Q2 2024 Turtle Beach Corp Earnings Call
Operator: Good day, ladies and gentlemen. Thank you for standing by.
Good day, ladies and gentlemen, thank you for standing by welcome to the Turtle Beach second quarter 2024 conference call. At this time, all participants are in listen only mode.
Operator: Welcome to the Turtle Beach second quarter 2024 conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the prepared remarks presentation. As a reminder, the conference is being recorded. I'll now turn the call over to Jogs Cornett from the Investor Relations Team. Jogs, you may begin.
Question and answer session will follow the prepared remarks presentation. As a reminder, the conference is being recorded.
Charles: I'll turn the call over to jobs Cornett from Investor Relations team Charles you may begin.
Jogs Cornett: Thank you, operator. On today's call, refer to the press release filed this afternoon that details the company's second quarter 2024 results, which is available on the Investor Relations page at www.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 events and presentations section of the company's website later today.
Charles: Thank you operator.
Speaker Change: Today's call it will be.
Speaker Change: Turning to the press release filed this afternoon that details the company's second quarter 2024 results, which is available on the Investor Relations page.
Speaker Change: Www Dot Turtle Beach dotcom.
Speaker Change: Are you also find the latest earnings presentation supplements the information discussed on today's call.
Speaker Change: Finally, a recording of the call will be available on the events and presentation. Our presentation section of the company's website later today.
Jogs Cornett: 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 its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially.
Speaker Change: 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.
Speaker Change: Could believe expect anticipate similar expressions constitute forward looking statements.
Speaker Change: These statements involve risks and uncertainties regarding the company's operations and future results that could cause turtle beach corporations results to differ materially from management's current expectations.
Speaker Change: The company believes that its expectations are based upon reasonable assumptions numerous factors may affect actual results and may cause results to differ materially. So the company encourage you to refer to review the safe Harbor statements and risk factors.
Jogs Cornett: So the company encourages 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.
Speaker Change: Contained in todays press release.
Speaker Change: And in its filings with the Securities and Exchange Commission.
Speaker Change: Including without limitation its annual report on Form 10-K.
Speaker Change: 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.
Speaker Change: Company does not undertake to publicly update or revise any forward looking statements. After this conference call.
Jogs Cornett: The company also notes that on this call it will be discussing non-GAAP financial information. It is providing that information as a supplement to financial information. Paired in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported gap results in the reconciliation tables provided in today's earnings release and presentation. Hosting the call today are Chris Kern, Chief Executive Officer, and John Hanson, Chief Financial Officer. With that, I'll turn the call over to Chris.
Speaker Change: Company also notes that on this call it will be discussing non-GAAP financial information.
Speaker Change: The company is providing that information as a supplement to information.
Speaker Change: And in accordance with accounting principles generally accepted in the United States or GAAP.
Speaker Change: You can find a reconciliation of these metrics the company's reported GAAP results in the reconciliation tables provided.
Speaker Change: In today's earnings release and presentation.
Chris <unk>: Hosting the call today are Chris <unk>, Chief Executive Officer, and John Hanson, Chief Financial Officer.
Speaker Change: With that I'll turn the call over to Chris.
Speaker Change: Chris.
Chris Kern: Thanks, Jacques. Good afternoon, everyone.
Chris: Thanks, Jack and good afternoon, everyone and welcome to our second quarter 2024 earnings call.
Chris Kern: And welcome to our second quarter 2024 earnings call. Before we get into the financial results, I'd like to take a moment to acknowledge an important milestone. You've all seen the announcement today that our esteemed Chief Financial Officer, John Hanson, has informed us of his intent to retire.
Speaker Change: Before we get into the financial results I'd like to take a moment to acknowledge an important milestone you've all seen the announcement today that our esteemed chief financial Officer, John Hanson.
Speaker Change: Has informed us of his intent to retire John has been an integral part of our leadership team and his contributions have been invaluable to our success.
Chris Kern: John has been an integral part of our leadership team, and his contributions have been invaluable to our success. I personally have enjoyed a tremendous partnership with John, and we wish him all the best in retirement. Turning to results, I'm pleased to share that the continued momentum in our business drove very strong second quarter results that reflect the ongoing success of our portfolio and cost optimization initiatives combined with our transformational acquisition of PDP.
Speaker Change: I personally have enjoyed a tremendous partnership with John and we wish him all the best in retirement.
Speaker Change: Turning to results I'm pleased to share that the continued momentum in our business drove very strong second quarter results that reflect the ongoing success of our portfolio and cost optimization initiatives combined with our transformational acquisition of PDP.
Chris Kern: As a newly combined company, we are in the early stages of gaining scale and diversification advantages that will enable us to expand our leadership position across categories. Our unwavering commitment to innovation, world-class execution, and sustained growth sets us apart in a highly competitive gaming accessories market. Our Q2 results reflect this commitment. Robust revenue growth for the quarter was driven by higher demand for our leading products, even as we reduced promotional spending as planned. To that end, second quarter revenue was $76.5 million, up roughly 59% year-over-year, which included our first full quarter of PDP contributions. Even excluding PDP contributions, revenues were up 15% compared to last year.
Speaker Change: As a newly combined company we are in the early stages of gaining scale and diversification advantages that enable us to expand our leadership position across categories. Our unwavering commitment to innovation world class execution and sustained growth sets us apart in a highly competitive gaming accessories market.
Speaker Change: Our Q2 results reflect this commitment.
Speaker Change: Robust revenue growth for the quarter was driven by higher demand for our leading products, even as we reduced promotional spending as planned.
Speaker Change: To that end second quarter revenue was $76 5 million up roughly 59% year over year, which included our first full quarter of PDP contribution.
Speaker Change: Even excluding PDP contributions revenues were up 15% compared to last year.
Chris Kern: Turning to the performance of the gaming markets driving revenue growth, we see that gaming accessory markets have outperformed the low single-digit growth for the overall U.S. gaming industry so far in 2024. According to Sukana, the overall U.S. gaming accessory market value is up approximately 5% for the first half of 2024 compared to the first half of 2023. U.S. gaming headsets and third-party controller markets are exceeding overall accessory growth year-to-date, up approximately 12% and 15%, respectively. We believe this growth is due to the start of pandemic-era replacements along with upgrade purchases for new models and features.
Speaker Change: Turning to the performance of the gaming markets driving the revenue growth, we see that gaming accessory market has outperformed the low single digit growth for the overall U S gaming industry, so far in 2024.
Speaker Change: According to the second of the overall U S gaming accessories market value is up approximately 5% for the first half of 2024 compared to the first half of 2023.
Speaker Change: U S gaming headsets and third party controller markets are exceeding overall accessory growth year to date up approximately 12% and 15% respectively.
Speaker Change: We believe this growth is due to the start of pandemic era replacements, along with upgrade purchases for new models and features we expect both factors to drive continued gaming accessories growth in the foreseeable future.
Chris Kern: We expect both factors to drive continued gaming accessory growth in the foreseeable future. As a leader in these categories, we continue to contribute to driving market growth with our newly launched wireless headsets, premium controllers, and PC peripherals across Turtle Beach and PDP. For example, in their first full month of sales after launch, the Turtle Beach Stealth 500 for Xbox and the Stealth 600 Gen 3 for Xbox were the number two and number four best-selling headsets in the U.S. for June.
Speaker Change: As a leader in these categories, we continued to contribute to driving market growth with our newly launched wireless headsets premium controllers, and PC peripherals across turtle Beach and PDP.
Speaker Change: For example in their first full month of sales after launch the Turtle Beach store 500 for Xbox and there's still 600 gentry for Xbox We're the number two and number four bestselling headsets in the U S for June.
Chris Kern: Both new models have received an abundance of praise from fans and reviewers alike, with each named as the best wireless gaming headset by IGN and other notable gaming industry and tech review publications. We also debuted the highly lauded Atlas Air as the industry's first wireless open back gaming headset, which IGN gave a 9 out of 10 review score and added to their best gaming headsets for PC list, calling it one of the most unique headsets out there.
Speaker Change: Those new models have received an abundance appraised for fans and reviewers alike with each named US best wireless gaming headsets by IGN and other notable games industry and Tech review publications. We also debuted the highly loaded Atlas Air is the industry's first wireless opened back gaming headset, which IGN gave a nine out of.
Speaker Change: 10 review score and added to their best gaming headsets for <unk>, calling it one of the most unique headsets out there.
Chris Kern: Additionally, PDP's Riffmaster wireless guitar controller launched in April, coinciding with EPIC's Fortnite Festival Season 3 instrument compatibility update and has quickly become the industry's best-selling music controller in the U.S., as reported by SIRCANA. In May, we also introduced a full line of Turtle Beach-branded PC gaming gear, furthering our reach into the massive $3.9 billion PC peripherals market. Our latest PC products introduce groundbreaking features in their respective categories and are headlined by the highly responsive and customizable Vulkan 2 TKL Pro keyboard, the incredibly lightweight Burst 2 Air Mouse, and our ergonomic masterpiece Kone 2 Mice.
Speaker Change: Additionally, pdp's riff master wireless guitar controller lots in April.
Speaker Change: Coinciding with Epic's Fortnite festival season, three instrument compatibility update and has quickly become the industry's best selling music controller in the U S as reported by <unk>.
Speaker Change: In May we also introduced a full line of Turtle Beach brand at PC gaming gear furthering our reach into the massive $3 $9 billion PC peripherals market. Our latest PC products introduce groundbreaking features in their respective categories and are headlined by the highly responsive and customizable Vulcan to TKL pro keyboard incredibly lightweight <unk>.
Speaker Change: Two are mouse and our ergonomic masterpiece cone to mice.
Chris Kern: We continue to make excellent progress in operational efficiencies across all aspects of our business, as we delivered substantially improved profitability in the quarter, including a significant 540 basis point gross margin expansion compared to the same quarter last year. Adjusted EBITDA was $3 million during the quarter, an improvement of $8.7 million compared to the same quarter last year. With our enhanced profitability in the first half of the year, we are raising our full year 2024 adjusted EBITDA guidance to a range of $53 to $56 million.
Speaker Change: We continue to make excellent progress in operational efficiencies across all aspects of our business as we delivered substantially improved profitability in the quarter, including a significant 540 basis point gross margin expansion compared to the same quarter in 2023.
Speaker Change: Adjusted EBITDA was $3 million during the quarter.
Speaker Change: An improvement of $8 7 million compared to the same quarter last year.
John Hanson: With our enhanced profitability in the first half of the year, we are raising our full year 2024, adjusted EBITDA guidance to a range of 53 to 56 million John.
Chris Kern: John will provide additional details on our financial results. Since acquiring PDP in March, we've made rapid progress on integration, which we are continuing to execute ahead of schedule. Feedback from retail customers and other industry partners on the high potential for our combined company has been overwhelmingly positive, and we're already realizing synergies and expanding market opportunities.
John Hanson: John will provide additional details on our financial results.
John Hanson: Since acquiring PDP in March we've made rapid progress on integration, which we are continuing to execute ahead of schedule feedback from retail customers and other industry partners of the high potential for our combined company.
John Hanson: Been overwhelmingly positive and we're already realizing synergies and expanding market opportunities. In addition to the clear benefits from our PDP acquisition. We are continuing to drive margin expansion from our previously communicated initiatives of SKU rationalization portfolio optimization optimization and our platform next generation product launches.
John Hanson: In addition to the clear benefits from our PDP acquisition, we are continuing to drive margin expansion from our previously communicated initiatives of SKU rationalization, portfolio optimization, and our platformed next generation product launch. These improvements have all accelerated our ability to generate strong cash flow from operations. Given the strength of the balance sheet, our outlook, and our view that our share price offers compelling value, we repurchased approximately $15 million of our stock during the second quarter.
John Hanson: These improvements.
John Hanson: <unk> have all accelerated our ability to generate strong cash flow from operations.
John Hanson: Given the strength of the balance sheet, our outlook and our view that our share price offers a compelling value.
John Hanson: Purchased approximately $15 million of our stock during the second quarter.
John Hanson: This is the largest repurchase in our history and underscores both our confidence in Turtle Beach's trajectory and our commitment to enhancing shareholder value. We believe in our vision, and we are putting our resources behind it. John will now take us through the financials in more detail.
Speaker Change: This is the largest repurchase in our history and understand underscores both our confidence and turtle beach's trajectory and our commitment to enhancing shareholder value. We believe in our vision and we are putting our resources behind it.
John Hanson: John will now take us through the financials in more detail John.
John Hanson: Hey, Thanks, Chris and good afternoon to everyone.
John Hanson: Hey, before I begin with the financials, let me say how enjoyable it has been for the last 11 years to have the pleasure of being part of the Turtle Beach team as we build a world-class company. I'm incredibly thankful to the thousands of employees, customers, and shareholders who helped make this company the success that it is today, and, a very special thing, to my co-executive officers and Chris, as well as our entire global leadership team and board.
John Hanson: Before I begin with the financials, let me say how enjoyable. It has been for the last 11 years to have the pleasure of being part of the Turtle Beach team as we built a world class company.
John Hanson: I'm incredibly thankful to the thousands of employees customers and shareholders, who help make this company the success that it is today.
John Hanson: A very special thanks.
John Hanson: My co executive officers and Chris.
John Hanson: As well as our entire global leadership team and board.
John Hanson: The partnership we have developed has been extraordinary. As evident in our results, the organization is executing very well, and it is an opportune time for me to transition to this next phase. Now, onto the quarter.
John Hanson: Partnership we have developed has been.
John Hanson: Extraordinary.
Speaker Change: As evident in our results the organization is executing very well and it is an opportune time for me to transition to this next phase.
John Hanson: Now onto the quarter, we go as Chris mentioned revenue in the second quarter grew 59% year over year to $76 $5 million.
John Hanson: As Chris mentioned, revenue in the second quarter grew 59% year-over-year to $76.5 million. As a reminder, the second quarter is the very first full year or full quarter with PDP results. The 59% increase in revenue was primarily driven by PDP, and our non-PDP revenue grew a very healthy 15% year over year. The organic non-PDP growth was driven by increased sales of our controller and headset products. As a reminder, in the first quarter, headset revenue was down year over year as we deliberately reduced channel inventory levels ahead of the launch of our new wireless headsets and rebranded PC accessories.
Speaker Change: As a reminder, the second quarter is the very first full year, a full quarter with PDP results that 59% increase in revenue was primarily driven by PDP and our non PDP revenue grew a very healthy 15% year over year.
Speaker Change: The organic non PDP growth was driven by increased sales of our controller and headset products.
Speaker Change: As a reminder, in the first quarter headset revenue was down year over year as we deliberately reduced channel inventory levels ahead of the launch of our new wireless headsets and rebranded PC accessories in.
John Hanson: In Q2, that trend turned as we anticipated, and we experienced a positive impact from the launch of these products. Gross margin in the second quarter was 30.2%, compared to 24.7% last year. That equates to a 540 basis point improvement. The margin improvement is being driven by lower product costs from our product platforming and optimization initiatives, lower freight costs, and more efficient promotional spend. As we stated on the last earnings call, we expect to begin realizing lower product costs with the launch of the new wireless products and PC accessories rebranding in Q2.
Speaker Change: In Q2 that trend turn as we anticipated and we experienced a positive impact from the launch of these products.
Speaker Change: Gross margin in the second quarter was 32% compared to 24, 7% last year.
Speaker Change: That equates to a 540 basis point improvement the margin improvement is being driven by lower product cost from our product platforming and optimization initiatives lower freight costs and more efficient promotional spend as we stated on our last earnings call. We expect to begin.
Speaker Change: Realizing lower product costs with the launch of the new wireless products and PC accessories rebranding in Q2.
John Hanson: This improvement in margins is expected to continue going forward as the mix shifts to the new product. Operating expenses in the second quarter were $27.2 million compared to $27.7 million a year ago. This year, the quarter included $1.4 million in costs related to the PDP acquisition. Excluding these non-recurring acquisition-related costs, second quarter operating expenses declined approximately 7% year over year.
Speaker Change: This improvement in margins is expected to continue going forward as the mix shifts to the new products.
Speaker Change: Operating expenses in the second quarter were $27 2 million compared to $27 7 million a year ago. This year the quarter included $1 4 million in costs related to the PDP acquisition.
Speaker Change: Excluding these nonrecurring acquisition related costs second quarter operating expenses declined approximately 7% year over year on.
John Hanson: On a relative basis, operating expenses, excluding acquisition-related and non-recurring costs, were approximately 33% of revenue, which is an improvement from 49% in the prior year. This change is primarily driven by our ongoing proactive efforts to achieve a better balance between revenue-enhancing initiatives and our expense management goals. The result of higher revenues combined with greater efficiencies on costs and expenses is that second quarter adjusted EBITDA improved by $8.7 million to a positive $3 million versus an adjusted EBITDA loss of $5.7 million in the year-ago period.
Speaker Change: On a relative basis operating expenses, excluding the acquisition related and nonrecurring costs were approximately 33% of revenue, which is an improvement from 49% in the prior year.
Speaker Change: This change is primarily driven by our ongoing proactive efforts to achieve a better balance between revenue enhancing initiatives with our expense management goals.
Speaker Change: The result of higher revenues combined with greater efficiencies on cost and expenses.
Speaker Change: Is that second quarter, adjusted EBITDA improved by $8 7 million to a positive $3 million versus an adjusted EBITDA loss of $5 7 million in the year ago period.
John Hanson: On an LTM basis, adjusted EBITDA is approximately $20 million. Turning to the balance sheet, at quarter end, we had net debt of $61.2 million, comprised of $73.6 million of outstanding debt and $12.5 million of cash. The debt balance is comprised of $24 million outstanding under our revolving credit line and $49.6 million outstanding on the term loan we used for the PDP acquisition. Inventories at quarter end were $73.3 million compared to $67.8 million a year ago. PDP added $23.8 million to inventory, and this addition was partially offset by our continued reduction initiatives in non-PDP product inventories.
Speaker Change: On an LTM basis, adjusted EBITDA is approximately $20 million.
Speaker Change: Turning to the balance sheet at quarter end, we had net debt of $61 2 million comprised of $73 6 million of outstanding debt and $12 5 million of cash the debt balances comprised of $24 million outstanding under our revolving credit line and $49 6 million outstanding on the.
Speaker Change: Term loan we used for the PDP acquisition.
Speaker Change: Inventories at quarter end were $73 3 million compared to $67 8 million a year ago PDP added $23 8 million to inventory and this addition was partially offset by our continued reduction initiatives and non PDP product inventory.
Operator: Good day ladies and gentlemen, thank you for standing by.
Operator: Welcome to the Turtle Beach second quarter of 2024 Carfin's call. At this time, all participants are in listen only mode.
Operator: A question and answer session will follow the prepared remarks presentation. As a reminder, the conference has been recorded.
Chuck Cornette: I'll now turn the call over to Drugs Cornette from investor relations team Drugs, you may begin. Thank you operator. On today's call, we'll be referring to the press release file this afternoon, the details of the company's second quarter, 2024 results, which is available on the investor relations page at www.turtlebeach.com where you'll also find the latest earnings presentation. It supplements the information discussed on today's call. Finally, a recording of the call will be available on the events and presentation section of the company's website later today.
John Hanson: As Chris touched on, during the quarter, we repurchased approximately $15.2 million of our shares. This was the largest repurchase of our shares we've made in our history. We bought just shy of 1 million shares at an average price of $15.97 per share.
Speaker Change: As Chris touched on during the quarter, we repurchased approximately $15 2 million of our shares. This was the largest repurchase of our shares we've made in our history.
Chris <unk>: We bought just shy of 1 million shares at an average price of $15 97 per share looking.
John Hanson: Looking forward, as the business continues to generate cash, the Board is focused on evaluating all options for redeploying capital, including additional share repurchases. As we always have, we will continue to invest in our existing business and in our new business. In addition, we remain committed to returning excess cash to shareholders through share repurchase. To that end, to provide additional flexibility for repurchases going forward, we have successfully negotiated amendments to our credit agreements that allow for the establishment and implementation of a Rule 10b-5-1 plan. This plan provides us with a formulaic share repurchase option.
Speaker Change: Looking forward as the business continues to generate cash the board is focused on evaluating all options for redeploying capital, including additional share repurchases as we always have we will continue to invest in our existing business.
Speaker Change: And our existing business. In addition, we remain committed to returning excess cash to shareholders through share repurchases to.
Unknown Executive: 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 and statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding the company's operations, future results that could cause turtle beach corporations results to differ materially from management's current expectations. While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially, so the company encourages you to review the safe harbor statements and risk factors contained in today's press release.
Speaker Change: To that end to provide additional flexibility for repurchases going forward. We have successfully negotiated amendments to our credit agreements that allow for the establishment and implementation of a rule <unk> one plan.
Speaker Change: This plan provides us with a formulaic share repurchase option.
John Hanson: Lastly, over the long term, we also believe that the right acquisitions remain a component of our capital allocation strategy, as long as they make sense strategically and are immediately accretive to earnings and generate value for our shareholders. Now, turning to guidance, we continue to expect full-year revenue to be between $370 million and $380 million, which equates to 45% growth compared to 2023. With a strong first half of the year behind us and the PDP integration underway, we are raising our full-year adjusted EBITDA guidance for 2024.
Speaker Change: Lastly over the long term, we also believe that the right acquisitions remain a component of our capital allocation strategy.
Speaker Change: As long as they make sense strategically and are immediately accretive to earnings and generate value for our shareholders.
Speaker Change: Now turning to guidance, we continue to expect full year revenue to be between $370 million and $380 million.
Speaker Change: Which equates to a 45% growth compared to 2023.
Unknown Executive: And in its filings with the Securities and Exchange Commission, including without limitation, its annual report on form 10K 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.
Speaker Change: With a strong first half of the year behind us and the PDP integration underway, we are raising our full year adjusted EBITDA guidance for 2024.
John Hanson: We expect full-year adjusted EBITDA to be between $53 million and $56 million, which increases the midpoint to $54.5 million, up $2 million from our prior guidance. As a reminder, our 2024 guidance includes contributions from PDP beginning on March 13, 2024, when we closed the transaction, and now I'll turn the call back over to Chris for additional comments.
Speaker Change: We expect full year, adjusted EBITDA to be between $53 million and $56 million, which increases the midpoint to $54 5 million up $2 million from our prior guidance.
Unknown Executive: The company does not undertake to publicly update or revise any forward looking statements after this conference call.
Speaker Change: As a reminder, our 2024 guidance includes contributions from PDP beginning on March 13th 2024, when we closed the transaction.
Unknown Executive: The company also notes that on this call, it will be discussing non-gap financial information. The company is providing that information as a supplement information, paired in accordance with accounting principles generally accepted in the United States or a gap. You can find a reconciliation of these metrics to the company's reported gap results and the reconciliation tables provided in today's earnings release and presentation.
Speaker Change: And now I will turn the call back over to Chris for additional comments Chris.
Chris Kern: Thanks, John. In summary, we're pleased with our strategic progress and results for the first half of the year and remain optimistic that we will continue to realize additional benefits and synergies with our recently combined teams. We continue to prioritize value creation for our shareholders and best-in-class products for gamers everywhere. Looking ahead, we're excited about our upcoming product launches, continued gains and strategic advantages from the PDP integration, and our ongoing efforts to maximize profitability and cash flow.
Chris <unk>: In summary, we're pleased with our strategic progress and results for the first half of the year and remain optimistic that we will continue to realize additional benefits and synergies with our recently combined teams, we continue to prioritize value creation for our shareholders and best in class products for gamers everywhere.
Speaker Change: <unk> ahead, we're excited about our upcoming product launches continued gains in strategic advantages from the PDP integration and our ongoing efforts to maximize profitability and cash flow.
Chuck Cornette: Posting the call today, the Chris Kern, Chief Executive Officer, John Hansen, Chief Financial Officer, with that, I'll turn the call over to Chris. Chris? Thanks, Chuck.
Chris Kern: I want to express my gratitude to our amazing team members who work tirelessly to achieve our strategic goals. We've had a great first half of the year, and the hard work and passion of every member of our team is instrumental in our success. And to our investors, thank you once again for your trust and support. With that, Operator, we can open the line for questions. Thank you.
Speaker Change: I want to express my gratitude to our amazing team members, who work tirelessly to achieve our strategic goals.
Chris Kern: Good afternoon, everyone, and welcome to our second quarter, 2024 earnings call. Before we get into the financial results, I'd like to take a moment to acknowledge an important milestone. You've all seen the announcement today that our esteemed Chief Financial Officer, John Hansen, has informed us of his intent to retire. John has been an integral part of our leadership team and his contributions have been invaluable to our success. I personally have enjoyed a tremendous partnership with John and we wish him all the best in retirement.
Speaker Change: We've had a great first half of the year and the hard work and passion of every one of our team is instrumental in our success and to our investors. Thank you once again for your trust and support.
Speaker Change: With that operator, we can open the line for questions.
Operator: Thank you. At this time, we will conduct the question and answer session. To ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Sean McGowan of Roth. Your line is now open.
Speaker Change: Thank you at this time, we will conduct a question and answer session to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Chris Kern: Turning to results, I'm pleased to share that the continued momentum in our business draw very strong second quarter results that reflect the ongoing success of our portfolio and cost optimization initiatives combined with our transformational acquisition of PDP. As a newly combined company, we are in the early stages of gaining scale and diversification advantages. This is the enable us to expand our leadership position across categories, our unwavering commitment to innovation, road class execution, and sustained growth sets us apart in a highly competitive gaming accessories market.
Sean McGowan: Thank you, thanks everyone. Before I get to the questions, I just wanted to say John, it's been an absolute pleasure to work with you in multiple capacities over the years, and while I'm starting to see you go, I'll be happy to see you whistling with the pig. So congratulations. Thanks, Sean. A couple of questions. Would you say, Chris, that the retail inventory now is balanced, or could we see some additional inventory, kind of restocking flowing into the third quarter as well?
Speaker Change: Our first question comes from the line of Sean Mcgowan of Ross. Your line is now open.
Sean McGowan: Thank you.
Speaker Change: John.
Speaker Change: Before I get to the questions I just wanted to say John has been an absolute pleasure working with you in multiple capacities over the years on while I'm sorry to see him go I'll be happy to see you whistling with the pigs.
Speaker Change: Congrats.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: A couple of weeks.
Speaker Change: Thanks, John couple of questions.
Chris Kern: Our Q2 results reflect this commitment robust revenue growth of the quarter was driven by higher demand for our leading products, even as we reduced promotional spending as planned. To that end, second quarter revenue was 76.5 million, up roughly 59% year of a year, which included our first full quarter of PDP contribution. Even excluding PDP contributions, revenues were up 15% compared the last year. Turning to the performance of the gaming markets, driving the revenue growth, we see that gaming accessory markets have outperformed the low single-digit growth for the overall US gaming industry so far in 2024.
Speaker Change: Yes.
Speaker Change: Did you say, Chris would you say that the retail inventory now is balanced or could we see some additional inventory kind of restock.
Speaker Change: Flowing into the third quarter as well.
Chris Kern: Yeah, great, great question, Sean. We see what you did there, by the way. Great, great comment for John.
Shaun: Yes, great Great question, Shaun we see what you did there by the way great great comment for Jon.
Speaker Change: The retail channel right now is really.
Speaker Change: It really healthy shape.
Speaker Change: We've had the transitions in Q2, where we pretty much during the channel and then reloaded at within the wireless and the new PC products.
Chris Kern: So yeah, the retail channel right now is in really good shape. You know, it's there. We had the transitions in Q2, you know, where we pretty much strained the channel and then reloaded it with wireless and the new PC products. We're pleased with how our Riftmaster inventory is looking in the channel. That's coming back up. So it's really balanced right now out there at retail globally. So, you know, we're through sort of all of the unwinding that we've had over the past few years and some of the pandemic impact. So I think that when we think about channel inventory, we feel like it's at the right level right now and that retailers are feeling good about the levels that they're carrying.
Speaker Change: We're pleased with how our risk master inventories looking in the channel that's coming back up.
Chris Kern: According to Sucana, the overall US gaming accessories market value is up approximately 5% for the first half of 2024 compared to the first half of 2023. US gaming headsets and third-party controller markets are exceeding overall accessory growth year-to-date, up approximately 12% and 15% respectively. We believe this growth is due to the start of pandemic era replacements along with upgrade purchases for new models and features. We expect both factors to drive continued gaming accessories growth in the foreseeable future.
Speaker Change: So it's really balance right now out there at retail.
Speaker Change: Globally, so we're through sort of all of the <unk>.
Speaker Change: Winding that we've had over the past few years and some of the pandemic impacts. So so I think that.
Speaker Change: When we think about channel inventory, we feel like it's at the right level right now and that.
Speaker Change: Our retailers are feeling good about the levels that they're carrying at the moment.
Speaker Change: Okay, but not increasing their appetite necessarily.
Chris Kern: Okay, but not necessarily increasing their appetite necessarily. No, I think that will come in, you know, at the end of Q3. And as you get into Q4, you know, this is where it'll be interesting to see what happens this year. Historically, the last couple of years, the holiday is pushed later; as you know, the last two weeks of the year last year were really strong. So it'll be interesting to see how retailers react to that.
Speaker Change: Relative to sales.
Speaker Change: That will come in the end.
Speaker Change: Q3, and as you get into Q4, this is where it'll be interesting to see what happens this year.
Chris Kern: As a leader in these categories, we continue to contribute to driving market growth with our newly launched wireless headsets, premium controllers and PC peripherals across Turtle Beach and PDP. For example, in their first full month of sales after launch, the Turtle Beach Stealth 500 for Xbox and the Stealth 600 Gen 3 for Xbox were the number 2 and number 4 best selling headsets in the US for June. Both new models have received an abundance of praise from fans and reviewers alike, with each named as best wireless gaming headsets by IGN and other notable games industry and tech review publications.
Speaker Change: Historically the last couple of years. The holiday is pushed later as you know the last two weeks of the year last year were really strong.
Speaker Change: So it would be interesting to see how retailers react to that we always see some some revenue move around between Q3 and Q4 I think we can see that again this year as the retailers are kind of weighted and consumers have kind of waited to purchase.
Chris Kern: You know, we always see some revenue move around between Q3 and Q4. I think we could see that again this year, as, you know, retailers have kind of waited, and consumers have kind of waited to purchase, you know, more than usual. So that'll be interesting. But we're ready to go, you know, for the back half.
Speaker Change: More than historical so that'll be interesting, but we're ready to go for the for the back half.
John Hanson: Okay, John, a couple of kind of detailed financial questions. So how much additional transaction expense and additional inventory step up is left to kind of flush through the P&L for the balance of the year?
Speaker Change: Okay, John a couple of trying to.
Chris Kern: We also debuted the highly lauded Atlas Air as the industry's first wireless open-back gaming headset, which IGN gave a 9 out of 10 review score and added to the best gaming headsets for PC lists, calling it one of the most unique headsets out there. Additionally, PDP's Rift Master wireless guitar controller launched in April coinciding with Epic's Fortnite Festival season 3 instrument compatibility update and has quickly become the industry's best selling music controller in the US as reported by SRKANA.
John Hanson: Detailed financial questions. So how much additional.
John Hanson: Transaction expense.
John Hanson: And additional inventory step up is left to kind of flush through the P&L for the balance of the year.
John Hanson: So, relative to the PDP inventory step-up, it's detailed in the Q, but in the quarter, it was 1.2 million, 1.3 million actually rounded up. 1,251,000 was the step-up in Q2. And for the balance of the year, it's probably in the 900,000 to a million range.
Speaker Change: So relative to the PDP inventory step up.
Speaker Change: Rob.
Rob: As we detailed in the queue.
Rob: In the quarter was $1 2 million and $3 million actually rounded up $1 million 251 was the step up in Q2.
Chris Kern: In May, we also introduced a full line of Turtle Beach brand PC gaming gear further our reach into the massive $3.9 billion PC peripherals market. Our latest PC products introduced groundbreaking features in their respective categories and are headlined by the highly responsive and customizable Vulkan 2 TKL fro keyboard, the incredibly lightweight burst-to-air mouse and our ergonomic masterpiece Cone 2 mice. We continue to make excellent progress in operational efficiencies across all aspects of our business, as we delivered substantially improved profitability in the quarter, including a significant 540 basis point gross margin expansion compared to the same quarter in 2023.
Speaker Change: And for the balance of the year.
Rob: Probably in the 900000 to $1 million range.
John Hanson: Oh, okay, so it's mostly done. Um, here we go.
Speaker Change: Okay. So it's mostly done.
Speaker Change: Okay.
Speaker Change: Is the Q out Tonight was out a little while ago.
John Hanson: It should be out unless the SEC is behind, but it was filed.
Speaker Change: It should be out unless the FCC's behind but was filed it was filed so look gross margins, excluding the PDP step up for the quarter were 31, 8%.
John Hanson: So look, gross margins excluding the PDP step-up for the quarter were 31.8%. But what you'll see in the queue is that, in addition, we did book an inventory reserve in the second quarter for an inventory reserve for the rocket rebranding. That totaled approximately $1.6 million.
Speaker Change: What youll see in the Q is that in addition, we did book a inventory reserve in the second quarter.
Speaker Change: For the rocket for inventory and inventory reserve for the rocket rebranding that totaled approximately $1 6 million. So when you take in.
John Hanson: So when you take and adjust out those two non-recurring items, our gross margins were 34% for the quarter. And so, as we've said, as we get to the next generation, through our product platforming, our margins are going to be getting back into the mid-30s. So when you adjust for these two items, you know, we're at 34% for Q2, and we only had a portion of the quarter with the lower-cost products associated with the wireless launch, which happened late in the quarter. So we feel that we're very, very well positioned.
Speaker Change: And adjust out those two nonrecurring items, our gross margins were 34% for the quarter and so as we've said as we get to the next generation through our product platforming, our margins are going to be getting back into the mid <unk>. So when you adjust for these two items.
Chris Kern: First half of the year, we are raising our full year 2024 adjusted EBITDA guidance to a range of 53 to 56 million. John will provide additional details on our financial results. Since acquiring PDP and March, we've made rapid progress on integration, which we are continuing to execute ahead of schedule, feedback from retail customers and other industry partners of the high potential for our combined company has been overwhelmingly positive. And we're already realizing synergies and expanding market opportunities.
Speaker Change: In our 34% for Q2, and we only had a portion of the quarter with the lower cost products.
Speaker Change: Associated with the wireless launch, which happened late in the quarter.
Speaker Change: Yes.
Speaker Change: We're very very well positioned from a market perspective.
John Hanson: And I'm glad you brought up that adjustment of the 34%. So if you look at that number, that's kind of what it would look like without those adjustments. Would you say that PVP was accretive to the overall margin? You know, or did it bring it down, or was it neutral?
Speaker Change: And I'm glad you brought up that adjustment of the 34%. So if you look at that number is kind of what it would look like without those adjustments would you say that PDP was accretive to the overall margin in order to sort of bring it down or was it neutral.
Chris Kern: In addition to the clear benefits from our PDP acquisition, we are continuing to drive margin expansion from our previously communicated initiatives of skeurationalization, portfolio optimization and our platformed next generation product launches. These improvements have all accelerated our ability to generate strong cash flow from operations. Given the strength of the balance sheet, our outlook and our view that our share price offers a compelling value, repurchased approximately $15 million of our stock during the second quarter. This is the largest repurchase in our history and underscores both our confidence in Turtle Beach's trajectory and our commitment to enhancing shareholder value. We believe in our vision and we are putting our resources behind it.
John Hanson: I think it's relatively neutral. You know, if the categories we play in have a lot of similarities, that's been part of the reason that we've been able to really realize more quickly than we anticipated that some of the integration work has been completed. And some of those synergies have come in very similar categories, very similar kinds of operations. I really appreciate the PDP team and their efforts; coming in here has been a very positive experience.
Speaker Change: I think it's relatively neutral you look at yes relatively neutral if the categories. We play in a lot of similarities thats been part of the reason that we've been able to really realize.
Speaker Change: More quickly than we anticipated some of the integration work has been completed and some of the synergies have come in.
Speaker Change: Very similar categories very similar kind of operations really appreciate the PDP team and their efforts coming in here has been a very positive experience.
John Hanson: And they've done a great job. So I think the, you know, how similar the businesses were prior to the acquisition, we're kind of seeing that flowing through in the gross margin line as well.
Speaker Change: And they've done they've done a great job so I think the.
John Hansen: John will now take us through the financials in more detail. John? Hey, thanks, Chris, and good afternoon to everyone.
Speaker Change: How similar the businesses were prior to the acquisition, we're kind of seeing that flowing through in the gross margin line as well.
John Hanson: And back to the earlier question, should we be looking for additional transaction expenses to be run through the P&L from this point forward?
Speaker Change: Yes.
John Hansen: Hey, before I begin with the financials, let me say how enjoyable it has been for the last 11 years to have the pleasure of being part of the Turtle Beach team as we built a world class company. I'm incredibly thankful to the thousands of employees, customers and shareholders who help make this company the success that it is today. And a very special thanks to my co-executive officers and Chris, as well as our entire global leadership team and board. The partnership we have developed has been extraordinary. As evident in our results, the organization is executing very well and it is an opportunity for me to transition to this next phase.
Speaker Change: Back to the earlier question.
Speaker Change: Should we be looking for additional transaction expenses to be run through the P&L on this going forward.
John Hanson: That will be integration-related, but yes, that work is ongoing. As we've stated in the past, that integration work will be ongoing throughout the year 2024, so there will be additional expenses as we sort out real estate and other things.
Speaker Change: There will be integration related but yes that work is ongoing is as we've stated in the past right that integration work will be.
Speaker Change: Will be ongoing throughout the year 2024, so there will be some additional there will be additional expenses we start out.
Speaker Change: Real estate and other things.
Chris Kern: My last question for you, Chris, is should we read anything into the fact that the average price paid for the shares we purchased in the quarter was higher than the upper end of the previously announced Dutch tender range?
Chris <unk>: My last question for you, Chris is where should we read anything into the fact that the average price paid for the shares repurchased in the quarter was higher than the upper end of the previously announced Dutch tender.
Chris Kern: I think it's a function of timing, you know, we had, we were purchasing in the available open window for the company. And so, and, you know, we want to continue to make those purchases, as we've said, you know, in the comments. So no, I don't, I don't know that I would read anything into it.
Chris <unk>: I think it's a function of timing we had.
Speaker Change: We were purchasing in the available open window for the company.
Speaker Change: And so.
John Hansen: Now, on to the quarter we go. As Chris mentioned, revenue in the second quarter grew 59% year over year to $76.5 million. As a reminder, the second quarter is the very first full year or full quarter with PDP results. The 59% increase in revenue was primarily driven by PDP and our non-PDP revenue grew a very healthy 15% year over year. The organic non-PDP growth was driven by increased sales of our controller and headset products.
Speaker Change: We want to continue to make those purchases as we've said in the comments.
Speaker Change: So no I don't know that I would read anything into it I think that we feel good about where the.
Sean McGowan: I think that we feel good about where the stock price will be, and we have high confidence in our ability to execute against that. So, you know, particularly where we are today, we think there's a ton of value to be had. And that's why we're looking to continue to be opportunistic about repurchasing.
Speaker Change: Our stock price will be and we have high confidence in our ability to execute against that so.
Speaker Change: Particularly where we are today, we think there's a ton of value to be had and that's why we're looking to continue to be opportunistic about repurchases.
John Hanson: Thank you very much. I appreciate it. And again, congrats, John.
Speaker Change: Thank you very much appreciate it and again congrats Joe.
John Hanson: Yes, thank you, Sean. Thanks, John. Thank you.
Speaker Change: Yes, Thanks, Sean Thanks, John.
John Hansen: As a reminder, in the first quarter, headset revenue was down year over year as we deliberately reduced channel inventory levels ahead of the launch of our new wireless headsets and rebranded PC accessories. In Q2, that trend turned as we anticipated and we experienced a positive impact from the launch of these products. Gross margin in the second quarter was 30.2 percent compared to 24.7 percent last year. That equates to a 540 basis point improvement.
Operator: Thank you for your next question. Our next question concerns the line of Drew Crum of SpiFo. Your line is now open.
Speaker Change: Thank you Amit for next question.
Speaker Change: Our next question comes from the line of drew Crum of Stifel. Your line is now open.
drew Crum: Okay, thanks. Hey, guys. Good afternoon. And John, congratulations and best of luck to you.
drew Crum: Okay. Thanks, Hey, guys, good afternoon, and John Congratulations and best of luck.
Chris Kern: I think you mentioned on a couple of occasions that the integration of PDP is ahead of schedule. Any specifics you can provide? And is this in any way influencing your guidance upgrade for EBITDA? And, you know, related to PDP, the hardware sales for Nintendo have been pretty weak year-to-date, and we typically see consumption wane at the end of a hardware cycle. I'm curious if you're seeing anything in the PDP business, you know, as we go into the second half, that languishing is the demand still there; any colors there would be helpful.
drew Crum: I think you mentioned the integration of PDP on a couple of occasions is.
drew Crum: Ahead of schedule and any specifics you can provide and is this in any way influencing your guidance upgrade for EBITDA and related to PDP.
John Hansen: The margin improvement is being driven by lower product costs from our product platforming and optimization initiatives, lower freight costs and more efficient promotional spend. As we stated on the last earnings call, we expected to begin realizing lower product costs with the launch of the new wireless products and PC accessories rebranding in Q2. This improvement in margins is expected to continue going forward as the mix shifts to the new products.
Speaker Change: Hardware sales for Nintendo had been pretty weak year to date and we typically see.
Speaker Change: Consumption wane at the end of a hardware cycle curious if youre seeing.
Speaker Change: Anything in the PDP business.
Speaker Change: I'll go into the second half.
Speaker Change: That languishing as it is the demand is still there and any color there would be helpful. Thanks.
Chris Kern: Sure, great questions. You know, when you look at the integration work so far with PDP, as I mentioned, it's been a really collaborative effort with the teams, which, you know, we totally appreciate from a management perspective. We've been able to complete a lot of the system integration work, a lot of the negotiations that we've had with our retailers and our distribution partners, and the end-to-end portfolio work. You know, we've talked a lot about portfolio optimization.
Speaker Change: Sure great questions.
Speaker Change: When you look at the.
Speaker Change: The integration work, so far with PDP as I mentioned, it's been a really collaborative effort with the teams.
John Hansen: Operating expenses in the second quarter were 27.2 million compared to 27.7 million a year ago. This year, the quarter included 1.4 million in costs related to the PDP acquisition. Excluding these non-recurring acquisition related costs, second quarter operating expenses declined approximately 7 percent year over year. On a relative basis, operating expenses excluding the acquisition related and non-recurring costs were approximately 33 percent of revenue, which is an improvement from 49 percent in the prior year.
Speaker Change: We.
Speaker Change: Totally appreciate from a management perspective.
Speaker Change: We've been able to complete a lot of the system integration work a lot of the negotiations that we've had with our retailers and our distribution partners.
Speaker Change: And the end to end portfolio work, we've talked a lot about portfolio optimization.
Chris Kern: We've gone through that with the Turtle Beach and Rocket businesses over the last year, and a good portion of that already with the PDP business. And part of that has been the great participation and work between the teams here to really come to those conclusions and make decisions quickly on how to move forward with the combined portfolio. So that's really what's running ahead of schedule for us. We didn't anticipate we'd be as far along that path as we are as we sit here today.
Speaker Change: Gone through that with the Turtle Beach and rocket business over the last year, we're through it.
Speaker Change: A good portion of that already with the PDP business and part of that has been the great participation and work between the teams here to really come to those conclusions make decisions quickly on on how to move forward with the combined portfolio. So that's really what's running ahead of schedule for us we didn't anticipate we'd be as far along that.
John Hansen: This changed primarily driven by our ongoing pro-active efforts to achieve a better balance between revenue enhancing initiatives with our expense management goals. The result of higher revenues combined with greater efficiencies on costs and expenses is that second quarter adjusted EBITDA improved by 8.7 million to a positive $3 million versus an adjusted EBITDA loss of 5.7 million in the year ago period.
Speaker Change: Path as we are as we sit here today so.
Chris Kern: And we think that that does open up for us some potential future upsides there as we really dive into the business and look for those costs and those revenue synergies. So that's sort of related to that. And as far as influencing the guide, there's a portion of that in there that we were able to realize some of those a bit sooner than we thought.
Speaker Change: And we think that that does open up for us.
Speaker Change: <unk> potential future upsides, there as we really dive into the business and look for those costs and those revenue synergies. So so.
Speaker Change: So that's sort of related to that and as far as influencing the guide there's a portion of that in there right that we were able to realize some of those a bit sooner than we thought that's contributing to the rates.
John Hansen: On an LTM basis, a adjusted EBITDA is approximately $20 million. Turning to the balance sheet, at quarter end, we had net debt of 61.2 million comprised of 73.6 million of outstanding debt and 12.5 million of cash. The debt balance is comprised of 24 million outstanding under our revolving credit line and 49.6 million outstanding on the term loan we used for the PDP acquisition. Inventories at quarter end were 73.3 million compared to 67.8 million a year ago. PDP added 23.8 million to inventory and this addition was partially offset by our continued reduction initiatives in non-PDP product inventory.
Chris Kern: That's contributing to the raise here for Q2. On the second question about Nintendo, you're right. Anytime we've seen this in every hardware cycle, as you get closer and gamers are out there anticipating the next hardware showing up, and Nintendo's going through that right now, the underlying strength of that Nintendo business is still very strong. But you're going to see a dip, more than likely, on some of the businesses as it gets closer.
Speaker Change: Here for Q2.
Speaker Change: And the second question around Nintendo.
Speaker Change: Youre right anytime we've seen this.
Speaker Change: Every hardware cycle as you get closer and gamers are out there anticipating the next hardware showing up.
Speaker Change: Nintendo's <unk>.
Speaker Change: Going through that right now.
Speaker Change: The underlying strength of that Nintendo business is still very strong.
Speaker Change: Youre going to see a dip more than likely on some of the business as it gets closer Fortunately pdp's business is very well diversified across all the platforms and we're seeing some some really strong progress from the the controller side of things on the premium controller front, the new riff master.
Chris Kern: And certainly, PDP's business is very well diversified across all of the platforms. And we're seeing some really strong progress from the controller side of things on the premium controller front, the new Riftmaster. There are multiple products, including some of the other platforms that are allowing the PDP business to track as we'd hoped it would. But there likely will be a little bit of a dip on the Nintendo side as people wait to see what that new hardware looks like and what the timing looks like. But that's already built into the guidance for the year. Got it, okay.
drew Crum: Got it. Okay.
John Hansen: As Chris touched on during the quarter, we repurchased approximately 15.2 million of our shares. This was the largest repurchase of our shares we've made in our history. We bought just shy of 1 million shares and an average price of $15.97 per share. Looking forward as the business continues to generate cash, the board is focused on evaluating all options for redeploying capital, including additional share repurchases. As we always have, we will continue to invest in our existing business and our existing business. In addition, we remain committed to returning access cash to shareholders through share repurchases.
Speaker Change: There is multiple.
Speaker Change: Products, including selling some of the platforms that are allowing.
Speaker Change: Allowing the PDP business to track as we'd hoped it would.
Speaker Change: But.
Speaker Change: We will be a little bit of a dip on the Nintendo side as people wait to see what that new hardware it looks like and what the timing looks like but that's already built into the guidance for the year.
Chris Kern: Very helpful. Thanks, guys. Thanks, Drew.
Speaker Change: Got it okay very helpful. Thanks, guys.
Drew: Thanks drew.
Operator: One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone. Our next question comes from the line of Alicia Reese of Woodbush Securities. The line is now open.
Speaker Change: Okay. Thank you one moment for our next question again as a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Alicia Reese of Wedbush Securities. Your line is now open.
John Hansen: To that end, to provide additional flexibility for repurchases going forward, we have successfully negotiated amendments to our credit agreements that allow for the establishment and implementation of a rule 10b5-1 plan. This plan provides us with a formulaic share repurchase option. Lastly, over the long term, we also believe that the right acquisitions remain a component of our capital allocation strategy as long as they make sense strategically and are immediately accrued to earnings and generate value for our shareholders.
Alicia Reese: Hey guys, congrats to John and a nice quarter to everyone. And I wanted to see if we could get a little bit more color on the different segments on a qualitative basis. And just seeing what you're thinking about the headset. I know there's a little information in the deck on the market share, but if you could just talk about the market in general and their market share position within each category, including the SIMs, that would be really appreciated.
Alicia Reese: Hey, guys, Congrats John and a nice quarter everyone.
Alicia Reese: I wanted to see if we could get a little bit more color on the different segments on a qualitative basis, and just seeing what youre thinking about it.
Speaker Change: I know theres a lot of information on that.
Speaker Change: In the deck.
Speaker Change: The market share, but if you could just talk about the market in general and your market share position within each category, including the seven that would be really appreciate it.
Chris Kern: Sure, thanks for the question, Alicia. So when you look across the different categories, headsets continue to be, you know, sort of our strongest contributor to revenue, you know, but controllers are certainly growing, you know, within that mix. You know, we kind of look ahead. If you recall, in the past, we talked about an 80-20 split between our core headset business and everything else. That's certainly shifted with the acquisition and with some of our expansion in the other categories. Now, it's much more where you're going to be, you know, somewhere in the 50 to 55 percent range for our core business with nearly half of the business coming from other categories.
Speaker Change: Sure. Thanks for the question Alicia.
Speaker Change: So when you look across the different categories headsets continue to be sort of our strongest.
John Hansen: Now, turning to guidance, we continue to expect full year revenue to be between 370 million and 380 million, which equates to a 45% growth compared to 2023. With a strong first half of the year behind us and the PDP integration underway, we are raising our full year adjusted EBITDA guidance for 2024. We expect full year adjusted EBITDA to be between 53 million and 56 million, which increases the midpoint to 54.5 million, up to 2 million dollars from our prior guidance. As a reminder, our 2024 guidance includes contributions from PDP beginning on March 13, 2024, when we closed the transaction.
Speaker Change: Contributor to revenue.
Speaker Change: But controllers are certainly growing within that mix and kind of look ahead.
Speaker Change: If you recall in the past we've talked about like an 80 20 split between our core headset business and everything else.
Speaker Change: That's certainly shifted with the acquisition and with some of our expansion in the other categories.
Speaker Change: It's much more where you are going to be somewhere in the 50% to 55% range.
Speaker Change: Our core business with nearly half of the business coming from other categories. So we feel really good about that diversification and thats part of the benefits of combined company now with PDP.
Chris Kern: So we feel really good about that diversification, and that's one part of the benefits of the combined company now with PDP. Looking at those categories, you know, accessories are definitely performing stronger than the broader gaming segment. The broader gaming segment's having some challenges on hardware, as you know, this year.
Speaker Change: Looking at those categories.
Speaker Change: Accessories are definitely performing.
Speaker Change: Stronger than the broader gaming segment, the broader gaming segments, having some challenges on hardware as you know this.
Chris Kern: And now, I'll turn the call back over to Chris for additional comments. Chris, thanks, John. In summary, we're pleased with our strategic progress and results for the first half of the year and remain optimistic that we will continue to realize additional benefits and synergies with our recently combined teams. We continue to prioritize value creation for our shareholders, invest in class products for gamers everywhere. Looking ahead, we're excited about our upcoming product launches, continue gains and strategic advantages from the PDP integration and our ongoing efforts to maximize profitability and cash flow.
Speaker Change: This year, it's still up.
Speaker Change: The segments up.
Chris Kern: It's still up, you know, the segment's up, you know, low single digits, but accessories are up about 5 percent. This is U.S. data, which is a pretty good proxy, I would say, for the rest of the business, and, you know, headsets are exceeding that growth. They're up 12 percent, you know; our share has dipped slightly on headsets in the first half of the year, as we knew it would, as we essentially drained the channel for several months there and weren't replenishing. We're really happy to see what happened in June.
Speaker Change: Low single digits, but accessories were up about 5% and this is U S data, which is a pretty good proxy I would say for the rest of the business.
Speaker Change: And headsets or exceeding that growth or up 12%.
Speaker Change: Our shares dipped slightly on headsets in the first half of the year as we knew it would as we essentially drained the channel for several months, there and we're replenishing and we're really happy to see what happened in June.
Chris Kern: We were back to positive share growth in June as we launched the new products, as I mentioned, with the 500 and 600 getting out there. So that segment's doing extremely well for us, and as we head into the back half with these new products, we're feeling really good about our positioning there. Controllers, the next biggest segment for us, really strong business here, really driven by premium controllers for us, you know, the PDP, BFG controllers across a couple of platforms and our own Stealth Ultra, all performing very well in that segment and driving growth and driving share growth for us. Third-party controllers are up 15 percent, you know, for the first half year-over-year.
Speaker Change: We're back to positive share growth in June as we launched new products as I mentioned with the 500 600 getting out there so.
Chris Kern: I want to express my gratitude to our amazing team members who work tirelessly to achieve our strategic goals. We've had a great first half of the year and the hard work and passion of every one of our team is instrumental in our success. And to our investors, thank you once again for your trust and support.
Speaker Change: That segment is doing extremely well for us and as we head into the back half of these new products, we're feeling really good about our positioning there.
Speaker Change: Controllers next biggest segment for us really strong business here really driven by premium controllers for us.
Operator: With that operator, we can open the line for questions. Thank you. At this time, we'll conduct the question and answer session. To ask a question, you'll need to press start 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press start 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: The PDP BFG controllers across a couple of platforms and our own staff ultra.
Speaker Change: All performing very well.
Speaker Change: In that segment and driving growth and driving share growth for US third party controllers are up 15% for the first half year over year.
Chris Kern: That's one of the strongest segments, and we're driving a good portion of that growth. So we're gaining share there. We're well up over, I think, 300 basis points of share growth in the first half. So those are the two primary categories for us. You know, look at PCs. We're holding pretty steady on the PC front, and we're growing on the headset side. We've launched new PC headsets.
Sean McGowan: Our first question comes from the line of Sean McGowan of Roth. Your line is now open. Thank you, thanks everyone.
Speaker Change: One of the strongest segments and we're driving a good portion of that growth. So we're gaining share there were well up over I think 300 basis points of share growth in the first half.
Sean McGowan: Before I get to the questions, I just wanted to say, John, it's been absolute pleasure working with you in multiple capacities over the years. And while I'll be sorry to see you go, I'll be happy to see you whistling with the pigs. So congratulations. Thanks, Sean. A couple of questions. Yeah. Would you say Chris, would you say that the retail inventory now is balanced or could we see some additional inventory, you kind of restock flowing into the third quarter as well?
Speaker Change: So those are the two primary categories for US you look at PC.
Speaker Change: We're holding pretty steady on the PC front and we're growing on the headset side.
Speaker Change: We've launched new PC headsets, and we've got good placements of those products, we do anticipate to see some growth there in the back half along with our new mice and keyboard products and then finally I think you asked about simulation.
Chris Kern: We've got good placements for those products, and we do anticipate to see some growth there in the back half, along with our new mice and keyboard products. And then finally, I think you asked about simulation. You know, we've had some growth in the flight from a share perspective in both categories. On the flight sim side, we're up, it's roughly 20-25% share in that range for the U.S., and we still have the number one SKU in that category. And then we just recently added the racing category, single SKU, you know, very early days for racing for us, and we'll continue to build that category out.
Speaker Change: We've had some growth in the fleet from a share perspective in both categories on the flight Sim side were up.
Speaker Change: <unk>.
Speaker Change: 20% to 25% share in that range.
Sean McGowan: Yeah, great, great question, Sean. We see what you did by the way, great, great comment for John. So yeah, the retail channel right now is in really healthy shape. You know, it's, we've had the transitions in Q2, you know, where we pretty much strain the channel and then reloaded it within wireless and the new PC products. We're pleased with how our RIF Master inventory is looking in the channel. That's coming back up.
Speaker Change: For the U S and we still have the number one SKU in.
Speaker Change: That category and then we just recently entered the racing category single skew very early days for racing for US and we will continue to build that category out.
Sean McGowan: So it's really balanced right now out there at retail globally. So we're through sort of all of the, you know, the unwinding that we've had over the past few years and some of the pandemic impacts. So I think that when we think about channel inventory, we feel like it's at the right level right now, and that retailers are feeling good about the levels that they're carrying at the moment. Okay, but not increasing their appetite necessarily.
Alicia Reese: Thanks, I appreciate all that color. And one more, if I may.
Speaker Change: Okay.
Speaker Change: Thanks, I appreciate all that color and one other if I may.
Chris Kern: Regionally, if you can talk as well about the uptick in North America versus EMEA holding relatively flat year over year and then some declines in Asia. You know, we've seen some declines throughout Asia from all your competitors as well, so that's no surprise. But if you could talk about the uptick in North America in terms of the different categories, particularly how much, at least qualitatively, was from PDP, we'd appreciate that as well. Sure.
Speaker Change: Regionally, if you can talk as well about.
Speaker Change: The uptick in North America versus EMEA is holding relatively flat year over year and then some declines in Asia.
Speaker Change: We've seen some declines throughout Asia.
Speaker Change: Familiar competitors as well so that's no surprise, but if you could talk about the.
Speaker Change: The uptick in North America.
Speaker Change: In terms of the different categories, particularly how much.
Speaker Change: Just qualitatively was from PDP, maybe appreciate that as well.
Chris Kern: Sure, yeah, great question, and you know it's something we keep a close eye on what's happening regionally. For us, you know, we have very little exposure to Asia. Our revenues are up slightly in Asia year over year, but it's a low single-digit percentage of our total business. So that hasn't really impacted us because of the slowness there. For the Americas, with the acquisition of PDP, it has become a slightly higher portion of our business, anywhere from 70 to 75%, depending on the timing of the business flowing through the Americas, and then roughly 25 or so percent through Europe. So that's a rough breakdown, but we're seeing strength in the U.S. market for gaming, and so with our high concentration of business there, that's playing well for us.
Speaker Change: Sure.
Speaker Change: Yes, great question.
Sean McGowan: No, I think that will come in, you know, the end of Q3 and as you get into Q4, you know, this is where it'll be interesting to see what happens this year. Historically, the last couple of years, the holiday is pushed later. As you know, the, you know, the last two weeks of the year, last year, we're really strong. So it'll be interesting to see how retailers react to that, you know, we always see some revenue move around between Q3 and Q4.
Speaker Change: We keep a close eye there on what's happening regionally.
Speaker Change: For us we have very little exposure to Asia, our revenues were up slightly in Asia year over year, but it's low single digit percentages of our total business.
Speaker Change: So.
Speaker Change: So.
Speaker Change: Yeah.
Speaker Change: That hasn't really impacted us on the slowness there for the Americas with the acquisition of PDP has become a slightly higher portion of our business.
Speaker Change: Anywhere from $70 to 75%, depending on timing of the business flowing through the Americas, and then roughly 25 or so percent through Europe.
Sean McGowan: I think we could see that again this year as, you know, retailers have kind of waited and consumers have kind of waited to purchase, you know, more than historical. So that'll be interesting, but we're ready to go, you know, for the, for the back half. Okay, John, a couple of kind of details and answer questions. So how much additional spend's action expense and additional inventory step up is left to kind of flush through the P and L for the balance of the year?
Speaker Change: The rough breakdown, but we're seeing strength in the U S market for gaming and so with our high concentration of business there that's playing well for us.
Sean McGowan: So relative to the PDP inventory step up, it's, as we, it's detailed in the Q, but in the quarter, it was 1.2 million, 1.3 million actually rounded up, 1, 1,251 was the step up in Q2. And for the balance of the year, it's probably in the 900,000 to a million range. Oh, okay, so it's mostly done. Yeah, okay. And is the Q out today was out a little while ago? It should be out unless the SEC is behind, but it was filed.
Alicia Reese: Excellent. Thanks so much. Thank you, Alicia.
Speaker Change: Excellent. Thanks, so much.
Alicia Reese: Thank you Alicia.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Northcutt of Oppenheimer & Co. Your line is now open. All right, guys.
Speaker Change: Okay.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Andrew <unk> of Oppenheimer <unk> Co. Your line is now open.
Speaker Change: Hi, guys. This is Andrew on for Bob. Thanks for taking the question just one quick one from me you guys have made pretty good progress on your kind of ongoing proactive expense management.
Speaker Change: How should we think about the.
Speaker Change: Runaway from here for incremental expenses going forward. Thanks.
Andrew Northcutt: Sure, great question. You know, it's something we're going to continue to focus on. This is a, it's an ongoing process for us. We've made some great progress there. And a lot of that is around the portfolio and, you know, our cost of goods, looking through our end-to-end supply chain. And then, you know, also focusing on OPEX, right?
Speaker Change: Sure Great question.
Speaker Change: We're going to continue to focus on this is.
Speaker Change: Ongoing process for us.
Speaker Change: We've made some great progress there and a lot of that is around the portfolio.
Sean McGowan: So look, gross margins, excluding the PDP step up for the quarter, we're 31.8%. But what you'll see in the queue is that in addition, we did book an inventory reserve in the second quarter for an inventory reserve for the rocket rebranding that totaled approximately 1.6 million. So when you take and adjust out those two non-recurring items, our gross margins were 34% for the quarter. And so as we've said, as we get to the next generation, through our product platforming our margins, we're going to be getting back into the mid 30s.
Speaker Change: And.
Speaker Change: Cost of goods looking through our Indian supply chain.
Speaker Change: And then also focusing on Opex right.
Speaker Change: We think.
Speaker Change: On top of all of that we've got synergies that we're working on the integration.
Chris Kern: And, you know, we think, on top of all of that, we've got synergies that we're working on the integration of. So we'll continue to realize those savings, and we believe that there are more opportunities there. We've got some great operational efficiencies going, and we've actually introduced some new tools and technologies to help the teams perform better. And, you know, we believe that all of those are going to continue to yield results for us and drive that cost structure and keep it low. Thank you. Thanks, Andrew. Yep.
Speaker Change: So we.
Speaker Change: We will continue to realize those savings, we believe that theres more opportunities there.
Speaker Change: We've got some great operational efficiencies going and we've actually introduced some new tools and technologies to help the teams.
Speaker Change: Perform.
Speaker Change: <unk> and <unk>.
Speaker Change: We believe that all of those are going to continue to yield.
Speaker Change: Results for us.
Speaker Change: And drive that cost structure and keep it low.
Sean McGowan: So when you adjust for these two items, you know, we're 34% for Q2 and we only had a portion of the quarter with the lower cost products associated with the wireless launch, which happened late in the quarter. So we're very very well positioned from a margin perspective. And I'm glad you brought up that adjustment as a 34%. So if you look at that number, it's kind of what it would look like without those adjustments.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thanks, Andrew Yes, Thanks, Andrew.
Chris Kern: I am showing no further questions at this time. I would now like to turn it back to Chris Curran for closing remarks.
Speaker Change: I'm showing no further questions at this time I would now like to turn it back to Chris <unk> for closing remarks.
Chris Kern: Thank you, operator, and thank you everyone for joining us. Have a great day.
Chris <unk>: Thank you operator, and thank you everyone for joining us have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Sean McGowan: Would you say that PVP was accreted to the overall margin, you know, or did it, did it bring it down or was it neutral? I think it's relatively neutral. You know, you look at it's relatively neutral. If the categories we play in a lot of similarities, that's been part of the reason that we've been able to really realize more quickly than we anticipated, you know, some of the integration work has been completed and some of those synergies have come in.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Sean McGowan: Very similar categories, very similar kind of operations really appreciate the PDP team and their efforts coming in here has been a very positive experience. And they've done a great job. So I think the, I think the, you know, how similar the businesses were prior to the acquisition, we're kind of seeing that flowing through in the gross margin line as well. And back to the earlier question, should we be looking for additional transaction expenses to be run through the P&L from this point forward?
Speaker Change: [music].
Sean McGowan: That would be integration related, but yes, that work is ongoing. As we've stated in the past, right, that integration work will be, will be ongoing throughout the year 2024. So there will be some additional, there will be additional expenses. We sort out real estate and other things. My last question for you, Chris, should we read anything into the fact that the average price paid for the shares we purchased in the quarter was higher than the upper end of the previously announced Dutch tender.
Speaker Change: So.
Speaker Change: Hum.
Speaker Change: [music].
Sean McGowan: I think it's a function of timing, you know, we had, you know, we were purchasing in the available open window for the company. And so, you know, we, we want to continue to make those purchases, as we said, you know, in the comments. So now I don't know that I would read anything into it. I think that we feel good about where the stock price will be, and we have high confidence in our ability to execute against that.
Sean McGowan: So, you know, particularly where we are today, you know, we think there's a ton of value to be had, and that's why we're looking to continue to be opportunistic about repurchases. Thank you very much. Appreciate it. And again, congrats, John. Yes, thank you, Sean. Thanks, John. Thank you, one moment for our next question. Thank you.
drew Crum: Our next question, concern line of Drew Crum, a spy, so your line is now open. Okay, thanks. Hey guys, good afternoon and John, congratulations and best of luck to you. I think you mentioned the integration of PDP on a couple of occasions is ahead of schedule. Any specifics you can provide and is this in any way influencing your guidance upgrade for EBITDA? And in a related to PDP, the hardware sales for Nintendo have been pretty weak.
drew Crum: You're to date and we typically see consumption weighing at the end of a hardware cycle. I'm curious if you're seeing anything in the PDP business as we go into the second half. The languishing is the demand still there and any color there would be helpful thanks. Sure, great questions. You know, when you look at the integration work so far with PDP, as I mentioned, it's been a really collaborative effort with the teams.
drew Crum: Which we totally appreciate from a management perspective. We've been able to complete a lot of the system integration work, a lot of the negotiations that we've had with our retailers and our distribution partners. And the end-to-end portfolio work, we've talked a lot about portfolio optimization. We've gone through that with the Turtle Beach and Rocket business of the last year. We're through a good portion of that already with the PDP business. And part of that's been the great participation and work between the teams here to really come to those conclusions, make decisions quickly on how to move forward with the combined portfolio.
drew Crum: So that's really what's running ahead of schedule for us. We didn't anticipate we'd be as far along that path as we are as we sit here today. And we think that that does open up for us some potential future upsides there as we really dive into the business and look for those costs and those revenue synergies. So that's sort of related to that. And as far as influencing the guide, there's a portion of that in there.
drew Crum: That we were able to realize some of those a bit sooner than we thought. That's contributing to the raise here for Q2. On the second question around Nintendo, you're right. Any time we've seen this in every hardware cycle, as you get closer and gamers are after anticipating the next hardware showing up. Nintendo is going through that right now. The underlying strength of that Nintendo business is still very strong. But you're going to see a dip more than likely on some of the businesses it gets closer.
drew Crum: Fortunately, PDP's business is very well diversified across all of the platforms. And we're seeing some really strong progress from the controller side of things on the premium controller front, the new RIF master. There's multiple products, including some of some of the platforms that are allowing the PDP business to track as we'd hoped it would. But there likely will be a little bit of a dip on the Nintendo side as people wait to see what that new hardware looks like and what the timing looks like. But that's already built into the guidance for the year. Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star one one on your telephone.
Alicia Reese: Our next question comes from a line of Alicia Reese of Woodbridge Securities. The line is now open. Hey, guys. Congrats, John. A nice quarter, everyone. I wanted to see if we could get a little bit more color on the different segments on a qualitative basis. I'm just seeing what you're thinking about. The headset, I know there's a little information in the, in the deck on the market share, but if you could just talk about the market in general and your market share position within each category, including the sims, that would be really appreciated.
Chris Kern: Sure, thanks for the question, Alicia. So when you look across the different categories, headsets continue to be sort of our strongest contributor to revenue, but controllers are certainly growing within that mix. We kind of look ahead. If you recall in the past, we've talked about like an 80, 20 split between our core headset business and everything else. That's certainly shifted with the acquisition and with some of our expansion into other categories.
Chris Kern: It's much more where you're going to be somewhere in the 50 to 55% range for a core business with nearly half of the business coming from other categories. So we feel really good about that diversification, and that's one part of the benefits of combined company now with PDP. Looking at those categories, accessories are definitely performing stronger than the broader gaming segment. The broader gaming segments have some challenges on hardware, as you know, this year.
Chris Kern: It's still up, you know, the segments up, you know, low single digits, but accessories are up about 5%, and this is US data, which is a pretty good proxy, I would say, for the rest of the business. And headsets are exceeding that growth. They're up 12%. You know, our shares dipped slightly on headsets in the first half of the year as we knew it would, as we essentially drained the channel for several months there, and we're replenishing.
Chris Kern: We're really happy to see what happened in June. We were back to positive share growth in June, as we launched new products, as I mentioned with the 500 and 600 getting out there. So that segment's doing extremely well for us. And as we head into the back half with these new products, we're feeling really good about our positioning there. Controllers, next biggest segment for us, really strong business they're really driven by premium controllers for us.
Chris Kern: You know, the PDP, BFC controllers across a couple of platforms in our own Stealth Ultra, all performing very well, you know, in that segment and driving growth and driving share growth for us. Third party controllers are up 15% for the first half of the year of year. That's one of the strongest segments, and we're driving a good portion of that growth. So we're gaining share there. We're well up over, I think, so we're 300 basis points of share growth in the first half.
Chris Kern: So those are the two primary categories for us. You know, you look at PC. We're holding pretty steady on the PC front, and we're growing on the headset side. You know, we've launched new PC headsets. We've got good placements of those products. We do anticipate to see some growth there in the back half, along with our new mice and keyboard products. And then finally, I think you asked about simulation. You know, we've had some growth in the in the flight from a share perspective in both categories on the flight sim side.
Chris Kern: We're up. It's roughly 20 to 25% share in that range for the US and we still have the number one skew in that category. And then we just recently ended up the racing category, single skew, you know, very early days for racing for us, and we'll continue to build that category out.
Chris Kern: Thanks, I appreciate all that color, and one other, if I may, regionally, if you can talk as well about the uptick in North America versus Amia's holding relatively flat year of year, and then in some declines in Asia, you know, we've seen some declines throughout Asia from all your competitors as well, so that's no surprise. But if you could talk about the uptick in North America in terms of the different categories particularly how much at least qualitatively was from PDP, we'd appreciate that as well.
Chris Kern: Sure, yeah, great question, and it's something we keep a close eye there on what's happening regionally. For us, you know, we have very little exposure to Asia, our revenues are up slightly in Asia year-to-year, but it's low single-digit percentages of our total business. So, you know, that hasn't really impacted us on the slowments there. For the Americas, you know, with the acquisition of PDP, you know, it has become, you know, a slightly higher portion of our business, you know, anywhere from 70 to 75 percent depending on timing of the business flowing through the Americas, and then, you know, roughly, you know, 25 or so percent through three-year ups. That's a rough breakdown, but we're seeing strength in the U.S, market for gaming, and so, you know, with our high concentration of the business there, that's playing well for us. Thanks so much.
Alicia Reese: Thank you, Alicia. Thank you. One moment for our next question.
Andrew Northcutt: Our next question comes from the line of Andrew Northcott of Openheimer & Co. Your line is now open. All right, guys, this is Andrew on the board. Thanks for taking the question. Just one quick one from me. You guys have been pretty good progress on your kind of ongoing proactive expense management. So, how should we think about, you know, the runaway from here for incremental expenses going forward? Thanks.
Unknown Executive: Sure. Great question. You know, it's something we're going to continue to focus on. This is an ongoing process for us. We've made some great progress there, and a lot of that is around the portfolio, and, you know, our cost of goods, looking through our end-end supply chain, and then, you know, also focusing on OPEX, right? And, you know, we think on top of all of that, you know, we've got synergies that we're working on the integration.
Unknown Executive: So, we'll continue to realize those savings. We believe that there's more opportunities there. We've got some great operational efficiencies going, and we've actually introduced new tools and technologies to help the teams, you know, perform better. And, you know, we believe that all of those are going to continue to yield results for us and drive that cost structure and keep it low. Thank you. Thank you, Andrew. I'm showing all further questions at this time.
Chris Kern: I would like to turn it back to Chris Curran for closing remarks.
Chris Kern: Thank you, operator, and thank you everyone for joining us.
Operator: Have a great day. Thank you for your participation in today's conference.
Operator: It just concludes program. You may now disconnect.