videos and more. And of course we launched our Elite Pro headset, which we believe sets a new bar for gaming headset comfort and performance.

We continue to receive positive media and tech reviews of those products, with many citing the Elite Pro headset as the best gaming headset ever.

Given our performance, leading market share and slate of new innovative products, we continue to have very strong relationships with our retailers and we believe Turtle Beach is the absolute go-to brand for console gaming audio. According to NPD, during 2016 we sold 46% more headsets in the U.S.

than our nearest competitor and have had the strongest brand with market share that exceeds the next three competitors combine for 6 years in a row.

While we believe our strong market share and excellent retail presence and relationships are impressive, it’s more important to us to know that this comes as a direct result of having what we believe are the most innovative and high quality products in the console gaming headset market and knowing that our products give our customers a better and more immersive gaming experience and the competitive advantage.

We believe our track record will continue this year as we plan to launch several exciting innovative mainstream gaming headset models before holiday. More details will be forthcoming at the June E3 Expo.

So now moving on to some detailed comments on the console gaming markets performance in the fourth quarter, which will lead me into an outlook for 2017.

As I indicated, the entire market slowed significantly and uncharacteristically in Q4, resulting in lower than expected sell-through during the holiday season and higher channel inventory exiting the year than is typically normal. We believe slow marquee game title sales hurt the entire market.

For example, for NPD the top three first person shooter and action titles dropped over 40% in retail unit sales from Q4 2015 to Q4 2016. NPD data also shows that videogames software was down 30% year-over-year in November and down over 20% in December.

In addition, industry analysts believe that new PS4 and yet to be announced launch date of Xbox Scorpio has caused customer confusion and/or hesitancy to purchase current next-gen consoles. I mentioned the slowdown is uncharacteristic because in prior years domestic sell-through rates across the industry through Q3 held up through Q4.

For 2016, according to NPD, the U.S. console gaming headset market was up about 11% through Q3, but Q4 was down 12%, resulting in a net 1.4% industry increase for the year. Given this shift, we experienced a sell-through gap worth roughly $12 million in terms of our revenue.

Indeed, we have been told anecdotally that the slowdown impact of the entire console category leaving retailers with higher than normal inventory.

It is important to note that because of the high velocity of revenues that occur at retail during the last five weeks to six weeks of the year, a slowdown in sell-through like the market experienced in Q4, is detected after retailers have largely stocked up for the holidays.

As a result, companies like us have sold in most of what we expected to sell in, leaving Q4 a largely intact, but Q1 is impacted as retailers then hold off on replenishment orders until their inventories return to normal levels.

And given that Q4 revenues are typically 4x to 5x the level of Q1 revenues, a modest slowdown in Q4 has a disproportionate impact on Q1. So taking these current market dynamics into consideration, I would like to address our outlook for 2017.

The company’s single minded focus in 2017 is to continue to strengthen our balance sheet by delivering another year of significant improvements in our operating results. Indeed, we have already made some organizational changes, which have lowered our operation – operating expenses with this goal in mind.

This means that we will not make any major investments in programs that are not expected to yield a positive return within the year. For example, we plan to maintain and nurture our current position in China, but not invest aggressively in brand building yet.

In addition to new geographies like China, we see opportunities in virtual reality and live streaming microphones, but these markets are still in their infancy and we expect our investments in pursuing them will be more significant in 2018 when our balance sheet should allow us to pursue them more aggressively.

With this in mind, the first quarter of 2017, we expect net revenues to range between $12 million to $13 million compared to $24 million in the first quarter of 2016.

This reflects the higher-than-normal channel inventory due to the soft 2016 holiday retail gaming sales that I just discussed as well as some continued slowness in the overall console market.

Adjusted EBITDA is expected to be approximately negative $8.5 million compared to negative $6.3 million in the first quarter of 2016, reflecting the lower revenue, but also expected higher margins and lower operating expenses.

Net loss for the first quarter is expected to range between negative $0.24 and negative $0.26 per diluted share compared to a net loss of negative $0.26 per diluted share in the first quarter of 2016. For the full year of 2017, we expect net revenue to range between $155 million and $160 million compared to $174 million in 2016.

Keep in mind that these results include the impact of the roughly $12 million in higher channel inventory, which comes directly out of 2017 sales. A few other key assumptions to call to your attention.

The numbers reflect an approximate $6 million to $7 million year-over-year decline in old-gen headset sales, bringing our old-gen business to essentially zero in 2017.

We expect new-gen headset revenues of approximately $149 million to $154 million and approximately $6 million in other headset and accessories revenue and no material revenue from HyperSound. Please keep in mind that our revenue distribution by quarter will be different than past years.

This is due not only to higher channel inventory, but we have a couple of exciting new product launches set for Q3 that we expect will impact Q2 sales as we pullback sell-in to prepare for the launch of the replacement models. So, this is expected to take some revenue out of Q2 and move it into Q3 and Q4 as we load in new models.

We expect gross margins in 2017 to be comparable to 2016, reflecting lower operations costs and continued cost of goods improvements, but with some loss of operating leverage due to lower revenue.

We expect again significant – we expect to again significantly improve consolidated EBITDA at an estimated $10 million to $12 million for 2017 compared to $4 million in 2016.

We already completed actions which reduce operating expenses across the board, roughly offsetting the HyperSound allocations to further improve headset profitability even with somewhat lower revenues. HyperSound is expected to have a roughly $1 million impact on EBITDA, which is factored into these numbers.

Net loss in 2017 is expected to range between negative $0.08 and negative $0.12 per diluted share based upon 49.3 million diluted shares outstanding.

This would be comparable to a loss of negative $0.33 per diluted share in 2016 as it excludes the aforementioned goodwill and intangible asset impairment charges, HyperSound restructuring reserves and other restructuring charges.

Our forecast is based on the expectation of a continued strong outlook for the console gaming headset market, but also reflects the Q4 market slowdown.

DFC’s later preliminary February 2017 estimates show new-gen console sales slowing somewhat to 9.9 million units from 11.3 million in 2016 and active installed base of new-gen console users growing by about 9% this year, both consistent with this phase of the console cycle.

Attach rates continue to grow, rising over 400 basis points to reach 26.5% by the end of 2016. Assuming attach rates continue to rise, we would see – we should see mid-to-high single-digit growth in the new-gen console gaming headset market for the coming years with a peak in the active installed base expected by DFC in 2018.

Obviously, 2017 is impacted by the higher inventory – channel inventory to start the year and the expected final drop in old-gen sales. In fact, if you normalize for the channel inventory impact in 2016 and 2017, new-gen sales for us shown expected growth of about 10%.

While we have not built his into our outlook, there is also several factors that contribute to a strong Q3, Q4 for the console market, which could drive upside to our forecast. Scorpio, Microsoft higher-end 4k ready Xbox is expected to launch for holiday. PlayStation launched a higher-end platform, PlayStation 4 Pro this past holiday.

In addition to driving sales, both consoles will then have a two-tier product offering, which could give them more flexibility on pricing of their lower tier offerings.

Note that Xbox has stated that all Xbox One accessories and software will be compatible with this new console, similar to PlayStation 4 Pro, which is fully compatible with our headsets. So, we don’t expect a portfolio disruption.

Second, if the marquee games are more successful than in 2016, this could drive additional attach and opportunity for the entire category. As we noted, game performance was likely the largest driver of the Q4 slowdown.

Longer term, we continue to see opportunities to add growth on top of core console markets by expanding in the PC headset category, expanding in new geographies like China and pursuing new categories like VR and streaming MICs. Our extremely strong brand with gamers, gives us a good opportunity to pursue these adjacent markets.

Given Microsoft’s drive to promote cross-compatibility between the Xbox One and Windows 10 PCs and laptops, this creates a good point of leverage for us into the PC segment and we have some new headset models coming this year to take advantage of this.

China and other new geographies also provide growth opportunities, which we are nurturing this year with the expectation to more aggressively pursue next year with an improved balance sheet.

Similarly, VR while not material in 2016, consistent with our expectations from our November call, should become a meaningful platform for our headsets during the coming years.

So, our plans are to drive growth above and beyond the core console market over time, but with a focus particularly in 2017 on continuing to improve our balance sheet first and foremost. 2016 was a year of extremely good execution across the business.

And I would like to thank my colleagues across the company for their continued contributions and dedication. Operator, we are now ready to take questions..

Thank you, sir. [Operator Instructions] And our first question will come from Eric Wold with B. Riley. Please proceed..

Thank you and good afternoon. A few questions, I guess.

First of all, with the inventory in the channel, is the plan that was kind of looked to the holidays, is the plan to kind of just let those headsets kind of sell-through as they normally would or have you kind of spoke with the retailers on any kind of potential promotional plans to move that inventory quicker?.

We, of course, are working with our retailers to get those sold through, Eric. So, we do do some promoting as will everybody in the category to help move those headsets. But it’s not across the board it’s kind of on a model by model basis.

We will take a look at where we are and what the sell-through rate is and make decisions frankly like we would in any quarter, where you have some models that are heavy and some models that are light, to keep them moving at a rate that we want to keep them moving at..

Okay..

And that by the way that impact is we factored it into our Q1 guidance..

Okay, perfect. And then on the HyperSound business, you noted that the business that was essentially converted to the licensing model in the fourth quarter.

Does that mean there are licensing agreements in place on the revenue side or is that – are you speaking to the fact that you reduced kind of the operating expense down the level or it’s now ready for that final transition point?.

Yes, I am glad you asked for the clarification. So, what we have done is we have reduced the operating expenses to staff, all of that down to a handful of people and the remaining people are now fully focused on supporting projects and licensing opportunities with prospective licensees.

We do not have anything signed yet, but we have some staff that’s continue to work with opportunities. And obviously as we go along, we will make an assessment in terms of making sure that the amount of resource we have focused on it is consistent with the opportunities that we would see in the licensing deals.

One other thing that I will note is that the licensing discussions are typically with large companies and in some cases we have had projects that have been in an exploration mode for many, many months, where we do prototyping and all of that. So we have those – we have those underway.

Our goal was to essentially take the operating expenses down to the point where we could pursue those things without – in a time and in a process that’s more suitable and not feel like we essentially have a gun to our head to strike a deal because we have got a high burn rate associated with the business..

Okay, that makes sense.

And then on the guidance, I understand that consolidated EBITDA is improving or expected to improve from last year to this year, but looking just at the core headset business is declining from $14.4 million to $11 million to $13 million, how much of that is the remnants of the final piece of the old-gen and is this kind of the base level kind of as you would kind of hit the stride of the current console cycle just kind of a base level to grow off of or is there something else underneath there?.

There is one single simple driver, which is – given the additional sell-through into the channel, sell-in to the channel in 2016, we are essentially starting off the year with $12 million of revenue essentially in the whole. So we have lower revenues obviously, higher margins and lower OpEx.

And that as a result has the operating profit down somewhat potentially in the headset business..

Okay. And then that makes sense.

And the final question, correct me if I am wrong here John, but if I do the math on Q2, Q3, Q4 and the guidance for Q1, it looks like the 12-month trailing headset EBITDA at the end of the first quarter will be below the $12.7 million covenant level in the loan agreement, is that correct, is that the case what are your thoughts on getting a waiver working with it or [indiscernible] get past that?.

So, no. Actually the 12.8 is for the full year. So when we roll through that calculation, the company actually has cushion relative to the EBITDA covenant on the headset business, substantial cushion as of 12/31.

The company is at the – there is not a covenant issue here facing the company so there is – we are not actively engaged in any conversations around that amendment..

No, sorry, I sort [indiscernible] at the end of the year, I mean taken into account, looking at the where it’s required to be at March 31, 2017, so including the guidance for Q1, 12 months ending that period?.

Right. From the 12 months that are ending as of Q1, we do – the company absolutely expects to be above the covenant level and it’s not looking or talking to the lenders about an amendment..

Okay, perfect. Thank you..

Thanks Eric.

[Operator Instructions] Our next question comes from the line of Mark Argento with Lake Street Capital Markets. Please proceed..

Hi guys.

Just a couple of quick ones here, first on HyperSound, any further movement in terms of maybe trying to find either a buyer or be able to do something more with those assets?.

We certainly would like to do more with those assets, Mark. And the licensing discussions, the projects we have underway, alongside those including with some of the same people we are talking to about licensing. We remain open to other strategic alternatives of the business.

Whether that – some of that’s better capitalized to take advantage of the technology. Buying it or some kind of a spin-out in co-ownership with us where all options were still on the table..

Got it.

And when you think a little bit broadly obviously have a great franchise in the videogame headset business, obviously very cyclical business tied to console sales and videogame sales, do you guys look a little bit more broadly and think about the opportunity for the platform you built out relationships with retailers, do you guys ever thought about expanding the tangential areas controllers or other types of products that you could really leverage distribution, your marketing, leverage your manufacturing, because it seems like you got a nice business here that I think that this had a little bit more scale could obviously be more profitable or little less, little more predictable, little less cyclical, any kind of high level thoughts that you guys have with the Board as well?.

Yes. Lots of work on that front and we know where we would go attack. They key areas – we did a little bit of this by the way with the Stream Mic that is direct leverage off of what we do in consoles and the brand and all of that, much smaller market than headsets.

Off to a good start, but a long way to go before that becomes a meaningful part of our revenues. But that was part of our objective to start to go outside of core console headsets. We think PC is a good opportunity. PC gaming headsets and a lot of that is less so in the United States, but in other geographies like China.

So we have done a thorough review of our China, where we are in China. And as I mentioned in my prepared remarks, we are maintaining right now, but continuing some activity there, with the goal to be more aggressive next year. We have other areas that we think are attractive.

Controllers probably are not one of them by the way, hardly because getting deeper into consoles is less appealing than finding some adjacent markets because we are already highly tied to consoles.

But this year as I mentioned, the single minded focus is to continue to deliver an improvement in the overall operating results, put ourselves in a position with a better balance sheet where we can more aggressively pursue some of the longer term opportunities..

Got it.

And then in terms of – any kind of key games you guys are keying off of to drive some more foot traffic or any type of partnership agreements that you guys are keying on here in 2017 that we should be paying attention to?.

Yes. We are watching this closely and given Q4, obviously highly sensitive to how those games perform. Given that I was somewhat surprised by Q4, I am not going to take any guesses on who is going to do well or not this year, but we are looking for it. And we are going to play pay very close attention.

When a good game launches, we get – we can get a 3x improvement in sell-through for multiple weeks based on just the store traffic and attach driven by the game. But I am not going to try to speculate on who is going to win and lose this year. I do hope that the big franchises have a good year.

And with the Pro - PlayStation 4 Pro with 4k and Scorpio coming out, we don’t have any – we don’t know anything yet. They haven’t been announced yet. But I would hope and expect that there could be some 4k games in some of the major franchises that would launch for holiday, which would be great..

Great.

And just transitioning back to my previous kind of question about different verticals, it seems like Apple has got some pretty good traction with their new wireless pods, have you guys looked at potentially reentering the kind of the consumer market, obviously you guys got some great digital sound, signaling technology that would probably really make sense and you got a good brand obviously, especially with your core demographics, so I don’t know, it just seems to me like you guys should have a lot of opportunities to scale or lever with a brand a little bit more?.

I could not agree more, Mark. And the consumer opportunities like that are also on our radar, especially with the 3.5-millimeter jacks disappearing. It’s happening on more smartphones, which means you are basically getting digital audio. And we do digital audio very well. But again, it’s all in the context of – it’s on our radar.

We definitely see opportunities in segments like that. But we are going to limit our level of investment this year to things that payback this year with the goal of dropping as much into the bottom line and improving our balance sheet as possible this year, basically to help us arm up for making some of these investments longer term..

Sure, it makes sense. Thanks guys..

Thanks Mark..

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Stark for closing remarks..

Okay. Thank you very much everybody. We look forward to speaking with our investors and analysts when we report our first quarter results in May. Have a good day. Thanks..

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..