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If you’ve been playing online games or doing a lot of Zoom calls during the pandemic, chances are you’ll need a good headset. And these aren’t easy to find as you may think.

And that’s the opportunity at hand for Turtle Beach, the San Diego, California-based maker of gaming accessories such as headsets, mice, keyboards, and other peripherals.

Turtle Beach CEO Juergen Stark said in an interview with GamesBeat that gamers hunkering down are making sure they have good equipment. Add to that the popularity of battle royale games like Call of Duty: Warzone, which require quality headsets with good microphones, as well as the need to talk to people on business video calls, and you have a kind of perfect storm, Stark said.

Market researcher NPD said March sales grew 12% to a historic level from a year earlier for gaming accessories, and they found that Turtle Beach had the No. 1 headset again in March, with the Xbox One Ear Force Stealth 600 Wireless Headset.

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I talked to Stark about this trend after the company reported its results for the first quarter ended March 31. Revenues in the quarter were $35 million, with a net loss of $3.6 million. Stark said that Turtle Beach recently acquired Roccat to boost its accessories business, and the company has been investing heavily in R&D to develop new lines of business.

Still, Stark said that the coronavirus-related growth prompted the company to upgrade its estimates for second-quarter results to a revenue range of $42 million to $47 million in sales. The company also upgraded full-year revenues estimates to be $224 million to $234 million. That means that Stark expects a real boost because of the trends we mentioned, and he expects to continue to be the No. 1 player in market share for gaming headsets for the U.S. market.

Here’s an edited transcript of our interview.

Above: Juergen Stark is CEO of Turtle Beach.

Image Credit: Turtle Beach

Juergen Stark: January and February were down year-over-year for the whole market. The market in March shot up 39% year-over-year. This is using U.S. console headset sales data. We shot up more than 50%, because we also gained more than 500 basis points of share in March. Demand, in a way we’ve never seen in the past, even during the Fortnite year, just went through the roof.

GamesBeat: For this quarter, was it just the last two weeks of March that were affected by higher demand, or was it more like the whole quarter?

Stark: No, it started in roughly mid-March. It might have been when stay-at-home orders went into effect, basically. It might have been some of the second week of March versus exactly on March 15, but it wasn’t even all of March.

GamesBeat: For the full year, you’re now forecasting better sales as well, right?

Stark: Yeah, largely driven by a significantly increasing Q2. We’ve increased Q2 because the demand we started seeing in March has continued into Q2 here, through today. That doesn’t mean it’s ending today. It just keeps going.

GamesBeat: Is this shifting almost entirely to digital sales for you, versus brick-and-mortar?

Stark: No, it’s still a lot of retail sales. Walmart and Target have largely remained open, and they’re big customers of ours. Best Buy and GameStop, although it took GameStop a little longer, they both shifted to touchless pickup. And then obviously everyone has increased, including our own website, e-commerce sales significantly.

We’re surprised at how quickly and how well retail has adjusted to, in some cases, closed doors and all these social distancing measures. March this year was the highest March sales of console gaming headsets in the U.S. in history, even higher than the March during the Fortnite year, despite all of the constraints at retail.

GamesBeat: It looks like there’s a challenge here because you still have a net loss on the quarter. You’re projecting a net loss for the whole year as well. It feels like that’s a little inconsistent. You have this great demand, but still a forecast for losing money?

Stark: We’re investing about $9 million this year to drive our entry into PC gaming accessories. Expanding the portfolio and driving the Roccat brand. We’re investing for future growth. That’s going very well. If we didn’t have that, then net income would be positive this year. That’s the reason for it. Even now, with the increase, the higher end of our guidance range has us in positive profitability. It’s not inconsistent. It’s like other companies that are investing to grow in the future.

GamesBeat: Is the business still a pretty competitive one?

Stark: It’s always been competitive. We’ve led our category for more than 10 years. We have higher market share than the next three players combined in console headsets. Despite that, we’ve even grown share in March, as I mentioned.

Above: Gaming headsets are in high demand.

Image Credit: Turtle Beach

GamesBeat: Was that referencing U.S. retail?

Stark: Yes, it’s U.S. retail.

GamesBeat: Are you expecting more changes in market share happening in Q2, or for the year?

Stark: Typically we’ve been above 40% in market share for many years. Last year our market share was well into the 40s. We gained some share in March here. I expect that our share performance will be quite good in April. That will probably flow through to what will, again, be good share performance for the year. Whether our share is up or down a few percent for the year, I think the most important thing is that we’re in the 40s, and the next closest competitor is in the high teens. We’re so far ahead of everyone else, whether we go up and down a few percentage points, it affects our revenues, but it doesn’t affect the fact that we’re by far the leading player and have been for more than 10 years.

GamesBeat: Do you feel like people are replacing headsets that didn’t work, or are they just getting them for the first time? Are they using them for work? What’s some of the user feedback you’re hearing?

Stark: It’s a bit hard to judge, but I would say that given the strong increase in demand, it’s coming from all of the above. It’s typically less headsets that don’t work or break. What happens is people upgrading their headsets, getting the next better one. Moving up from earbuds or a passive headset to an amplified headset, or from an amplified headset to a wireless headset. One thing we’ve always done well is — almost in $20 increments, you can get a lot more functionality. The upgrading of headsets among the active installed base of users has always been the primary driver of market sales every year. It’s not new gamers.

Now, in this environment there might actually be some new gamers who are coming in, or new headset users. Nintendo’s Animal Crossing, for example, has voice chat. That could be attracting headset users. The other thing is that we’ve seen guidance for not sharing headsets. It’s also possible that kids in a home where they were sharing a headset are now wanting to get their own headsets. That could be one of the drivers. And then the last thing is, we’ve definitely heard anecdotally that people are actively using our gaming headsets for their at-home learning, videoconferencing with teachers, and working from home.

GamesBeat: When it comes to the kind of gear they’re getting, are microphones a priority as well, versus just headphones?

Stark: We sell headsets, as opposed to headphones. All of our headsets come with mics. They’re being used for two-way communication, which is why they work well with Zoom and that stuff, which has also taken off in the last month and a half here.

GamesBeat: So you don’t really play in a headphone market.

Stark: We don’t play in music headphones, no. All of our audio products have microphones. They work well for music, too, and a lot of them allow you to disconnect the mic, if you want to use it on a plane and just listen to music. But they come with two-way communications.

GamesBeat: How many different models do you have now? What is the price range like?

Stark: We have products that go from $20 up to more than $200. I’d say there’s probably 10 core models per platform — 10 for Xbox, 10 for PlayStation, and then four or five for Nintendo and mobile gaming. A lot of headsets will work across all those categories, but that’s the rough count. Those are core models, though. That doesn’t include–many models will come in three different colors, for example. That’s not the number of SKUs or products we have, which would be in the many dozens.

GamesBeat: Toward the end of the year, we have the new generation of consoles. Do you expect good demand from that as well?

Stark: Yes. Before the stay-at-home measures went into effect, we had already communicated that we expect the console gaming headset market to be down around 20 percent in the first three quarters, and then up in Q4. Our forecast was that would result in the market being down about 11 percent on average, because Q4 is a much higher portion of the year than the first three quarters. But this has changed the dynamic, because now we’re in the middle of this huge surge in demand. But yes, we would expect that once the new consoles launch during the holiday, and then into 2021 and 2022 — typically you have two years of higher than normal growth after new consoles get released. That’s our expectation in this round as well.

Above: Turtle Beach gaming headsets.

Image Credit: Turtle Beach

GamesBeat: It must be harder to forecast what’s going to happen in the third and fourth quarters, whether we’ll still have lockdowns and things like that.

Stark: We’ve raised the numbers for the year. We believe that the year will be better than we had forecast by $10 million in revenue and $4 million in earnings before income taxes, depreciation, and amortization [EBITDA, or a measure of profitability]. That’s factoring in, I would say, some conservatism about the second half of the year. Assuming that things will go back to normal quickly. If they don’t, that could add to the numbers. Also, the other unknown is what the economic environment is going to be like and what that does to the gaming market. If people are unemployed at home, that doesn’t mean they’re not gaming in some cases. It’s not clear to us whether that’s a neutral or a negative or maybe even a positive.

GamesBeat: Are you able to manufacture and ship without problems?

Stark: We have manufacturing partners in China, and significant manufacturing now outside of China as well. That’s all back to normal. It was disrupted earlier in the year, but product supply is going well. In fact, not only is it back to normal, but we’ve managed to significant increase it in the past month and a half as we saw the spike in demand. Stock levels will be lower than normal in Q2. We’ll be in catch-up mode for a while. But in general we’re executing very well in terms of maximizing every possible part of supply that we can.

GamesBeat: How many people do you have working for you now? Has that changed much in recent times?

Stark: We’re in the upper 200s. Call it around 250, 260. We acquired Roccat last year. That added teams with experience and capabilities in building PC accessories, in particular keyboards and mice. It’s a German-based company with a very good reputation, very good products. We acquired a team in Germany and a team in Taipei.

GamesBeat: Do you have to hire people to help deal with this higher demand?

Stark: In general, no. We may have some temporary workers helping with things like the website, telephone calls, things like that. But in general, other than accommodating some temporary increases in volume, we’re not adding a bunch of headcount.

GamesBeat: As far as who makes up your competition, what does that look like now? Has that changed much over time?

Stark: It’s always been a competitive market. The landscape hasn’t changed a ton over the past few years. Logitech bought Astro. Logitech is a bigger player in the PC accessory category. Astro is more on the console side. We’ve seen smaller players come and go, but other than that, I’d say the dynamic–it’s been competitive, and we’ve always done well in the competitive environment. No major shifts, I would say.

Above: Turtle Beach had a small production hiccup during the COVID-19 shutdown in China.

Image Credit: Turtle Beach

GamesBeat: Are there other ways you’re strategically thinking about the business because of the current situation? Do you need to shift product lines or anything like that?

Stark: I’d say no major shifts. We’re fully continuing with the investments we’re making to grow our PC portfolio and build on the Roccat brand that we had in place before. Obviously the great performance of the business is making that investment timing very good. Other than that, we have a very good supply chain, very good operations team. That continues, and that’s helping us a lot in this environment.

We feel fortunate. One thing we did early on, and I didn’t mention it in the earnings call because we didn’t do it for publicity reasons–we realized that we were in a position where people needed our products to be entertained at home, and were working and learning from home with our products as well. We put a lot of effort into keeping up with demand.

We also, very early in the coronavirus situation in March, authorized each of the offices to spend some money to find creative ways to support first responders and medical teams in their local communities. Our teams in New York and Mexico and London and Hamburg and San Diego have come up with a lot of cool things to help medical workers, people on the front lines in the middle of the crisis. We feel for those people, and we tried to help.

One other point I made on the earnings call, the last two months for me–we’ve always had a very good team here. Our team has been phenomenal in terms of adjusting to work at home, with all the challenges associated with that, literally overnight. Not missing a beat on any part of the business, and working in an environment that needed us to immediately ramp capacity, supply, all of that, and dealing with an environment where the retail dynamics were changing week to week, country to country. I couldn’t be prouder of the team of colleagues we have here. Normally I don’t start an earnings call with that point, but I started with it today, because it’s been amazing. It moved me and inspired me, what the great team we have has done over the last two months.

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