Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach Second Quarter 2021 Conference Call. Delivering today's prepared remarks are Chairman and Chief Executive Officer, Juergen Stark; and Chief Financial Officer, John Hanson. Following their prepared remarks, the management team will open up the call for any questions.

Before we go any further, I would like to turn the call over to Alex Thompson of the Gateway Investor Relations, Turtle Beach IR Adviser, as he reads the company's safe harbor that provides important cautions regarding forward-looking statements. Alex, please go ahead..

Thank you, Michelle.

On today's call, we will be referring to the press release filed this afternoon that details the company's second quarter 2020 results which can be downloaded from the Investor Relations page at corp.turtlebeach.com, where you'll also find the latest earnings presentation that supplements the information discussed on today's call.

Finally, a recording of the call will be available on the Investors section of the company's website later today. Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws.

Statements about the company's 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 the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations.

While the company believes that expectations are based on upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially.

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

The company does not undertake to publicly update or revise any forward-looking statements after this conference call. The company also notes that this call we will be discussing non-GAAP financial information.

The company is providing that information as a supplement to information prepared in accordance with the accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these materials to the company's reported GAAP results and the reconciliation tables provided in today's earnings release and presentation.

And now, I'll turn the call over to Juergen Stark, the company's Chairman and Chief Executive Officer.

Jorgen?.

Good afternoon, everyone, and thank you for joining us. I'm pleased to be with you to discuss our excellent second quarter performance, in which we delivered strong financial results, unveiled significant product launches and entered into two new gaming product categories.

And I'm especially pleased to note that we delivered record first half results and confirmed our guidance for 2021, which would result in 7% revenue growth and build strongly on our record year in 2020. We're also tracking very well on our long-term growth strategy and our financial objectives.

Our Q2 revenues were $79 million and adjusted EBITDA was $5 million, both substantial beat to our guidance.

In fact, we delivered the second highest Q2 in the company's history, only outdone by Q2 last year when the gaming market saw an unprecedented surge in demand related to the stay-at-home orders and our strong execution enabled us to outperform the market and our peers.

The gaming market continues to grow, increasing demand for quality gaming products. Our recent gamer survey reinforced this trend in gaming levels with many new gamers entering at lower price points. This suggests strong future market opportunities for product upgrades, particularly for us with our comprehensive portfolio for all levels of gamers.

Our survey also indicated that the overall replacement cycle has remained consistent.

We closely followed these trends and positioned the company for further value creation by innovating and launching new products across our gaming headsets, PC accessories, streamer and Pro microphones as well as enter into two new market categories that I'll cover shortly. Returning to the market.

NPD reported that for the first half of 2021 across North America, five of the top 10 selling console gaming headsets were our Gen 2 Stealth 600 and 700 line of wireless headsets; and 10 of the top 15 headsets by revenue were ours.

We've been the leader in console gaming headset category for more than a decade based on delivering an expansive portfolio of great headsets with a steady stream of innovations and industry firsts that has made us the go-to brand for console gamers. In the second quarter, we continued this with the launch of the Recon 500 gaming headset.

This product delivers unprecedented sound quality at every frequency with our patented Eclipse dual drivers, essentially a woofer and a tweeter in each ear cup and a groundbreaking wood composite acoustic category.

This is an innovative addition to our popular Recon line and the Recon 500's multi-platform technology and affordable price at $80 is a great choice for gamers looking to elevate their gaming audio experience. We believe it's also a perfect upgrade for the millions of Recon 50 and 70 users.

We also announced ROCCAT's all-new Syn Pro Air premium wireless gaming headsets, which has become our top wireless offering among our award-winning PC brands. The Syn Pro Air further elevates the perfect mix of ROCCAT's German design and engineering with Turtle Beach's audio expertise and patent technologies, and it's our best PC gaming headset yet.

Our progress in expanding our award-winning ROCCAT portfolio of PC accessories and gaining share in that $3.5 billion market is going well. NPD reported that U.S. sales of PC headsets, keyboards and mice rose approximately 40% in the first half of 2021 versus 2020. Rocket sales grew by approximately 200% during that same time.

These numbers really illustrate the impact of our expanding line of PC accessories as high demand products like the all-new Cone Pro PC gaming mice, the Magma membrane and pyro mechanical keyboards, hit retailers in the quarter. We're really excited about these fantastic products.

We also secured additional gaming partnerships to support our Total Beach and ROCCAT brands, first renewing and extending our partnership with the popular Call of Duty Challenger team Team WaR. Team WaR will continue to use Turtle Beach's Elite Pro 2 gaming headsets as well as the new Recon 500 gaming headsets.

Our partnerships include rising NBA star Immanuel Quickley, who will exclusively sport Turtle Beach headsets went off the court, and we added NBA star, Grayson Allen as a Turtle Beach gaming ambassador. We're now a proud long-term partners with GLSEN to support LGBTQ+ gamers.

Diversity and inclusion have been important parts of our culture, and we've continued to add initiatives in this area across the company. The partnership with GLSEN is a great recent example. Next, our Neat microphones team announced the long-awaited King Bee II analog XLR microphone, which as fans very excited.

Neat is already well known amongst musicians and recording artists in the release of the King Bee II is the first of multiple all-new analog and digital USB microphone products launching this year.

We're entering the $2.3 billion global microphone market with the best team in the category, and we're excited about redefining the level of quality and performance in streaming and acoustic microphones at multiple price points.

In addition to adding amazing new products across our existing product categories, we announced our entry into game controllers and flight simulation hardware. The entry into the console controller market is a natural fit for us given how strong our brand is with console gamers.

They know we deliver great products that make gaming more immersive and our gamers more competitive, and we've done that with our new controller. We've designed to integrate our unique and patented audio capabilities to enable millions of our Recon headset users to upgrade their audio experience while playing with a great controller.

Of course, the controller works with any headset, but our Recon headsets have a huge installed base. The controller includes our exclusive and patented superhuman hearing capability, which a recent study demonstrated as providing significant competitive advantages in games. Superhuman Hearing helps gamers win.

The reaction has been very positive, and the controllers have received rave reviews. We estimate that the market for third-party game pad controllers is roughly $600 million. So that's a big opportunity for us. We also announced our entry into the flight simulation controller market with our VelocityOne Flight System for PC and Xbox.

I commented on our earnings call a year ago that I believe that the level of realism on the upcoming PlayStation and Xbox consoles would be a step change improvement and drive high demand for the new consoles. Indeed, that has happened with both consoles setting records despite semiconductor constraints.

PCs also experienced a step change in realism with the new graphics cards that launched last year. Simulation games for flight and racing benefit greatly from these advancements to the point where it can be difficult to notice a difference between reality and simulation.

Once we saw the prerelease demonstration of Microsoft Flight Sim 2020 early last year and learned that it would also be coming to Xbox this year, the opportunity was clear.

So, we assembled an expert team with deep experience in the category and chartered that team with producing a groundbreaking all-inclusive flight sim controller for Xbox and PC, which I'm glad to say they've done. And the flight simulation category, frankly, was ripe for a better product. So, I'm confident this will prove to be an excellent move.

Over 15,000 e-mail notification sign-ups already is certainly a great start. The flight simulation controller category adds another $400 million in addressable market, and that's not including future products, which will branch into racing as well. Together, these two new product categories add $1 billion in additional market for us to the tag.

So, when we look at it all together, in just two years, we've significantly grown our ROCCAT PC accessories portfolio in revenues since expanding into the PC category. Adding to that is our exciting portfolio of Neat microphones launching this year.

And now by expanding into the large game controller and gaming simulation hardware markets, I expect we could approach or even be over $100 million in revenues outside our historical core console headset business next year.

We are well on the way to being a gaming accessories leader, leveraging our decade-plus of delivering high-quality gaming products with cutting-edge technology and innovations.

I'll provide some thoughts on how the gaming market, our excellent progress on our strategic and financial goals and how we expect the rest of the year to play out after John covers our Q2 results in more detail.

John?.

Hey, thanks, Juergen, and good afternoon, everyone. As Jorgen noted, we are pleased to report another excellent quarter, exceeding our internal guidance during the second quarter of 2021. Given the unusual quarterly dynamics in 2020 and 2021, we are providing year-to-date performance alongside our second quarter summary.

This is also particularly relevant given our 93% revenue growth in Q2 of 2020, which far outpaced our peers. Net revenue for the second quarter of 2021 was $78.6 million, roughly flat to the $79.7 million in the record year ago quarter.

First half of 2021 net revenue was up 50% compared to the year ago period, providing us with a great start to our year. Gross margin in the second quarter was 36.5% compared to 36.7% reported in the second quarter of 2020.

Lower air freight costs and fixed cost leverage were slightly more offset by changes in business mix, a return to a more normalized level of promotional spend and higher ocean and land-based freight costs. Operating expenses in the second quarter of 2021 were $28.3 million compared to $19.3 million in the same quarter of 2020.

Our business is on track for 60% higher revenues than 2019. So a big driver of these increases are the resources and the infrastructure required to support our larger business.

We're also productively investing in new product categories and marketing expenses were more heavily weighted to Q2 than normal given the stream of product launches we just discussed.

Adjusted EBITDA in the second quarter of 2021 was $5 million compared to $12.9 million in the year ago quarter, reflecting the aforementioned OpEx to accommodate the larger business and our investments to expand our PC accessory business and enter new market categories. First half adjusted EBITDA was up 98% compared to the year ago period.

GAAP net income in the second quarter of 2021 was $1.7 million compared to $8.2 million in the year ago quarter. First half 2021 net income was up 127% compared to the year ago quarter.

GAAP net income per share in the second quarter of 2021 was $0.09 a share on 18.3 million weighted average diluted shares outstanding compared to a net income per share of $0.51 on 16.2 million weighted average diluted shares outstanding in the year ago quarter.

Adjusted net income for the second quarter of 2021 was $2.6 million or $0.14 per diluted share compared to $6.8 million or $0.42 per diluted share in the year ago period. Q2 includes the recognition of certain tax charges and credits, which we expect will flow through to a full year effective tax rate of approximately 20%.

Cash flow from operations was $12.4 million in the second quarter of 2021 compared to $31.8 million in the second quarter of 2020. A big driver of the change here is the intentional increase in inventory to ensure supply to our customers, which I'll discuss momentarily. Now turning to the balance sheet.

As of June 30, 2021, we had $56.2 million of cash and cash equivalents with 0 debt, including no borrowings on our revolving credit line. That's a $35 million net improvement from the end of June 2020. Inventories on June 30, 2021 were $81 million compared to $45 million as of June 30, 2020, and $71 million as of December 31, 2020.

Now last year's Q2 ending inventory levels were unusually low. To start, but our inventory increase this year was an intentional operational strategy to help ensure supply in light of semiconductor shortages, global freight and logistics bottlenecks and other potential global supply chain risks.

We have also seen and expect to continue to see retailers ordering earlier to help ensure their own supply. And now I'll turn the call back over to Juergen for some additional comments.

Jorgen?.

Thanks, John. We continue to see gaming as a market rich with opportunities and benefiting from multiple long-term tailwinds. The earnings presentation has a good summary of these trends. So, as we advance our business, we're focused on executing our strategy to take maximum advantage of the tailwinds. As I mentioned, we're tracking very well.

First, we're continuing to lead the $1.7 billion console gaming headsets category. With 10 of the top 15 revenue products in the U.S. and the ability to continue to drive innovation as evidenced by the new Recon 500 headset, we see strong demand continuing.

Moving forward, the fact that Xbox and PlayStation both announced record sales of the new consoles despite supply shortages has us excited to see how they will perform as those shortages recede. Second, we're rapidly expanding our ROCCAT PC gaming accessories portfolio and continuing to deliver compelling and unique products that will drive growth.

I've already covered some examples of our progress, but here's an interesting fact that sums it up nicely. We closed the ROCCAT deal at the end of May 2019 and have already generated more than seven times the roughly $11 million purchase price in net revenues, and we're really just getting started.

Third, we entered new - we're entering new categories over time organically and/or through M&A. We'll soon launch the first of upcoming portfolio of mic products with our acquisition of need microphones, enabling the addition of $2.3 billion in global addressable market for streaming and professional mics.

And organically, we've entered game controllers and gaming simulation hardware, as I described before with another $1 billion in addressable market. Importantly, in the last two years, we've increased the markets that our products cover from essentially $1.7 billion to now over $8 billion.

Back in 2019, when we announced the ROCCAT acquisition, I stated that our first goal was to reach $100 million in incremental revenues outside our core console headset business. As I mentioned before, we have a possibility to already hit that target next year, a year or so earlier than we had anticipated.

In terms of how we see the remainder of the year playing out, again, we note the continued challenges on semiconductors and logistics that have been widely publicized, and we factored these variables into our outlook to the extent possible, given the very dynamic situation.

Despite these challenges and as a great illustration of a strategy that is working, we are maintaining our $385 million revenue guidance. While the semiconductor constraints are holding back several console headset products, our PC accessories and the new categories are focused to come in above our plans and make up the difference.

So, we're maintaining our revenue guidance at $385 million, growing 7% from 2020, where we posted over 50% growth. I continue to be very pleased that we're in a position to do this given we outperformed the market and our peers significantly last year based on our rapid response to increased supply and excellent operational execution.

In particular, this includes Q3, where we posted 141% revenue growth year-over-year and outpaced the rest of the market and our competitors in the U.S. console headset sell-through by a factor of more than 3, just as a specific example.

We're also reaffirming our EBITDA target of $50 million for this year and believe a 13% EBITDA margin target compares favorably to peers, particularly when considering our somewhat smaller size.

We are maintaining and our adjusted EBITDA outlook, while we're maintaining our adjusted EBITDA outlook, we are forecasting significant incremental ocean and land-based freight costs, reflecting global shortages of containers, shipping bottlenecks and capacity constraints on inland logistics.

This will create significant temporary incremental cost, the extent of which will depend on how the freight situation evolves in the coming months and our ability to at least partially mitigate the impacts. On the flip side, we know these issues are impacting our industry and more broadly.

And combined with semiconductor supply issues could result in competitive shortages, which may produce lower promotional spending levels. So we are holding our EBITDA guidance in light of the puts and takes. And as always, when there are unusual dynamics and operational challenges in our market, we strive to execute well as we've done in the past.

For the second half of the year, we're expecting revenue to be approximately $213 million and adjusted EBITDA to be approximately $30 million. As I mentioned, we have seen and continue to expect retailers to order earlier and build inventory to ensure their own supply.

This contributed to Q2 and will likely continue to cause 2021 to have unusual quarterly phasing, just like 2020 did, particularly in Q3, which given our significant outperformance of the market, looked more like a Q4 than Q3 last year.

So we continue to recommend that investors focus on our progress towards annual results rather than trying to gauge by comparing individual quarters for two unusual years. That said, we estimate roughly 35% of our annual revenue to be in Q4.

Of course, as always, the Q3, Q4 revenue split could move around given high velocity of shipments late September and into October without impacting the second half totals.

We are very pleased with where the company is positioned today, and we remain focused on our goal of driving 10% to 20% revenue growth rate over time while delivering category-leading EBITDA margins. Given how well we're tracking on our strategic and financial goals, we think that's a great formula for growing shareholder value.

Finally, I want to thank our entire Turtle Beach team for another strong quarter that as a result of their continued focus and execution.

Delivering products these days is filled with unusual challenges given the state of the world as well as the global supply chain situation, and I'm very grateful for our team's ability to continually overcome these challenges. I'm constantly impressed with the quality of our people and their talent and dedication is what drives us forward.

Operator, we're now ready to take questions..

Thank you, sir. [Operator Instructions] Our first question will come from Drew Crum with Stifel. Your line is open. Please proceed..

Okay, thanks. Hey, guys. Good afternoon. So, Juergen, you called out the….

Hi, Drew..

Hi. You called out the semiconductor shortage is having an impact on the business. Is there a way to size whether it's a percentage of sales, what the company's exposure is to this? And then when would you anticipate the supply-demand imbalance normalizing? And then I have a follow-up..

Sure. So, semiconductors, as everybody knows, are affecting all electronics categories. It started in the fall of last year. I believe we've been quite on the ball in terms of responding, including changing out semiconductors in multiple products in advance of expected issues and literally giving ourselves more supply as a result.

It's very tough to quantify because in some cases, it affects the wireless headsets and powered products essentially. A lot of our revenue are passive headsets and passive products.

But the - it's hard to quantify because we've, to some extent, already been holding off on some promotional activities and constraining sales a bit and that we expect that will continue basically so that we can avoid stockouts in those categories rather than driving pulses of sales for example, and then stocking out.

We also - important to note, we've anticipated the supply constraints in the $ 385 million.

So we're holding the revenue guidance that we had early from early in the year and updated in the last earnings call despite the constraints and how that moves will then depend on how semiconductors proceed to come in and how logistics, frankly, also play out for the second half of the year. You also asked how long we expect it to continue Yes.

Right now, we're expecting semiconductor constraints to continue into 2022. And that's - we're planning accordingly essentially..

Okay. And then my follow-up, you mentioned that you aspire to get to industry-leading adjusted EBITDA margins.

Is there a specific number or a range you can share with us on that metric?.

Yes. We started the year at 12%. 12% EBITDA margin, we felt was a good peer comp for public company peers in our space. And our goal and our financial planning, which will continue going forward, is to try to hit that industry-leading or category-leading EBITDA margin while investing in the business to drive future growth.

We upped it to 13% as we increased our EBITDA target in the last earnings call. And I think that's a very good range. We think that's a very competitive EBITDA margin. However, we do expect, as we continue to grow and get operating leverage over the coming years that that EBITDA margin should modestly creep up over time..

Got it. Okay. Thanks, guys..

Thanks, Drew..

The next question in the queue comes from Mark Argento from Lake Street. Your line is open. Please proceed..

Hey, Jorgen and John. Just a couple quick ones here. The incremental $100 million in non-console headset revenue you're again that you're thinking you could potentially achieve out 12 months.

Could you break that down a little bit for us in terms of the overall segments? Is it predominantly going to be PC accessories? Or do you think Mike and some of the other categories you've got into could actually move the needle as well?.

Hey, Jorgen and John. Just a couple quick ones here. The incremental $100 million in non-console headset revenue you're again that you're thinking you could potentially achieve out 12 months.

Could you break that down a little bit for us in terms of the overall segments? Is it predominantly going to be PC accessories? Or do you think Mike and some of the other categories you've got into could actually move the needle as well?.

Yeah. Good question. So the $100 million, again, is kind of a great testament to a strategy that's working well. We hadn't expected to have a shot at that goal next year already. But given that the PC category is going very well, we've expanded the portfolio. Consumers like the products, all of that.

I would expect the majority of that to be in the PC category. That category has also got a year, or two head start over the others. Mics are new. That portfolio will expand next year. Controllers and flight sim are also new with the first products, both essentially single products right now in each of those categories.

That portfolio will also grow in the coming years. So that will be the smaller part of it. But I will tell you that the controllers, we've increased our forecast for the year on controllers. We've increased the forecast for this year on Flight SIM, and I mentioned 15,000 e-mail notification sign-ups on flight sim.

It's just astounding, particularly given it's a $350 product, but it's a clear indication of a market that I think has continued to grow rapidly, especially when flight sim comes to Xbox as it recently has. And so those could be meaningful contributors next year..

That's super helpful color. I appreciate that. And then just more housekeeping, John, on the tax rate, you said you expect 20% for this year.

Do you anticipate is that kind of the new rate going forward? Or does that bump back up in 2022?.

Yes, at this point, I would expect it to bump back up to more to the 25% level here after this year..

Great. And then just one last one. In terms of the M&A strategy, it historically been more kind of tuck-in acquisitions and then organically grow, leverage the platform, your distribution.

Do you anticipate organ that's going to continue to be the strategy more tuck-ins? Or would you look to maybe do something a little more chunky if you could find a good target?.

I would say everything is fair game, Mark. If we can do things organically, we'll do it as we have with Flight SIM and controllers. We hired a team that has decades of experience in those product categories.

That's hard to find, though, and the ROCCAT acquisition, which I would for us would be more medium sized, I would say, versus just a small tuck-in to be already at the point where we've generated 7x the purchase price and revenues slightly over two years in is a pretty good indicator of our ability to buy well and then leverage the acquisition.

So we don't - we're not looking for really big stuff. If we can build a big business off the right team and smaller acquisition spend. But everything is fair game. And I will just - I'll reiterate a comment I made in prior calls, we're very selective. The team's got to be right, the culture has got to be right.

If they're existing products, they got to be good quality and have a good reputation and the economics have to be good and generate an attractive return for us to pursue any M&A..

Great. Thanks, guys. Congrats on a good quarter..

Great. Thanks, Mark..

And the next question comes from Tom Forte with D.A. Davidson. Your line is open. Please proceed..

Great. Thanks. Congrats on the quarter. Just two semi granular questions and one more high level. So I'll start with the two. So Juergen, can you talk about - when you talk about kind of the logistics inflation and how much of that is higher costs related to containers.

And then on that front, do you think it's transitory? Or do you think it's permanent? I apologize I sound like the said there.

And then the second is on the tip shortages or just the supply chain challenges, directionally, do you feel like it's gotten better or worse between the first quarter and the second quarter?.

Great. Tom, I'll address both of those. On freight, there are a variety of issues. First of all, China imports into the U.S. are up significant or Asian imports into the U.S. are up something like 30%. So that's already a strain on capacity of shipping of containers and of ports.

Second problem is that because ports are bottlenecked, ocean freighters are having to wait to get loaded and unloaded and those parts are occasionally getting shut down by COVID or at least facing reduced capacity for periods of time. So that creates a waiting period, something that used to take 6 weeks might now take 8 or 9 weeks.

That's an impact on everybody's business, by the way, because products don't get here as soon as you'd expect them. But that also ties up containers in essentially work in process inventory sitting on those ships waiting to get unloaded and reloaded. So those factors have driven in the last month or two, a rapid increase in the cost of containers.

That's a major, major factor. The second thing is that rail is also congested. So inland freight is highly congested at the point where rail yards are sometimes shutting down. So we're having like many other businesses to find other ways to get our containers into our warehouses. And we're doing that, but it's just more expensive.

So we've tried to factor these things into the second half forecast and the annual forecast. The situation is very dynamic. As usual, I believe we've got a team that is all over and operationally working - have been working for months already to find ways to mitigate expenses, to optimize inventory levels, all of that.

So we've held our EBITDA guidance, knowing also, by the way, that there could be some advantages to the extent that competitors stock out and we outperform in supply that could also drive a reduction in promotional levels and a positive, frankly, to EBITDA. That's on the freight sim and semiconductor..

Great. I've my follow-up..

Yes, semiconductors, Tom, have been relatively stable over the last months. We don't see it getting better right now. We are tracking to our expectations in terms of what we thought we would get - we're getting.

And we're continuing to exercise flexibility where we needed to actually swap out semiconductors, which is an engineering effort, by the way, in order to help assure continued supply....

Excel right. And then I know it may be early, but when we think about the new class of beamers that entered the market during the pandemic, are there any important observations on behaviors, purchases, thoughts that they might at the same way as historical faster rate than historical.

Just any high-level thoughts there?.

Sure. So, I know investors and analysts are always interested in our insights into the console gaming headset market, and we have done another survey like we do once a year to help, frankly inform our own business forecasting and planning.

As I mentioned briefly in the prepared remarks, the survey has shown high levels of gaming, including these new gamers who have entered. The only modification I would say, is that there's - they're more weighted towards entry-level products, which is not surprising. It's a little bit common sense.

But the interesting thing is - and we're seeing this, frankly, with high with the - our wireless products being 5 of the top 10 revenue-producing products in the United States, first half of the year, that indicates a very high level of upgrading into these better products.

And we think that the fact that these new gamers have come in at more entry level, it creates good future opportunities as well..

Great. Thank you, Juergen..

Thanks, Tom..

Thanks, Tom..

The next question in the queue comes from Jack Vander Aarde with Maxim Group. Your line is open. Please proceed..

Great. Congrats on the solid results, guys, yet again. Thanks for taking my questions. So Jorgen, just following up with the initial - that initial $100 million revenue target outside of your core console headset business.

I know if there's already a question on this, but it sounds like you're going to hit that, or you have a chance to hit that next year. So first, I'd just like to say congrats, that's impressive execution. My question is - and I'm sure there's multiple scenarios that could play out here.

But if you were to achieve that $100 million target by next year, what do you think is the most likely scenario that needs to play out? Like what is the ex factor? Is it a breakout performance from the sales of the new flight simulator and Xbox controller product or outperformance in your existing businesses or product lines? Or does it require like another new product launch that's yet to be announced? What are your thoughts there?.

Sure. So given how PC is tracking and our expectations for mics, controllers and flight sim, there's no major kind of breakthrough that would be needed to come near or over $100 million next year.

What we need really is for those categories to continue to grow and perform well as they have, particularly in PC, where we have a track record and the controllers and flights in to sell, I would say, to very reasonable forecasts.

We could, especially in flights and we could find ourselves surprised with even higher performance than we've got kind of roughly penciled in for next year..

Excellent. Okay. That's helpful. And then just a follow-up, if I could revisit your kind of long-term revenue growth target, your multiyear target plan. And separately, regardless of hitting that $100 million-plus non-console revenue, it doesn't matter where the revenues come from.

Just is there any update on your outlook for maybe initially for 2022 and then just also that long-term revenue target.

Do you remain confident you stick with that? How is that shaping up?.

Sure. So our long-term revenue growth goal is 10% to 20%. Through the end of 2020, we've delivered a 5-year revenue CAGR of 17%. So we're tracking like right in the sweet spot. Our EBITDA CAGR, by the way, for 5 years is over 90%. And - So we're doing very well on our goals. Historically, we're not going to provide an update on 2022 yet.

It's still too early, a lot to go in 2021, but we are certainly targeting to continue growth off of this year. And again, with years that will be higher and lower and all that, but to continue to be in that sweet spot of 10% to 20% revenue growth..

Yeah. That's a helpful historical context. That's good to hear. That's it for me. Thanks..

Thanks, Jack..

Yeah. Thanks..

Thank you. And the question is from Martin Yang with Oppenheimer. And your line is open. Please proceed..

Good afternoon, Juergen. Good afternoon, John.

My first question is, maybe can you maybe give us some more details on the investment in sales and marketing this year, particularly around how much OpEx increase will be associated with the new products, the rocket, the microphone and the new controllers?.

Sure, Martin. So we - the OpEx will be higher this year as we've stated in the remarks. The primary driver is the fact that the business is up 60% run rate over 2019. And while the business grew a lot last year, you just can't catch up. You can't get people in place.

You can't get infrastructure and resources and systems in place to handle a business that in 2 years has gone from $235 million in revenue to now tracking to $385 million. So that's the biggest driver.

- we don't break out, and frankly, it'd be very hard at this point to break out other than specific dedicated marketing expenses to any of the rest of our business between the core headset business and the new categories because everything is run in an integrated way. Sales is fully integrated.

Operations is fully integrated, much of engineering, leverages multiple organizations. And so again, other than specific targeted marketing campaigns, it's given that this kind of growth and investing as we go is just a core part of our normal operations business, we can't really break it out..

Yes, makes sense.

And maybe can you comment on which product category do you - or should we expect the most growth in your marketing or promotional activities?.

Again, it would be hard - I mean, in general, the PC category because that's got 3 categories, headsets, mice, keyboards, - It's a global business, including efforts we're putting in to growing that business, which is - which are going very well in some key countries in Asia.

So that would get the - of the new categories, that one would get the biggest share. But the way to think about it really is each product launch needs to have some marketing behind it. That's why also we had somewhat higher marketing spend than Q2 than we normally would. We've released a lot of new products.

So when a product releases, you got to provide marketing to communicate at the consumers and get the sales going. That's really going to be driven by the number of products in the portfolio that are launching at any given point in time, and everybody gets their fair share. On top of that, our investments to continue to drive the brand development.

So Turtle Beach brand gets some. That's well developed, Recon controller and the flights and we'll leverage that. Flight sim, we did under the Turtle Beach brand because it's going to work on Xbox, where very few quite simulation hardware actually work today. And we're a great Turtle Beach is one of the top brands in console.

ROCCAT brand is getting marketing investment, we'll continue to get investment to grow that brand and awareness of the brand as kind of the foundation under which - and we're on top of which we launched the new products.

And then Neat is its own brand, one happens to be pretty well known among musicians and pro audio, but that's a brand that will get some modest brand-building marketing, again, underneath the specific product launches..

Yes. Got it.

So I think in one of your early answers, you sort of alluded to a potential to scale that promotional spending if your competitors are seeing more severe shortages, is there any other potential drivers for margin this year where we can see a potential lift?.

Sure. So we're projecting the year to come in around 35%, so mid-30s, which is very much in our target range for gross margin.

The mid-30s, we've anticipated as well as we can, the incremental freight costs, which will be in those, there will be incremental costs but also the fact that Q1 the year started very strong for everybody and with less promotional spend than normal. So Q1 came in higher and with higher margins.

So when you average all that out, we're tracking right in our desired target band. My comment about Q4 was not - was related to the fact that we've seen in the past, last year, for example, when products start to be short of supply, everybody runs less promotions, and there is an incremental benefit to the promotional level.

We're not counting on that in Q4, but it certainly could happen depending on who's able to get what supply and the timing of that during Q4. So that's one of - that would add a be a positive incremental margin contributor to help offset what we believe will be higher freight costs..

Thank you. Last question for me.

Should we expect more entries into new product categories in 2022?.

Well, we're looking. But I feel very good about the PC category controllers we have been looking at for quite some time. We wanted to wait until after the new consoles launch, so you do launch a controller and find out it doesn't work on the new console. So we timed that very intentionally.

Flights came about literally from seeing the demo and understanding that, that was going to launch on Xbox, which means there's a whole new ecosystem and set of consumers that can use that platform.

Once you're in flight sim, by the way, and now that we've hired a team that has a lot of expertise in that category, racing simulation is a natural extension, same kind of products, same kind of connectivity, same types of manufacturers.

So we do see, as we continue to expand the portfolio in flight sim, there'll be more products coming the potential to add racing simulation, which by itself is another $600 million rapidly growing market opportunity. That would be a natural extension.

On top of that, we're looking - we continue to look at other categories that are adjacent to the ones we're in that use common retail, have common consumers and all that.

But I don't feel a pressing need right now to try to get us into additional categories, but that doesn't mean it may not happen if we have an opportunity coming in the next year or two..

No. Thank you for all answers. Congrats on good results..

Thanks, Martin..

Thank you..

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

Thank you very much. We hope everyone is staying safe and enjoying the summer months here. We look forward to speaking with our investors and our analysts, again, we report our Q3 in November. Have a great day, everyone. Thank you..

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