Q4 2021 Turtle Beach Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach fourth quarter and full year 2021 conference call.
Delivering today's prepared remarks are chairman and Chief Executive Officer, Juergen Stark Chief Financial Officer, John Hanson.
Following their prepared remarks, the management team will open the call up for questions.
Before we go for now I would like to turn the call over to Alex Thomson of Gateway Investor Relations Turtle Beach I adviser as he was the company's safe Harbor statement that provides important cautions regarding forward looking statements. Alex. Please go ahead.
Thank you.
Today's call, we'll be referring to the press release filed this afternoon that detailed the company's full year and fourth quarter of 2021 results, which can be downloaded from the Investor Relations page at Corp debt Turtle Beach Dot Com, where you'll also find the latest earnings presentation that double that 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.
Please be aware that some of the comments made during this call may include forward looking statements within the meaning of the federal security laws.
It's 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 are good cultural beach corporations results to differ materially from management's current.
Expectations in any forward looking statements made during this call.
While the company believes that its expectations are based upon reasonable assumptions there can be no assurances that its schools and strategy will be realized in numerous factors may affect actual results and may cause results to differ materially. So the company encourages you to review the Safe Harbor statement and risk factors contained in today's press release and in it.
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 is under no obligation to publicly.
Update or revise any forward looking statements. After this conference call.
The company also notes that on this call it will be discussing non-GAAP financial information. The company is providing that information as a supplement information prepared in accordance with the accounting principles generally accepted in the United States or GAAP you can find a reconciliation of these metrics with the Companys reported GAAP results in the reconciliation tables provide.
In today's earnings release and the presentation.
And now I'll turn the call over to Juergen Stark, the company's chairman and Chief Executive Officer Jurgen.
Good afternoon, everyone and thank you for joining us I'm pleased to discuss our strong full year and fourth quarter 2021 results and I'm, especially proud to announce that in 2020 . One we delivered the highest total revenues in the company's history. Following a record year in 2020.
We also delivered $36 6 million in adjusted EBITDA in line with our previously provided guidance range.
While we delivered another year of growth 2021, certainly had industry wide challenges semi conductor constraints limited our sales shipping times much longer and more unreliable than normal and airfreight costs hit over four times normal levels, the holiday period suffer from low.
Retail foot traffic disappointing AAA game video game releases.
And Xbox and Playstation Council availability constraints that impacted the council accessory market.
Our success despite the challenging operating environment is a testament to our team's hard work operational execution excellence and commitment to our brands and customers.
Our 2021 performance reinforces our belief that our diverse portfolio expert operational management and strong consumer demand for our products have us well positioned for future success.
We continue to believe that the gaming market remains the market to be in and we expect pent up consumer demand for the latest Xbox and Playstation consoles to result in strong hardware and peripheral sales over the next several years as supply constraints ease new games emerge and <unk>.
<unk> level up their gaming accessories.
Last year, our Turtle Beach console headset brand maintained our 40.
Our market share of 40% or more in the U S for the 12th consecutive year and per news U S. Consumer insights report Turtle Beach has the highest brand loyalty among active console gamers.
We're dedicated to ensuring our fans are happy not only with their product, but with their entire experience with us.
For U S NPD retail data.
Turtle Beach continued with many market leading headsets throughout 2021 in fact Turtle Beach headsets represented five of the top 10, best sellers and 11 of the top 20 best sellers in 2021 in terms of dollar sales are wireless stealth 600, Gen two and still.
700 Gen. Two headsets were Xbox is most popular headsets throughout the year as the first and second best selling Xbox headsets out on the list.
For Playstation our stealth 600 Gen. Two installed 700 Gen two products, where the second and third best selling headsets.
It is important to highlight that this was despite semi conductor constraints that limited our ability to sell these ultra popular Xbox and Playstation wireless headsets.
I'll cover more about our wireless Xbox and Playstation headsets in a moment.
In addition to best selling counsel headset, our first ever gaming controller, the recon controller for Xbox performed well and proved to be a strong entry into this new category for us.
Since being revealed the recount controller has gained multiple new placements at major retailers and has been met with great reviews of note. The recount controller for Xbox was recently named a best Xbox controller by IGN with a nine out of 10 review score and editors choice accolade.
In our new gaming simulation accessories category, we launched our velocity one flight simulation control system in November <unk>.
Its debut the velocity one flight has generated significant consumer demand and critical acclaim. In fact in November our preorder sold out in less than an hour globally and in under 15 minutes and key markets clearly, indicating that we have delivered a great first product into the flight simulation.
Category.
Given the strong start and positive community chatter, we expect this product to consumer continued to sell well in 2022 and onward.
We also continued significant progress across our rocket PC gaming accessories business in the fourth quarter, we unveiled the Arctic White version of rockets fan favorite Volkan TKL pro keyboard, adding yet another option to our award winning PC gaming keyboards series.
We launched a new family of sense mouse pads with various sizes shapes and textures. Additionally, we expanded our mobile gaming lineup by launching new wired gaming ear buds in Asia with plans to bring them into additional markets and add a wireless option in the future.
We also announced a new partnership with the popular online personality Gamer entrepreneur and business woman for the world renowned team Ninja brand Jessica Blevins.
In 2021, we launched 23, new rocket PC gaming accessories, and announced 12, new partnerships as we continue to broaden our PC portfolio and the rocket brand as a good metric of our progress we gained share in all core PC markets accessories markets outperforming.
The competition and again growing our PC business at a rapid rate.
The PC gaming accessories market for headsets keyboards, and mice has now grown to three $8 billion and we will continue our investments to capture an increasing share of that market.
We acquired neat microphones in January of 2021, which brought us a highly skilled team the team that built blue microphones before creating neat and gave us a great advantage in creating cutting edge microphones.
In 2021, we launched four new products under the <unk> brand in the fourth quarter, we launched needs sleek skyline USB conferencing microphone, which is great for working from home or in the office. We also launched needs flagship product the eagerly anticipated king be too.
XL louder microphone here at.
At the end of Q4, we added the bumblebee to USB microphone and worker B to XLR microphone to meet 2021 lineup.
These new products enable us to pursue the market for streamer and create our microphones that totals over $2 billion.
As I noted last quarter across all our product categories. We have also made targeted investments in geographic expansion, particularly in Japan, and Korea, where we have developed new distribution and retail relationships.
The investments in sales and marketing paid early dividends with year over year revenue growth in Asia of well over 100%.
Asia holds tremendous potential and I am encouraged by the excellent progress we've made there in 2021.
Next I'll turn it over to John to cover the financials in further detail after which I'll provide commentary on our outlook and the continued progress we're making in the new year John .
Hey, Thanks, Juergen and good afternoon, everyone. As Juergen noted we are pleased to report revenue of $366 4 million for 2021, the highest in the company's history compared to our previous record of $360 1 billion in 2020.
As we've discussed our 2021 revenue was actually constrained by limited wireless semiconductor components.
In 2021 gross margin was 35% compared to 37, 2% in 2020, which was due to the global increase in freight costs and more normalized holiday promotional activity compared to 2020.
Operating expenses in the full year 2021 were $108 million compared to $84 6 million in 2020. The increase was predominantly driven by the full year run rate of costs added during 2020 to support our more than 50% increase in revenues from the prior year.
A record number of new product launches geographic expansion and marketing investments to support those growth activities.
Our full year adjusted EBITDA was $36 6 million.
Compared to $61 4 million in 2020, which reflects the items I just covered.
Adjusted net income for the full year in 2021 was $20 2 million or $1 11 per diluted share compared to $36 3 million or $2 22 per diluted share in 2020.
Our effective tax rate for the full year was 12, 1%.
Full year 2021 cash used for operating activities was <unk> 3 million compared to cash generated totaling $51 million a year ago due to lower operating income and increased inventories driven by longer transit times and supply chain risk mitigation actions.
Turning to the balance sheet at December 31, 2021.
We had $37 $7 million of cash and cash equivalents with zero debt, including no borrowings on our revolving credit line.
Inventories at December 31, 2021 were $101 9 million compared to $71 3 million a year ago for the reasons I just noted.
As supply chain risks subside over time, we plan to reduce inventory levels.
The company also repurchased nearly $5 million in stock during 2021.
Looking at the fourth quarter of 2021, net revenue was $109 4 million compared to $132 9 million in the same period, a year ago like others in the gaming market, we were impacted by a slower holiday season, mostly due to disappointing AAA video game releases constraints on new Xbox and Playstation.
<unk> availability and weak retail traffic as we noted in our pre announcement back in January .
Revenue phasing was unusual in 2021 as the first half of the year benefited from the exceptionally strong sell through driven by stimulus checks and some continued lockdowns as well as significant channel replenishment in the first quarter.
Gross margin in the fourth quarter of 2021 was 32, 5% compared to 35, 8% in the year ago quarter. This decrease was mostly due to increased freight costs, a more normalized level of promotional activity during holiday and reduced operating leverage.
Operating expenses in the fourth quarter of 2021 were $29 3 million compared to $27 6 million in the 2020 period. The small year over year increase was due to the incremental product development investments in the new categories. We entered in 2021 and continued expansion of our PC accessories.
Folio.
In the fourth quarter of 2021, we reported adjusted EBITDA of $9 6 million versus $23 6 million in the year ago quarter. The year over year change was mainly driven by the reasons cited above.
Additionally, adjusted net income for the fourth quarter of 2021 was $2 8 million or <unk> 16 per diluted share compared to $14 8 million or 84 cents per diluted share in the corresponding period in 2020.
Now I will turn the call back over to Juergen for additional comments.
Oregon.
Thanks, John as.
As we said we're pleased with our 2021 results, which again demonstrated our ability to achieve strong operational execution in spite of challenging external circumstances like semiconductor shortages increased freight cost in shipping bottlenecks.
Our execution across our respective business categories allowed us to launch a record number of new products and deliver a 10% EBIT margin. Despite this backdrop had we been solely dependent on the performance of our leading counsel gaming headset business, we would not have achieved growth given that the counsel of gaming headset market.
<unk> declined mid single digits year over year.
Instead revenue growth in PC accessories, and successful entry into controllers flight simulation of microphones provided a top line benefit and enable growth following a record 2020.
Let's move now to our outlook for 2022.
For the full year 2022, we expect revenues to be approximately flat plus or minus 5% from our record 2021 revenues. The midpoint of this range reflects anticipated growth in sell through and share gains in all categories offset by reduction in channel inventory.
And the expectation that council and PC markets May decline somewhat from 2021, given the absence of stimulus checks and stay at home orders that drove an exceptionally strong first half in 2021.
The first quarter of 2022 is also impacted by slower channel replenishment as retailers bring post holiday inventories back to normal levels.
We expect quarterly revenue phasing to be more normal in 2022. Following several years of abnormal quarterly revenues driven by Lockdowns and other COVID-19 related impacts.
As we previously communicated shareholders and analysts should track our progress on an annualized basis versus individual quarters that said, we anticipate our quarterly revenue phasing in 2022 to be roughly 11% to 13% in Q1, 17% to 19% in Q2 and around 70.
Percent in the second half.
Next this year, we expect gross margins to be roughly 2% to 3% below our mid <unk> target range, which reflects a roughly 3% to 4% impact from higher freight and component costs as well as expected return to normal promotional levels for the full year, partially offset by <unk>.
<unk> higher costs into new product pricing.
While freight costs may come down somewhat we are assuming that they will remain well above normal pre pandemic levels.
We expect the timing of these items to focus margin pressure on the first half, particularly on the first quarter given high freight costs from late 2021, which flowed to the P&L early in the year as products move out of inventory and margins to normalize somewhat later in the year.
Year.
We expect our adjusted EBITDA margin to be within the range of 9% to 11% for the year inside or slightly below our target of 10% due to the factors I just discussed and we continue to maintain our long term target of mid 30 gross margins and an EBITDA margin that grows from 10%.
<unk>.
Net income per diluted share is expected to be within the range of 70 to $1 20 based on $17 5 million diluted shares for 2022.
We expect the gaming accessories market to produce good growth in the second half of the year as we anticipate a significantly stronger holiday season, a new lineup of AAA games, and easing Xbox and Playstation supply constraint complemented by the gaming industries continued underlying growth.
The gaming market is by far the largest and most expansive entertainment industry in the World and per news News January Global games market report the number of global gamers continues to grow and is expected to reach more than $3 billion by the end of 2022.
By extension this drives higher demand for quality gaming product on all platforms and across the seven product categories. We now compete in so with all signs, indicating that the gaming universe will continue to boom. We believe we are well positioned to capitalize on the opportunities ahead.
Since 2019, we have transformed from a market, leading counsel gaming headset business into a diversified gaming and creator accessories business with ample room for growth in a massive total addressable market of now $8 8 billion.
Here are our priorities for 2022 in that context.
<unk> continued to lead in console headsets, we continue to lead this category with more share than the next three competitors combined per U S. NPD data and we just announced the first set of a new wireless products are still 600 Gen. Two macs with new multiplatform capability.
<unk> and best in class 48, plus hour battery life. That's two full days you can game on the Max and to sell 600, Gen. Two USB, which keeps the six hundreds of attractive $100 MSRP and adds approximately 10 hours of battery over the earlier version.
We have more exciting products coming and our counsel category headset category this year.
Second continue to expand our PC gaming portfolio of headsets keyboards, and mice and grow our share in that $3 $8 billion category. We just launched the cone XP mouse, which redefines rockets fan favorite ergonomic design and best in class versatility 15 buttons assignable to.
<unk> 29 functions as well as ground breaking <unk> RGB lighting.
Use this mouse myself and it not only feels and works great. It looks stunningly cool.
We will continue expanding our rocket product portfolio with some more exciting products coming this year and you'll also see further expansion of our mobile gaming products portfolio.
Third on the list of our priorities is to drive growth in the gamepad controller gaming simulation accessories and microphone categories. We entered last year, we will continue to expand the portfolio of products in these new categories and together with the above PC portfolio, we expect to deliver roughly $100 million of revenue.
From these combined categories this year.
And fourth we will continue to identify and selectively pursue other growth opportunities our investments in expanding our business in Asia have gone very well and we will continue and.
And we will continue to look for organic growth and acquisition opportunities to expand our addressable markets and drive growth in line with our 10% to 20% annual growth target.
Of course, delivering on these priorities requires diligent operational and financial execution with a lean high talent team and tight collaboration with our external partners, which are always part of our day to day focus.
It's an exciting time to be a leader in providing high quality accessories for gamers across now seven product categories, we're coming off a record year with great momentum, while remaining disciplined and focused on delivering on our priorities for the continued benefit of all of our stakeholders.
Finally, as always and especially given our accomplishments throughout 2021 I want to extend my thanks to the entire Turtle Beach team. Their continued focused execution in diligence has allowed us to achieve record revenues, while innovating and delivering a record number of new products in challenging circumstances.
We are much more in store for 2022 and beyond and I'm excited to update you. All again following Q1. Thank you operator, we're now ready to take questions.
Thank you, Sir ladies and gentlemen, if you'd like to ask a question at this time you will need to Western Star then the one key on your Touchtone telephone.
No first question coming from the line of drew Crum with Stifel. Your line is open.
Thanks, Hey, guys good afternoon.
Youre going to wonder if you could provide more detail on how you see the console headset category performing in 2022.
Commentary suggests you are a share gainer with your business down mid single digits. If my Maths right and then I have a follow up.
Sure So we see.
The counsel headset market declining.
A bit this year so.
And thats driven by that very high first half of 2021 and in particular Q1 of last year I think counsel gaming headsets were up about 60% in Q1 2021 over 2020 in our Q1 was up 93%. So we performed really well in Q1 last year, including <unk>.
Refill and all that but so did the whole market.
And that really went through about half of Q2 of last year Lockdown stimulus checks all of that really drove an outsize first half by the way if we normalize for that kind of extraordinary impact last year.
Our forecast for the counsel of gaming headset market sell through would actually be up.
Lower mid single digits, right, but because of the outside first part of last year. Our forecast is actually a modest market decline for the year, our business will in terms of sell through our guidance anticipates an increase in sell through year over year, so growth for us in sell through.
And share gain.
Given the new products, we have announced and new products, we have coming in the fact that we won't have don't expect to have at least the the semi conductor constraints that we had last year as we've redesigned a number of products.
That's different than sales obviously sales are our revenues in that category are also just affected by channel inventory dynamics, including the fact that whenever Q4 is weaker than retailers expect.
Theres less channel replenishment in Q1 in particular as the as the retailers align their kind of post holiday holiday inventory levels.
Okay got it thanks, and then just on gross margin you mentioned.
A three to four percentage point hit from higher freight and component costs, but that would abate I think the language used was over time.
Can you clarify that and then also what is the headwind this year from more normalized promotional spending thanks sure.
Sure Yes.
Our estimate is theres about a 3% to 4% impact from higher freight and some component cost increases semiconductors in particular are more expensive, but there are inflationary pressures across many parts of the business like there are for everybody else.
We unlike others, we expect while freight costs may come down over time, and we expect them to come down somewhat this year, we don't expect them to go back to pre pandemic levels for quite some time. So we are continuing a very aggressive focus on.
Returning to a mid <unk> gross margin, which we expect to.
Be more in line with as we approach the back half of the year and certainly would target again for 2023 and beyond by finding other cost opportunities.
Cost reduction opportunities and we're also factoring higher costs across the board into our new product pricing. So as those products launch and become part of the financials. We do expect to return to back on track to our mid <unk> target overtime.
Got it okay. Thanks, guys.
Yeah.
Thanks, Joe.
Okay.
Our next question coming from the line of Mark Argento with Lake Street Capital markets. Your line is open.
Hey, John .
I just wanted to dig in a little bit on on operating expenses I know you guys kind of cranked up opex.
In 2021, the kind of position.
Positioning ourselves for continued growth obviously the market has not really given you guys the opportunity.
Yes at least on a council side grow maybe it was quicker than you anticipated.
And any thoughts on kind of a normalized opex Kelly going forward and how much of that Opex you guys have slated for.
And I've got a marketing and promotional activities until you have maybe changed a little bit given the environment.
Sure. So we did given the record number of product launches last year, our product marketing spend was.
Several million dollars higher than normal every product you launch no matter what category. It's in has a required amount or a prudent amount of product marketing that happens alongside of it we expect to continue to launch.
An expansion in the portfolio in multiple categories, but not at the same rate of 2022. So our 2021, sorry, so that will take the product marketing spend down.
Some single digit millions of dollars just just as we look at the product launches and of course brand marketing will continue across all the brands, but in a measured way as we were in 2021. So it's really the product specific marketing that will come down somewhat so and then opex overall there are.
Sherri pressures on all parts of the business, including Opex labor markets are tight.
And but despite that we expect the overall opex of the business to come down roughly $5 million for the year.
Alright Thats helpful.
Kind of a diluted.
A historical kind of targeted EBITDA margin range I mean, he does tie to a 9% to 11%.
10%, you guys are getting nine or 11%.
<unk> you know it gives us some decent cushion in terms of being able to reinvest into the business.
You know, what what's kind of a good reinvestment.
EBITDA margin versus if you are an adult lean things out a little bit.
Trying to chug generates more cash.
I think it I think it is a good balance with the 10%.
It's a couple of percent below where we'd like to be and that's that's all driven by the gross margin line.
Opex as I mentioned, we're going to make some reductions this year.
To stay kind of on track with with a roughly 10% EBITDA margin, but like any other business mark that we.
Our operation expenses include running all parts of our business, including the parts of our business that are growing and expanding.
And we do very carefully try to balance to produce a good level of profitability, 10% by the way it happens to be roughly aligned with Corsair, whose five times our size and should actually have a lot more operating leverage than we do but we run we run lean theres not a lot of companies in our.
Type of category that do more than $1 million of revenue per head and we're going to keep that level of financial discipline.
As we go through the year and in our future plans.
And then just.
Last question.
In regards to <unk>.
Conductor shortages in particular more on the console side.
<unk> ability of console hardware and where do you think.
Market is where do you think.
Sony and.
Microsoft are in terms of their ability to supply enough boxes of the market this year.
And maybe just kind of juxtapose that relative to your guidance.
Sure. So we don't have good visibility into that to be clear they are running their supply chains. They were highly constrained last year.
Disappointingly, so as particularly doing during holiday, but we we are assuming they're going to continue to make good progress. We obviously have to use some estimates when we do our our financial forecast and we're assuming that the supply constraints abate as we go through the year and we're hopeful that by the time Q4 wheels.
Around we expect better AAA game launches and hopefully much less constraint or no constraint on council supplies by that time and expect that to produce.
A significant amount of growth in Q4.
Great. That's helpful. Good luck the rest of the way I guess.
Thanks, Mark Thank you Mark.
And as a reminder, ladies and gentlemen, I would like to ask a question. Please press star one.
Our next question coming from the line of Jack Vander Ark with Maxim Group. Your line is open.
Great. Thanks, Thanks, guys for taking my questions.
Youre going to you you mentioned geographical expansion, and particularly Japan and Korea I believe.
Revenue is growing well over 100% there just in terms of your.
Revenue mix and we look forward any rough target can you provide what you expect Asia sales mix to represent the next year.
Overtime.
With something.
More quantified material numbers behind it.
I, probably won't set specific targets around that but I will reinforce the fact that that we have grown our international business quite a bit or percent of revenues outside of North America has gone from 73% of our business to 66 and Thats.
And that's really progress not just in Asia, and Asia is still somewhat small, but it is actually.
Approaching double digits, now and becoming more meaningful in the overall business. It's also just good progress in other European markets and.
We expect that to continue.
Okay, Great that's helpful.
And then I believe you estimated supply chain.
Why can't related constraints dragged on your 2021 revenue.
Approximately $25 million to $30 million or so.
And I think this is due to certain wireless chipset module in particular, you have an embedded estimate for what you expect.
There's certain supply chain issues.
On 2022 revenue is there any implied or embedded.
Impact there.
That's a great question and I'm glad you asked.
We don't expect to have semi any meaningful semi conductor supply constraints related to that issue for 2022, because we expanded a enormous amount of effort and resource.
At record speed last year to actually fully redesign.
Out of an around that most constrained specific semiconductor.
And Youre seeing the first of a set of new wireless products with the announcement, we just put out in the last couple of days in the new stealth 600 Gen. Two Max in USB.
Those products not only.
Work around that semi conductor constraint, but also deliver an improved value proposition, even with 48 hours of battery life on the Max and additional 10 hours.
Which is a significant increase by the way on the 600 USB and again there are more wireless products coming now and so we think barring a surprise on the new semiconductors. The new platforms. We expect to have successfully executed around that constrained now for 2022.
Okay. So that that is a obstacle or a challenge that is kind of completely.
Structurally removed from the equation now across all your product categories.
Here's that.
Well.
So we can't forecast semi what happens in the semiconductor industry overall, so I wouldn't make quite that blanket statement, but there was a very specific semiconductor that was the lion's share of the constraint last year that we have now worked around do we have orders in for the semiconductors, and we think we're going to need for the year.
<unk>.
Barring surprises on availability for those semiconductors, which could hit us or anybody at any time.
We have factored our supply in semiconductor.
Situations fully into our guidance for the year.
Okay.
And then just one more.
100 million target revenue non console headsets.
Is it fair to assume.
The bulk of this is.
Rocket related but is there a number there I mean is that like 80 plus percent is kind of what I was thinking.
Is there a fair number you're willing to talk about some of your flight stimulator in Europe .
Custom controllers.
You must be microphones.
The other stuff is the bulk of it rocket is that fair.
The majority of it is rocket I wouldn't say bulk of it is rocket we're not going to provide the specific breakdowns.
But suffice rocket has got a two year head start over the other categories right and so that's reflected in the number I will tell you that the other categories, particularly controllers and the flight Sim products, which launched during the year versus the microphones, which launched very late in the year.
We are off to a terrific start and contributed contributing materially to our 2022 guidance.
And of that 100 Milligan.
That's helpful. I appreciate the time.
Yes.
Thanks Jack.
Our next question coming from the line of Martin Yang from Oppenheimer. Your line is now open.
Hi, Good afternoon. Thank you for taking my question.
My first question is on your Opex, you again, where do you see reflecting on 2021, where do you see higher returns on investments.
On the new spending opex looking across the product development team.
Graphic expansion and some of the marketing wrong Influencers.
Sure if I understand your question correctly, let me first kind of re outline what John covered it in his prepared remarks.
The business grew from $234 million in 2019 235, roughly two three.
<unk> $360 million in 2020 when that happens.
Have to invest in people infrastructure resources, everything thats related to the size and scale of the business, but you can't do that.
Instantly in one fell swoop, so we added staff.
Resources facilities all of that throughout the company during the course of <unk>.
2020.
Those full year once you hit 2021 those costs then have.
I have a full year impact right. Many that were added late in the year for example.
The impact of full year in 2021, that's why I like the Opex goes up about 28% for the year, but only about six or 7% Q4 over Q4, because by the time you are in Q4, you've got kind of the full year, you've got the run rate in those resource adds already in.
So thats the biggest driver by far of the Opex increase just the scale of the business and then as we did in 2020 by the way we continued making investments in multiple parts of the business. We don't break those out the business is run fully integrated other than some very specific categories like product.
Marketing and and engineering staff for the new products. The rest of the business is run fully integrated and is scaled to accommodate the larger business, including the growth opportunities in new geographies and new product categories.
Got it. Thanks. The next question is on your thoughts on.
Your.
It seems like the second half.
Based on guidance, you're more comfortable with the growth on the second half this year.
Is there any gains or broader beauty trends you see that makes you more comfortable on the holiday performance this year.
Well there are two really important.
Adams in the quarterly phasing for the year. One is the exceptionally strong first half of 2021 stimulus checks.
Remaining lockdowns and things like that drove again drove counsel gaming headsets, if I remember right the market in general U S retail sell through up 60% year over year in Q1 right.
Alright, so and that a lot of that effect continued into Q2, So Q1 and Q2 for everybody.
He is not going to be a good comp year over year, because there is no stimulus checks were locked down as expected in the first half of this year. So that's a big driver of returning quarterly phasing more to a normal level, which we really haven't had for many years now because every years for the past few has had unusual dynamics the <unk>.
Thing is Q1 in particular also has a not a sell through impact, but a revenue impact.
This channel replenishment is lower as retailers get their post holiday inventory levels back to normal so all of that kind of affects the first half. The other important item is Q4 2021 was just not strong.
The PC counsel market, the PC accessories market, both declined double digits in Q4.
Game releases AAA game releases were weak lowest.
Review scores I think in multiple of those games franchise histories Council.
Supplies for Xbox and Playstation were constrained that has more of an impact on council, obviously and.
Then there were somewhat weaker foot traffic, particularly on Black Friday, which is a big driver of gaming accessory sales that day in particular, so big.
Because of that we expect by the time, we hit Q4 this year.
Game AAA titles will hopefully do a much better job with a set of new launches.
Hopefully Xbox and Playstation will work out of their supply chain constraints.
And and those two items alone, we think give us confidence in in a much stronger Q4 for the year.
Got it thank you.
And as a reminder to ask a question. Please press star one.
Okay.
Carl.
And we have a follow up question coming from the line of Martin Yang from Oppenheimer. Your line is open.
Just a quick question on your comments.
Finding a company as part of the crater accessories business.
Does that indicate anything on your long haul business do you think that you will explore more new products outside of the conventional keyboard.
The mouse accessories.
Yes, great Great question. So obviously.
The primary product portfolio, that's now new for us are the need microphones.
Those are.
Major tools for creators and streamers.
And that's why we've added that terminology because that that's not just gaming market that has its own kind of adjacent market that Mike.
<unk> market.
Overall is actually about $2 3 billion.
Obviously gaming accessories, PC gaming accessories up lots of uses that people want highly functional mice with lots of buttons and things like that but the primary driver for my use of that language is the new need Mike portfolio that just launched.
Got it thanks, and I didn't answer one part which is yes, given that we now have the startup of portfolio in this creator segment, that's certainly on the radar.
Streamer creators and gamers or lots of overlap and synergies between those markets. So that definitely is on our radar to look at for expanding portfolio and growth opportunities.
Yeah makes sense. Thanks.
Okay.
Your line is concludes our question and answer session I would now like to turn the call back over to Mr. Stark for closing remarks.
Alright. Thank you very much everybody. We're excited to be operating in 2022 with great momentum and look forward to speaking again on our Q1 call. This spring thanks, very much and have a great day.
Ladies and gentlemen. This concludes today's teleconference. You may now disconnect your lines at this time.
You for your participation.
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