Turtle Seaside (HEAR -6.41%)
This fall 2022 Earnings Name
Mar 13, 2023, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Welcome to the Turtle Seaside fourth-quarter and full-year 2022 convention name. My title is Victor, and I will be your operator for at the moment’s name. Presently, all contributors on a listen-only mode. Later, we are going to conduct a question-and-answer session in the course of the question-and-answer session.

[Operator’s instructions] Delivering at the moment’s ready remarks are Chairman and Chief Government Officer Juergen Stark and Chief Monetary Officer John Hanson. Following the ready remarks, the administration workforce will open up the decision for any questions. As a reminder, the convention is being recorded. I’ll now flip the decision over to Alex Thompson from investor relations.

Alex, you could start.

Alex Thompson — Investor Relations

Thanks, Victor. On at the moment’s name, we might be referring to the press launch filed this afternoon that particulars the corporate’s fourth-quarter and full-year 2022 outcomes, which will be downloaded from the Investor Relations web page at corp.turtlebeach.com, the place you will additionally discover the newest earnings presentation that dietary supplements the knowledge mentioned on at the moment’s name. Lastly, a recording of the decision might be obtainable on the Buyers part of the corporate’s web site later at the moment. Please bear in mind that among the feedback made throughout this name might embody forward-looking statements throughout the which means of the federal securities legal guidelines.

Statements concerning the firm’s beliefs and expectations containing phrases corresponding to might, will, may, consider, anticipate, anticipate, and comparable expressions represent forward-looking statements. These statements contain dangers and uncertainties concerning the corporate’s operations and future outcomes that would trigger Turtle Seaside Company’s outcomes to vary materially from administration’s present expectations. Whereas the corporate believes that its expectations are based mostly upon affordable assumptions, quite a few components might have an effect on precise outcomes and will trigger outcomes to vary materially. So, the corporate encourages you to overview the Secure Harbor statements and danger components contained in at the moment’s press launch and in its filings with the Securities and Alternate Fee, together with, with out limitation, its annual report on Type 10-Ok and different periodic reviews which establish particular danger components that additionally might trigger precise outcomes or occasions to vary materially from these described in our forward-looking statements.

The corporate doesn’t undertake to publicly replace or revise any forward-looking statements after this convention name. The corporate additionally notes that, on this name, it will likely be discussing non-GAAP monetary info. The corporate is offering that info as a complement to info ready in accordance with accounting rules usually accepted in america, or GAAP. You will discover a reconciliation of those metrics to the corporate’s reported GAAP leads to the reconciliation tables supplied in at the moment’s earnings launch and presentation.

And now, I am going to flip the decision over to Juergen Stark, the corporate’s chairman and chief govt officer. Juergen.

Juergen Stark — Chairman and Chief Government Officer

Thanks, Alex. Good afternoon, everybody, and thanks for becoming a member of us. Whereas 2022 was a particularly difficult 12 months from a macroeconomic and gaming market standpoint, we’re happy with our execution and continued product growth all year long, which we consider units us up effectively for improved leads to 2023 and past. Our fourth-quarter gross sales have been $100.9 million, bringing our full-year gross sales to $242.2 million and $249.3 million in fixed forex.

Whereas we entered 2022 with extra conservative market and income estimates than others, gaming equipment skilled a shocking drop in client buying, which, then mixed with a big retail stock discount, impacting gross sales for us and plenty of others. Importantly, This fall revenues have been down lower than 4% from a 12 months in the past in fixed forex, and our gross sales and retail sell-through have been effectively balanced. Every quarter throughout 2022 confirmed successive enhancements in year-over-year web gross sales p.c change, supporting our thesis {that a} market restoration has began. This, together with our 2023 product plans, offers the premise for our 10% income progress goal for 2023.

We reported adjusted EBITDA of $6 million for the fourth quarter of 2022 and a lack of $18.7 million for the full-year 2022, in comparison with $36.6 million of adjusted EBITDA a 12 months in the past. The unprecedented mixture of decrease working leverage amid weak marketwide demand, extraordinarily aggressive aggressive discounting, and pandemic-driven extreme freight prices created an infinite headwind on margins and earnings. Extreme freight prices alone impacted EBITDA by roughly 11 million. Fortuitously, these prices have already considerably dropped in current months.

We proactively took steps beginning final spring already to cut back our working bills, with recurring bills down 16% in This fall. We did this with a really cautious eye to sustaining key packages that may bear fruit in 2023 and past. After producing over $190 million in EBITDA within the 5 years by 2021, we’re intent on returning to constructive EBITDA this 12 months and getting again to our 10-plus p.c EBITDA goal as quickly as potential. Regardless of the tough atmosphere, our technique to proceed our management in console headsets whereas diversifying into extra classes and platforms is progressing effectively.

Because the variety of players proceed to develop and multiplatform gaming and gaming equipment change into the norm, this technique allows us to greatest leverage the constructive long-term traits underlying the gaming market and ship on our progress aspirations. Listed here are some notable highlights for 2022 on our execution of that technique. We proceed to be the clear chief, by far, in console gaming headsets. Our U.S.

market share continued to exceed the following three opponents mixed in This fall. We additionally launched our phenomenal high-end wi-fi Stealth 700 MAX sequence with $199 MSRP and captured over 40% U.S. retail gross sales share of that premium value tier. The truth is, regardless of the extraordinarily promotional aggressive atmosphere, we elevated our console headset ASPs by over 7% in 2022 per U.S.

NPD. With out our enhance, the aggressive market ASPs have been down over 4% for the 12 months. Importantly, our wi-fi console headsets are deliberately and more and more multiplatform, usable on consoles, in addition to on PCs and cell gadgets. Apparently, this can be why the Turtle Seaside model is now No.

3 in model loyalty within the U.S. amongst hardcore PC players within the headset class. We’re executing a multiyear product technique to keep up our robust lead in console headsets, which is working effectively and can proceed this 12 months and in 2024. Along with our best-selling console headsets, we proceed to increase our gamepad controller lineup with the design for Xbox REACT-R Controller, which provides players most of the similar options as our critically acclaimed Recon Controller.

Following bullish evaluations of our Recon and REACT-R controllers, we introduced the Recon Cloud Hybrid Controller, which is ideal for cell players taking part in on suitable Android gadgets and Xbox. Now we have extra merchandise designed for iOS and different platforms coming quickly. Our actions right here replicate an growth in controllers, in addition to growth into cell and cloud gaming. Our gaming simulation equipment class continued to increase with the VelocityOne rudder, pedals, stand, and flightstick launched in 2022.

Extremely, our first product, VelocityOne Flight, launched again in November 2021, grew to become the No.1 best-selling flight controller by greenback gross sales within the U.S. in its first full 12 months per NPD. Our controller and simulation product classes proceed to carry out effectively, rising by effectively over 100% final 12 months. We continued to strengthen our ROCCAT PC lineup.

Within the fourth quarter, we introduced our Syn Max Air wi-fi 3D headset, a premium, lovely PC headset with our signature superior sound, consolation, and improvements that make this essentially the most superior PC headset we have ever produced. We additionally introduced the supply of the gorgeous Vulcan II MAX optical-mechanical keyboard and Kone Air wi-fi mouse for PC players, which give ultra-fast keystroke responses, added sturdiness, and versatile traits that give players a successful edge. We lately took the No. 1 share place with our PC keyboards in Germany.

Moreover, we expanded our cell gaming lineup by launching the Scout Air and Syn Buds Air wi-fi earbuds, giving players entry to our game-winning benefits after they’re on the go. Within the fourth quarter, we debuted our hyper-portable Atom Controller, which is the newest addition to our increasing controller portfolio and is a straightforward means for cell players to choose up and go with out sacrificing quality control. In these highlights, I’ve coated our more and more various product portfolio spanning console, PC, and cell gaming platforms. Importantly, roughly 25% of our revenues at the moment are outdoors of our core console headset class, reflecting super progress over the previous years.

Our long-term technique to change into a prime supplier of gaming equipment for all players on all platforms is monitoring effectively. To realize this aim, we leverage our clear management in console audio; repute for high-quality, revolutionary merchandise; robust model; and superior retail and operational execution. Succeeding with this technique permits us to greatest leverage the robust underlying traits throughout gaming total and meet our long-term goal of 10-plus p.c income progress. The truth is, combining gaming headsets, mice, and keyboards for each console and PC, we are available in on the No.

3 income share place within the U.S. for 2022 per NPD. This additionally positions us effectively to capitalize on the extra alternatives created in the course of the inevitable market turnaround, as mirrored in our income steering, to outgrow the market this 12 months. Subsequent, I am going to flip it over to John to cowl the financials in additional element, after which, I am going to present extra feedback about what we see for the market in our enterprise within the new 12 months.

John.

John Hanson — Chief Monetary Officer

Hey, thanks, Juergen, and good afternoon, everybody. As Juergen famous, our full-year income was $240.2 million, or $249.3 million in fixed forex, a mirrored image of decrease demand pushed by decreased client discretionary spend and vital retailer channel stock compression. This compares to the $366.4 million we reported final 12 months, which was the best income within the firm’s historical past. This fall revenues at $105.5 million in fixed forex got here in solely modestly decrease than 2021, indicating a progressive restoration on year-over-year quarterly income adjustments, as Juergen talked about.

In 2022, gross margin was 20.5%, in comparison with 35% in 2021, impacted by larger promotional credit because of an unprecedented mixture of aggressive aggressive pricing to cut back stock ranges, pandemic-driven excessive freight prices, and volume-driven mounted price deleveraging. Freight prices have declined considerably in current months, and we anticipate to see the profit in 2023. We additionally recorded a $9.8 million cost for potential extra parts and completed items referring to pandemic-driven provide chain impacts and the weak gaming market final 12 months. Excluding these nonrecurring objects, gross margin in 2022 was 24.5%.

Working bills for the full-year 2022 have been $100.7 million, in comparison with $108 million within the year-ago interval, and included $10.9 million in nonrecurring objects, with $7.4 million of that ensuing from final 12 months’s proxy contest and associated bills. Recurring working bills declined roughly 13%, a mirrored image of the proactive expense administration initiatives we undertook in mid-2022, in addition to the alignment of bills to decrease market demand. Our full-year adjusted EBITDA loss was $18.7 million in comparison with a acquire of $36.6 million within the year-ago interval. The year-over-year variance is primarily pushed by the objects I’ve coated above, together with greater than an estimated $22 million impression of upper promotional actions and better freight prices.

Non-GAAP web loss for the full-year 2022 was $25 million, or $1.52 per diluted share, in comparison with non-GAAP web earnings of $20.2 million, or $1.11 per diluted share, within the year-ago interval. We anticipate our efficient tax fee for the total 12 months to be roughly 25%. Turning to the steadiness sheet. At December thirty first, 2022, we had $11.4 million of money and $19.1 million of borrowings excellent on our revolving credit score line.

As of February 2023, the corporate has absolutely repaid the borrowings excellent on its revolving credit score line and is, due to this fact, debt free. Inventories at December thirty first of 2022 have been $71.3 million, in comparison with — excuse me — in comparison with $101.9 million at December thirty first, 2021. Now, as I mentioned on the final name, we anticipated our stock to say no because it has bettering money move. Lastly, this afternoon, we additionally introduced that our board of administrators has accredited an extension of our share repurchase program for an extra two years by April ninth of 2025.

Below this system, the corporate is allowed to amass as much as a complete of 25 million of shares in its — of its frequent inventory, together with these shares already acquired below this system earlier than this extension, at its discretion, once in a while, within the open market or in block buy transactions. And now, I am going to flip the decision again over to Juergen for some extra feedback. Juergen.

Juergen Stark — Chairman and Chief Government Officer

Thanks, John. We’re enthusiastic about our progress prospects and strategic positioning as we stay up for 2023 and 2024, given what we consider might be a progressive restoration of the gaming markets and our compelling product and market technique. This, mixed with continued superior execution, ought to allow us to take full benefit of the robust underlying long-term traits in gaming. Regardless of 2022 being down marketwide 12 months over 12 months, the muse of the gaming market is rising.

In line with Newzoo, the variety of international players elevated by 300 million since 2020, grew over 4% in 2022, and is predicted to develop by an extra 335 million by 2025. Avid gamers are additionally spending extra on gaming {hardware} with annual spend per gamer up over 20% since 2020. Even in final 12 months’s stoop, client spending on online game {hardware}, content material, and equipment all continued to pattern effectively above pre-pandemic ranges all year long. We’re inspired by the higher-quality slate of AAA video games, with a number of setting franchise document, and the robust outlook for video games this 12 months.

New-generation Xbox and PlayStation provide is predicted to considerably enhance, with DFC forecasting a 60% enhance in PS5 gross sales for 2023 versus 2022. Whereas tough to foretell, we consider that client spending on gaming equipment will slowly enhance this 12 months. We consider that client warning because of the broader financial system has brought about delayed upgrades in gaming equipment, which have traditionally been very dependable. This might lead to pent-up demand over the following 12 to 18 months.

The pullback in retailer stock ranges, which decreased gross sales considerably greater than client sell-through final 12 months, might also modestly get better over time and add gross sales in extra of sell-through. That mentioned, our 2023 income forecast of roughly 10% progress is pushed primarily by anticipated outperformance of the gaming markets in particular classes based mostly on our thrilling product plans for this 12 months. These product plans, together with extra launches in 2024, in addition to the continued execution of our total enterprise technique, initiatives us returning to 10-plus p.c income progress going ahead. We anticipate Q1 2023 gross margins of just below 25%, however full-year gross margins to be within the 28% to 30% vary.

These margins are considerably improved however nonetheless embody some headwinds from aggressive, aggressive discounting and residual higher-than-normal freight prices, significantly early within the 12 months after which sequentially bettering. Reflecting the roughly $10 million impression from these headwinds, we anticipate EBITDA to enhance by over $23 million to roughly $5 million this 12 months. Our long-term monetary outlook has us progressively returning to our profitability targets of 10-plus p.c adjusted EBITDA as we develop revenues over time. We anticipate quarterly income phasing in 2023 to be roughly 17% in Q1, comparable proportion in Q2, and about 65% of income within the second half.

We proceed to consider gaming is a good market to be a frontrunner in, and we’re targeted on capitalizing on the robust alternative in 2023 because the market recovers from the 2022 downturn. The important thing pillars of our long-term technique are as follows. First, proceed to guide within the $1.4 billion console gaming headsets market the place we’ve maintained management, by far, for 13 consecutive years. Our long-standing repute for high-quality, revolutionary merchandise for all ranges of players and superior retail and operational execution present a robust basis for continued management and progress in new classes.

Second, proceed to increase our PC gaming portfolio of headsets, keyboards, and mice, and develop our share in that giant $3.2 billion PC equipment market. Whereas the PC equipment market was very challenged for all contributors this previous 12 months, we’ve thrilling merchandise and plans as a part of our multiyear plan to change into a serious participant on this giant class. Third, drive continued growth and progress within the gamepad controller, simulation, and mic classes that we entered in 2021. With effectively over 100% progress in these classes this previous 12 months, and our first flight simulation product reaching No.

1 in U.S. gross sales, we’re full velocity forward on this a part of our progress technique. And fourth, proceed to establish and selectively consider different progress alternatives, together with new product classes and increasing in goal geographies as we’ve with Korea and Japan. This technique has and can proceed to allow us to take full benefit of the compelling long-term traits within the international gaming market and fulfill our goal to drive worthwhile progress by natural investments and selective M&A over time.

Our aim is to create long-term shareholder worth by executing on our technique and delivering on our long-term targets of 10-plus p.c annual income progress at 10-plus p.c EBITDA margins. Lastly, I need to thank our nice workforce at Turtle Seaside for his or her continued arduous work and dedication. With that, let’s flip to our Q&A.

Questions & Solutions:

Operator

Thanks. We are going to now start the question-and-answer session. [Operator instructions] One second for first query. Our first query comes from the road of Mark Argento from Lake Road Capital Markets.

Your line is open.

Mark Argento — Lake Road Capital Markets — Analyst

Hey, Juergen. Hey, John. Only a couple fast questions. First off, simply wished to get your view on the, , retail channel from a listing perspective appears to be like like.

After which, what are you seeing from retailers? Are they beginning to do some restocking, or are they nonetheless taking it fairly conservative?

Juergen Stark — Chairman and Chief Government Officer

Hello, Mark. Good to have you ever on. Nice query. Retail inventories, which have been larger than regular as have been the inventories of suppliers throughout 2022, are in moderately good condition coming into 2023.

I am unable to converse for others within the class, however, , we have truly had some restocking proper on the entrance of the quarter and are literally, in a pair merchandise, , low on provide in our personal stock in addition to retail stock. And that’s only a reflection of getting This fall, , effectively balanced, as I coated within the script, by way of sell-in and sell-through. So, we be ok with the place our stock is. And that is a part of the rationale why Q1, at 17% of the 12 months, is somewhat larger than regular, truly.

Mark Argento — Lake Road Capital Markets — Analyst

That is actually — that is tremendous useful. After which, are you able to discuss somewhat bit about, , the view within the 2023 by way of the expansion? Looks as if you are feeling fairly comfortably in a position to develop the enterprise not less than 10%. You understand, are you — is the important thing driver actually the put in base of consoles? Or what — are you able to simply remind us once more type of the important thing drivers of your expectations and to have the ability to develop the enterprise in 2023?

Juergen Stark — Chairman and Chief Government Officer

Sure. We anticipate the ten% progress goal and our progress to be pushed actually by us outperforming the market in choose classes. And for aggressive causes, I am not going to cowl which classes, nevertheless it’s based mostly on our product plans for this 12 months. What meaning, principally, , our underlying assumption for the gaming markets, which clearly all dropped a ton final 12 months, is flat to up barely this 12 months.

That is the underlying assumption for gaming. And that is actually pushed by two issues that are counteracting one another. The primary is a restoration within the underlying dynamics for the gaming market, higher video games, extra console provide, however largely offset, significantly earlier within the 12 months, with what we view is, , nonetheless reluctant client sentiment, and that we anticipate to get better in the course of the 12 months. However the two of these, in our view, our forecast, whereas it is tough to foretell, clearly, is a market in gaming that is flat to up barely, main our 10% actually to be pushed by our particular progress plans and new product launches in the course of the 12 months.

Mark Argento — Lake Road Capital Markets — Analyst

OK. After which, only one closing one for John. When it comes to the steadiness sheet, appears to be like like stock was down. What do you anticipate, , working capital wants? Are you web generator for extra working capital this 12 months? How are you serious about the steadiness sheet?

John Hanson — Chief Monetary Officer

Yeah. So, good query, Mark. So, we do anticipate to be a web generator of working capital in 2023. Clearly, as we proceed to handle the stock and return the enterprise to constructive EBITDA, , that is going to be a key driver for us, which is why we additionally introduced at the moment that we’re extending the share repurchase.

We anticipate to generate money flows right here over the following two years, definitely.

Mark Argento — Lake Road Capital Markets — Analyst

Proper. Thanks, guys, and good luck this 12 months.

Juergen Stark — Chairman and Chief Government Officer

Thanks, Mark.

John Hanson — Chief Monetary Officer

Thanks, Mark.

Operator

A second for our subsequent query. Our subsequent query comes from the road of Drew Crum from Stifel. Your line is open.

Drew Crum — Stifel Monetary Corp. — Analyst

OK. Thanks. Hey, guys. Good afternoon.

So, Juergen, simply need to higher perceive the adjusted EBITDA steering. You understand, if I take a look at 2017, you reported about half the gross sales that you just’re forecasting for this 12 months however reported an adjusted EBITDA determine that was greater than two occasions versus what you are projecting for this 12 months. So, I suppose simply need to higher perceive the places and takes on the way you’re serious about adjusted EBITDA for this 12 months relative to some prior years.

Juergen Stark — Chairman and Chief Government Officer

Yeah, good query, Drew. So, adjusted EBITDA is actually transitioning and recovering this 12 months. And it displays — the roughly $5 million displays round $10 million of impression in — , from freight prices, which nonetheless, residually, are excessive, significantly within the first few quarters. That will get progressively higher fairly rapidly as we undergo the 12 months, and it is also fairly dependable by way of an enchancment.

Final 12 months, we had an impression of round $11 million from freight, and this 12 months, the impression is estimated to be round $3 million. So, that is type of primary. Quantity two, aggressive, aggressive promotional discounting, which created roughly one other $11 million impression final 12 months, is predicted to proceed not less than by the primary half and has a few $7 million impression in our, , forecast and EBITDA steering. We anticipate, , whereas we’re in good condition on stock, , with pockets which can be heavy and pockets which can be gentle, we’ve to take part when opponents are driving heavy discounting and defend our turf.

And so, that is type of factored into our EBITDA plans this 12 months. And the very last thing is, keep in mind that — I feel you — have been you copping to 2019?

Drew Crum — Stifel Monetary Corp. — Analyst

I discussed 2017, $149 million in gross sales that 12 months.

Juergen Stark — Chairman and Chief Government Officer

Proper. So, keep in mind that the enterprise now’s — the income generated as a enterprise now spans a number of classes and geographies. And people — every of these classes include R&D prices, with advertising prices to launch merchandise, with price to help progress in geographies. We — simply for instance, we’re in Korea and Japan, and that is going very well with good progress over the previous few years and this 12 months.

However every of these comes with a bit of opex to help that enterprise. And so, you actually cannot evaluate to a enterprise years in the past that was primarily, , single threaded in console gaming headsets that have been principally North America and Europe based mostly.

Drew Crum — Stifel Monetary Corp. — Analyst

Obtained it. OK. That is smart. After which, possibly a follow-up, I feel, Juergen, in your preamble, you talked about ASPs being up 7%.

I missed if that was particular to consoles or throughout all the portfolio. However — nonetheless, how are you serious about pricing for ’23? Can you are taking pricing on this atmosphere? Is that a part of the income progress that you just’re assuming, or possibly not?

Juergen Stark — Chairman and Chief Government Officer

Yeah. So, a few issues. The 7% progress in common promoting value was throughout the combination of our console headsets portfolio in america, which is fairly spectacular on condition that the market, with out us, dropped 4%. And that 7% is — was considerably helped by us taking on 40% market share in $199 value tier, proper? So, actually up from roughly zero, by the way in which, in that tier.

So, we have moved up tier by way of pricing, and that is helped pull our ASPs up. And that pattern has continued going into this 12 months. A part of that’s inflation-driven value will increase as effectively. However by way of our plans, we do not have plans to someway, , aggressively transfer pricing.

Our hope is that — , in distinction to that, that the discounting stage that is been pervasive amongst opponents within the trade in all of our classes will return to regular. And that may, in and of itself, drive, , higher gross margins as we undergo the 12 months, and higher common pricing.

Drew Crum — Stifel Monetary Corp. — Analyst

Obtained it. OK. All proper. Thanks, guys.

Juergen Stark — Chairman and Chief Government Officer

Thanks, Drew.

Operator

One second for our subsequent query. Our subsequent query comes from the road of Jack Vander Aarde from Maxim Group. Your line is open.

Jack Vander Aarde — Maxim Group — Analyst

OK, nice. I admire the replace, guys. Thanks for taking my questions. Juergen, non-console product gross sales has clearly ramped fairly properly, and it hit 25% of your 2022 income.

Are you able to simply remind me — remind us once more of your targets for these non-console product gross sales combine over time? Do you see that ramping in 2023? Simply any type of directional feedback there, after which how that type of splits all through the steadiness of 2023 as effectively.

Juergen Stark — Chairman and Chief Government Officer

Positive. So, yeah, that 25% displays vital progress over the previous years, on condition that quantity was near zero just a few years in the past. We see, this 12 months, the PC equipment enterprise persevering with to be very challenged. That class was extremely, , extra so challenged even than console headsets by way of market drop and aggressive discounting.

So, we anticipate this 12 months to be roughly flat in PC, up a bit within the new different new product classes, controller, simulation, microphones. Now we have held off on our investments and plans in microphones as a result of that class already, early in 2022, was actually not monitoring effectively. So, that was the fallacious time for a small new participant to start out advertising and creating a model and selling merchandise, that we anticipate to return extra aggressively within the microphone class in 2024 however not in 2023. And so, I might anticipate the 25% to be roughly comparable in 2023 given all these dynamics.

Jack Vander Aarde — Maxim Group — Analyst

Obtained you. And that is useful shade. After which, type of again to gross margins. On a unit economics foundation, I feel, prior to now, you’ve got type of had this concept.

I feel the image is, like, each product is roughly comparable gross margins on a unit foundation. However, , you’ve got carried out some value will increase on sure merchandise lately, acquired some freight impression and different impacts on stock. Is that also the case at the moment, type of roughly the identical throughout your entire product portfolio? Or is it — are you seeing a shift?

Juergen Stark — Chairman and Chief Government Officer

It nonetheless is roughly the identical, Jack. And we have merchandise in all classes that some have higher gross margins than our goal of mid-30s. Some have decrease gross margins. It actually depends upon the kind of product, the fee construction of that product, and most significantly, the precise value tier we’re making an attempt to hit with the product.

So, that is type of an total view. PC tends to trace a bit decrease than the mid-30s goal. The opposite new classes, like simulation, specifically, have a tendency to trace somewhat above, and console tends to trace proper across the mid-30s goal. And regardless of the challenges for gross margins pushed by freight prices, that are coming down, and extreme stage of aggressive discounting, we’re sustaining our long-term gross margin goal to be within the mid-30s.

Jack Vander Aarde — Maxim Group — Analyst

OK, nice. That is it for me. Thanks.

Operator

One second for our subsequent query. Our subsequent query comes from Martin Yang from Oppenheimer. Your line is open.

Martin Yang — Oppenheimer and Firm — Analyst

Good afternoon. Thanks for taking my query. Juergen, first query to you is, I am assuming different opponents are additionally serious about growth of their product portfolio. Are you able to possibly elaborate on how do you plan to distinguish Turtle Seaside merchandise and throughout the totally different classes — or throughout the principle classes you are competing?

Juergen Stark — Chairman and Chief Government Officer

Positive, Martin. The — , our repute and our management in console headsets for greater than 13 years now’s actually pushed by the merchandise, merchandise which have launched improvements at a tempo and significance to customers which can be unparalleled within the class. And, , that innovation — the sustained, long-term innovation is a part of what’s behind the roughly 375 patents that the corporate has. So, that, in the beginning, is why we’ve received prior to now and why we consider we proceed to win in these new classes.

And albeit, the flight simulation product, a brand new class for us, we employed in the best experience with deep data of that class from an engineering and a product standpoint, launched the primary product and took the No. 1 share place within the U.S. in its first full 12 months. And that product — that was pushed by a product that had high-quality and distinctive improvements relative to anything that had been out there or was out there on the time.

Martin Yang — Oppenheimer and Firm — Analyst

Obtained it. Thanks. My subsequent query is about ROCCAT. We’re virtually 4 years into the acquisition.

How do you consider the 2 manufacturers? And is there any intention so that you can possibly consolidate two or all the things below Turtle Seaside?

Juergen Stark — Chairman and Chief Government Officer

That is an ideal query, Martin. Multi-platform gaming is definitely turning into increasingly more pervasive. Now we have deliberately made increasingly more of our console headsets multi-platform to journey that wave, primarily. And we suspect, truly, that loads of our console headsets may be being utilized by PC players.

And I commented on that within the ready remarks with us having the No. 3 model loyalty place amongst PC — hardcore PC players in america. So, all that mentioned, proper now, our plans are to proceed with the ROCCAT model whereas making customers increasingly more clear that ROCCAT is a part of Turtle Seaside, a part of that model, and that repute, and that retail power, and all the things that comes together with that. After which, we’ll see how that progresses over time.

Martin Yang — Oppenheimer and Firm — Analyst

Obtained it. Thanks. My closing query is on competitors. You understand, based mostly in your remark, the previous 12 months, have you ever seen any new opponents coming onto the gaming accent area from maybe non-gaming background? And the way would you characterize the general risk to your market share?

Juergen Stark — Chairman and Chief Government Officer

No — no significant new opponents outdoors of the class come to thoughts, Martin. You understand, what we have seen within the final 12 months is identical opponents. Everyone seems to be competing throughout a number of classes, which is — , a key driver for us to have expanded our TAM from 1.4 billion to over 8 billion in the previous few years is to play in all of those classes, ship nice merchandise to all players throughout all classes over time, as a result of that is additionally what the competitors is doing. And it opens up loads of white area for us that may assist us drive progress.

What we have seen competitively actually that is been a change final 12 months is simply actually aggressive aggressive pricing and promotional exercise. And it may be pushed by the truth that we had a way more conservative forecast than others within the class. And, , that will have led others to have a a lot larger stock subject than we had in a market downturn final 12 months. And so, we hope that subsides and goes again to regular because the opponents, , promote by their stock.

Martin Yang — Oppenheimer and Firm — Analyst

Obtained it. Thanks, Juergen.

Operator

Thanks. [Operator instructions] One second whereas we compile the Q&A roster. And I am not displaying any additional questions right now. Now flip the decision again over to Juergen Stark for closing remarks.

Juergen.

Juergen Stark — Chairman and Chief Government Officer

Thanks very a lot. We stay up for talking with our buyers and analysts once more in Could. Thanks to your participation and curiosity in our firm.

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

Alex Thompson — Investor Relations

Juergen Stark — Chairman and Chief Government Officer

John Hanson — Chief Monetary Officer

Mark Argento — Lake Road Capital Markets — Analyst

Drew Crum — Stifel Monetary Corp. — Analyst

Jack Vander Aarde — Maxim Group — Analyst

Martin Yang — Oppenheimer and Firm — Analyst

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