Turtle Beach (HEAR) 6 Aug 202020 Q2 Earnings call transcript

Good morning ladies and gentlemen and welcome to the Turtle Beach second quarter 2020 conference call. Delivering today's prepared remarks are Chairman and Chief Executive Officer. Juergen Stark and Chief Financial Officer, John Hanson.

Following their prepared remarks, the management team will open the call up for any questions.

Before we go further, I will like to turn the call over to Sean McGowan of Gateway Investor Relations, Turtle Beach's IR advisor as he heads the company's Safe Harbor that provide important cautions regarding forward-looking statements. ahead. go please Sean,

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

expressions today. the Please be will aware uncertainties expectations Finally, of involve a such within beliefs Statements containing company's in to company's laws. constitute Turtle Investors the could, the regarding website current section the as the about securities statements. words later this from include believe, of recording results some Corporation's These available cause operations of differ during that risks call could will, materially be results the that call statements management's and and Beach meaning future and made forward-looking federal the and may, of comments forward-looking company's the may statements similar expect, anticipate expectations.

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

statements company company's other Report undertake Harbor that encourages principles Report this actual in accepted on in materially publicly its is and to described does United call, periodic with in notes as press States accounting identifies from Form XX-K, or reported So review non-GAAP risk information. Executive. cause a earnings differ can The any the or find I without most in results discussing Chief forward-looking financial revise to XX-Q reconciliation Annual reconciliation its on Form Securities their to Quarterly may that including, limitation which not statements. you in forward-looking this Stark, release will conference update of with our statements you that and and provided and contained to will generally events the providing today's accordance And after the turn specific releases supplement information over The factors company results reports, tables GAAP Factors Safe or on also prepared also filings Risk those in to Chairman today's and Exchange company's recent presentation. Commission, Juergen? the company now, GAAP and we and to be company the metrics the information call call. The a Juergen the these in the

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record Our the surge. than almost of higher than quarter at gaming only $XX of quarter, the the second quarter sales battle $XX previous not second for but royale driven more XXXX million, for our a in June XX% the the million were height record

the we us but accessories on increase gaming, a demand able related demand, this would software to retail outpace PC our for level and quarter. well for execution record revenue are be which as products talk of hardware, to And again how and full and including us. consoles supply in as were powerful about increasing on based brand outlook strength to let's enabling of our sales not everything levels increase we for our second and the and capitalize produce market result, once in profits $XXX So for this to record to as both year the significantly the million, a and for only

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I of Note have entertainment the gaming home gaming the and market purchases of that, top on a gaming later. not only as many And entire our console years, headsets Of in driven in at a accessories and gaming. being past will stay other headsets work increase great a non-gaming purchased or across for and have expand bit are of the like loss growth videoconferencing forms work, socializing and socializing. been but growth happening for that on line, course school over product for but good orders is dramatic

were the many consistent noteworthy is of our the it One forecast. initial months down about year, gaming mask so The figures two of was. unexpected things with that how fact year-to-date growth first the this is in categories growth the that

way we we as headsets of trends in launch will a We where see drove Instead, or of and our new drive down XXXX term some has pocket will be to think Based we from research market boost royale consumer XX not analysis, size. sales. similar increase the the battle have surge would a growth, first XXXX be sustained the a surge longer extensive have of we on And market surge pocket, year, and demand. just a turned the Sony including we prepare the expected across accessories three into entire line. air an consoles month, calling over these more tremendous Category consumers nine turbo for a we existing air product translating past into the for where in of are to gamers Microsoft. gaming record one, purchasing gaming completed this turned the year of see believe year console months it drivers that's into and the been our one-time

forwards, in headsets. general could these the a increase gamers of gaming portion a Category expect be gaming we sustained installed we to in that While gamers of purchases believe adds term the and lapsed increase. with This drive base new long are gaming and gaming can is pulled may three, which, they market. drive and size the to with for Gaming headset great users non-gamers long at buying Category if home. schooling likely, for term in increase of headsets which work history are continue video game socializing a indicates headsets the this. working, two, headsets

that headsets of work Some school for of them demand is trends also new and this home are headsets. for from source gaming. these To the our a continue, using extent

to roughly across three believe us factors impact categories. three equal of the the is Our analysis of leads each these

and categories roughly categories, why headsets across of drive not increases three our units their all PlayStation could one-third XXXX. production incremental for all each two from is increased product March would the And drive units This we to which gaming the initial decision Categories seeing demand So driving gaming just one million of categories. incremental demand months. across boost six all over [X:XX:XX.X] by order sustained demand. to are million past X XX

but think also the by to in sales is not it. reporting our is it's growth rates industry, competitors our they driven are all couple as from demand not but the categories factors. note our that I performance are a ability to to ours. by important driven the strong of Most in just by benefiting This product growth as strong respond surge,

we Then the which immediately output. an get over that matter to as we open is the our know production. markets to the will clock well. cetera constantly of March, to in was was with drastic noticed dynamics, worked weeks, within output uptick five our supply partners And this the a but We and then value to versus $X get into few able partners our more retail to offline, of weeks, and country-by-country as in factories were our demand the local these million we were early versus factory back amount the increase while as the factories First, spent online right this reduction a worthwhile them we a extra given to make with sure product in right roughly retail the challenge around were Within times from our soon to outline financially capacity. very we triple achieve putting basis. efforts were as All enormous able who had team we John retail freight in do finally, our planned the air product available closed, shifting worked on et locations. we this

As our headsets growth. console I said driving earlier, it's that just are not

very up well. XXX%. PC products sales for is our strong headsets, than up PC peripherals, XXX% growth seeing second and retail more gaming mice, In quarter, our and PC as accessories was in market the We keyboards U.S. are which of the were

back outpace product PC in and in In accessories all our stay thank over the each these accommodate had have With to months, of great the I executed of work to about the U.S. orders. would home U.S. balance will make well exceeded and given headsets market, other we that team remotely to board category particularly all all the across the of after additional and other many the our incredible performance and market to again challenges of each come gaming extremely working the major that that, at for over in to year. John to PC which I the like enabled most adjustments the us five performance, the past With us fact, globally we our mind, and largest the across our markets. I in our We see will in comments have call the console some John? market the review for turn dimensions in what of with markets. financial

good and Thanks Juergen everyone. morning

XX better positive been, of our another of business to on quarter headset than a quarter consider metrics. basis some past idea stopped strong XX trailing expected roughly consolidated And our quarters. XX% adjusted are our business for positive since been We report GAAP and that HyperSound quarters. our has EBITDA XX-month consecutive all consolidated you posted how gross investments consistent we basis financial every for in EBITDA on pleased XX-month across margins To every a has of quarter Since XXXX, the we adjusted results give trailing our very have XXXX. between reported has XX% XX-month trailing

our acquisition our in during margins, have $XX.X while basis we back in currency the revenue as $XX.X to increase and ago increase gaming ability console able Juergen consistently been or quarter since both sales seen million compared to reflected quarter was good for and June quarter over $X some lower increase company $XX.X quarter. we of mix, ROCCAT XX.X% XX% year quarter XXX EBITDA driven outlook as were investment to the basis. constant The to margin higher January quarter strength the by roughly last XXXX. adjusted than XX.X%, year So by normal our growth. second fixed the we the the million drive one The the partially end These any driven when revenues. entire XXXX of for the in positive The and issued on million leverage, became revenue given facilitate in $XX covered increase recorded opposed including higher was ebbs than lower ROCCAT and other a significantly the driven promotional million in the a the put incremental business by above of a June expenses freight and in quarter air inclusion compared in Net supply second mid-June was points Gross Operating a expenses above of PC second in volume public and this month levels in offset transaction second May. year growth, portion and driven year, increase essentially increased than to high business by million XX-month cost of million to sales compared in accessory, of on the demand second were in to to quarter. marketing XX% cost, higher the quarter several the The revenue the and were XXXX. in future reported $XX.X quarter driven quarter related generate expenses the has partially was second gross was nearly quarter. issued headset same just cost basis in $XX.X of increase million by expenses revised the the favorable XXXX last to in in of surge our volume initial in selling offset rapidly personnel XXXX factors, early flows

the year we beneficial outstanding million key why as leverage quarter. which on net portion freight primarily contingent XXXX million compared incremental for $X.X of for was adjusted growth in a per was ROCCAT to diluted the the a shifting revenue, supply the shares in acquisition result quarter. XXXX is leverage Year-to-date, of Accordingly, or ago of or that our gross period. in to second share outstanding $XX.X investments. of net increasing net fair weighted higher related in and second share value diluted income quarter quarter loss $X.X operating than $X.XX growth XXXX, consideration the expedite quarter of comparable well the year-over-year is $XX.X XX.X the XXXX a $X.XX the income a from quarters air covered. the $XX.X was us provided on Net of second quarters loss. strong shares the continued average margin XX.X the is a loss in adjusted $X.X goal million million. and is for as with is adjustments Adjusted of was The in quarter. weighted to which million and just the why loss of as ago higher share compared usual, excludes are a the count profitable income of ago EBITDA quarter in in share cost is financially EBITDA year our have average diluted Note includes to $X million as the by million to driven reflecting count compared in higher a of committed of profit revenue diluted net As year compared $X.X to commentary per share, second changes us. a outstanding diluted on per revolver flow during operating I to quarter throughout borrowing spending cash million. $X.X Cash allowed from on second Net operations the $X.XX XXXX the million an million in to net cents over This million any as well were expense quarter was adjusted and loss improvement continued $X.X of zero to quarter transaction

year that guidance call. As the full if our higher exceed mentioned provided rate I we be in back could effective March, we tax on

Juergen increasing cover, full significantly rate XX%. year expected the now for the outlook for as approximately XXXX so are our to year, will financial be is tax We

a June and XX, $XX.X revolving of million Now en inventories XX, line. million end At the turning in with compares $XX.X outstanding of this revolving route our equivalents sheet. June cash debt was the remain quarter significant centers increase at credit at in inventory and reducing low. June cash debt XXXX. as sales The at XXXX to inventory equivalents This stock compared to XXXX, distribution the levels balance had cash June million in facility of was our to under at $XX retail were $XX.X to million and under our portion $X.X we and year. of driven XX, last our Inventories million strong XX in decrease zero credit by fact cash

over to additional Now I for comments. Juergen? will turn the back call some Juergen

beyond. Thanks will second comments John. year what with of on see the finish and I we some the for half

good half and than to significantly pandemic economics are result. and for of level uncertainty dynamics a year rest outcomes the are as significant create the a of and expect there in year, very a outlook our full that While second increasing market have variability normal we related higher

well-positioned and these now. We believe I optimistic be on we continue expand to future. excited points are also very for and XXXX will the about

our remains of said, retail continues amount significant the John a low have As end product we inventories has product very June. of of arrived and arrive since and that to

strong the sales incremental the covering QX So drivers key of started and headset with refill. analysis through talked our I over months. past continues channel three

Our view higher new headsets. gamers headset existing to non-gaming is being activity sustained amongst the as buyers gaming well for as of and gaming be as a buy-ahead half headset in to the users, for the while is demand higher added overall, likely result there gamers, some second level likely lapsed that are

continue Microsoft that our we and be net planned, expect given items they will console exciting console expect several retail for console sales headsets. the as well In headsets above headset Sony shortly. estimates brand, new outpace that statements the launch to to addition, announcing new and able be we And incremental chain the that expect to to consoles we to by given the to market holds, prior execution, as supply be our if holiday as

in sales exceed year. performance this lineup products PC business accessories exciting earlier in our the and in current several PC given will our coming expectations, PC believe past trends, also We market our our new months the

have acquired we and to XXXX, the related fully integrated new in $XX when we can products we revenues in results In that on report progress in double the fact, XXXX on we through roughly ROCCAT million continue more we now that year in basis, an products developed in organization. PC we annual both we our than say expect will in while full to report March, had

our we to for and expand factored the seeing outlook benefits and are making first portfolio have our PC know, QX QX. of PC ROCCAT significantly we investments increased you are already our investments brand that into and those for to and market lineup the As

As $XXX us approximately XX%, growth million to XXXX the average a rate with to for to result, we XX% from topline topline growth of $XXX $XXX our $XXX are to over million a consistent term five-year and million objective year-over-year sales year of the outlook growth. from at XX% prior over XX% long estimate put our million. increasing drive would

and dynamics unusual to patterns Given the expect the year. this to that do continue preventative measures taken, retail pandemic continued we remain be

skew online to expect including to channels more to continue We sales online our own store.

retailers periods holiday they handle retailers sizes like addition, in as normal than In and Black concentrated Friday sales will longer plan to reduce crowd how buy some over to we stores. sales, events expect spread earlier out

several plans As have on an announced example, closed be large to U.S. retailers Thanksgiving.

full sales. Tying million million in We expect To of the an revenue half, have roughly could the of again the guidance our $XX normal to distribution our and second second But dynamic $X to guidance, $XXX $X total expect $XXX annual half the to year revenues well supply, year. facilitate air million are also last recovery for rapid will normal shift QX $X in QX for our incremental range million full estimated with this therefore million. did that guidance we second million between freight estimated from a QX providing year, we of higher year. could for why we revenue cost than is half and is be to combined impacting to continue which yearly revenue like without beyond estimate easily vary phasing one-third the

million holidays. activities the million estimated results of In to full do promotional tariffs. for year return include $X expect addition, $X an to in the to We impact normal

to our revenues. enable year. that we significantly chain cost of this we margins expect So to to supply the leverage, more product the ago, outside freight years reflecting originating initiatives low-XXs, given Note started we of have now gains in than than full be to but supply due operating China also two continue to higher air year, the gross normal for expect half

marketing are portfolio million progress year. In growth, as we increasing we also further from including to the this roughly well $XX to product expansions future million excellent investments terms of as investments spending, $X our drive given making, and brand are

feel prospects growth for discussed. We continue about as to the have investments very good I drive these future to

to of double This the $X the a investments, flow. over estimates With result we cash adjusted half guidance on million. EBITDA prior our adjusted million. revenue implies increased above approximately million taxes, EBITDA for margins million $XX full second As and free generate be and roughly in expect our than cash of million of updates of year, level $XX expected this $XX and should to CapEx EBITDA more $XX

we per diluted share income net roughly net be for to to and year pleased expect with to diluted adjusted the our approximately We Needless say, $X.XX. share per be full very income $X.XX are to position of I capture opportunity. It's have the and brands market we our drive progress then a tailwind for am proud products to positioned growth XXXX. thing but how and very one and executed

So manage long a execute this operations in healthy term next diligent environment, adjustments for our shareholder ourselves exciting goals console to three, given that one, investments including value. two, PC Number to demand with nimbly well lead in capital and Drive this accessories, drive supply prudently and over growth continue put prepare portfolio balance market four significant sheet in and maintain chain as respond the XXXX we making enhance and year as across needed. and for to and extraordinarily in number and in consoles. a headsets quick to transition continue dynamic gaming lead new time. to position retail, to brand summarize, our to Number to analysis shifts are,

in increase and while Looking sustain results could very year's this easily increases headset strong launch gaming of to obviously challenge, users fact the that expected consoles, XXXX, the new the gaming ahead growth to has are with to products things more the us topline PC XXXX and we and in exciting coming optimistic itself excellent after normal" progress achieving in "return making XXXX. for committed the

believe I terrific we in a have said As great times, I market. have a many position

market will headsets half XXXX the and investing are broadly examples and console and been the more the brand extending half first be leading the far continued beyond. I that by billion gaming in our situations. in second committed ability to market of has gaming execute dynamic $X.X position accessories well have in strength And of and to in believe We and

ROCCAT excellent take investments to continue team to make plan here and and well, continued long integration the have going term the to growth. With actions our we and enable we strong drive execution,

Our over long Turtle term growth XX% to incredible And members job average revenue XX% targets growth like average I under again team growth to adjusted remain time finally, would an importantly, to once and XX% but challenging in XX% EBITDA. done global have Beach thank extremely conditions. who the

are this makes are proud we You you. am this take of team a be succeed company what all I truly to Operator, now with great and questions. very part ready to

Instructions]. Lake Mark of Street our question with from line Argento And first comes the Capital. [Operator

John. Hi Few quarter. Hi Juergen. questions an for strong different Congrats incredibly you. on

terms headset box that growing I any sales of what one, attach given of it, out? terms in first and just or are for, viewing the now? the do is the And we talk wanted bit sell-through assumptions in to of First And of two? rates you related next-gen, a environment Xbox the different then kind year PSX about the in right little new call have are how to the you

said you Mark, of you couple Okay. had a questions.

the on and appreciate with So that the one start we compliments will quarter.

and the personally I games something start real a from new cross those new performance consoles More been consoles. kind bridge about are released excited graphics just of and now last think simulation to platforms that looks overall, has very increase. months that life, with few the it's like that over So looks to computer-generated new the we

even where the are personal of think So threshold life. and I of now the just distinguish level set to though graphic, is and consoles processing incredible that a we feeling platform, real the every my every is ups from crossing realism tough new

we what's transition consoles that time. to people buy very and coming will drive the new a excited think kind we and over improvement lot of are about So of

sales, communicated intend which also year. terms headset And obviously QX, the will users time new while platforms. for they are there factored In base this new that have supply in of we on of they majority that to. launching be factored vast they into generation are have console we on the installed we some of remember existing But they and that constraints the consoles the believe sales, drive

new then year really and So happen the the the full biggest impact in first consoles of next full year afterwards.

them. think long We some they conservatism a excited our are we to numbers are drive growth built going for term but good trend, about year. So have into this

prepared to in hits had just think, Or clarity be is next-gen comment. mentioned, incremental it And a could your around provide the you I on maybe to little if is, remarks, time? guidance, you going that

Sure. No, consoles reasonably the with guidance good year on $XXX some million constraints. revised this launching time revenue reflects but the demand supply

it. Got

question? That answer your

just picture All more And then kind a right. Yes. of that's of helpful. bigger question.

$XXX the you the ended when balancing XX% roughly realize and margin and takes In out that a similar about XX% roughly pushed and targeted the a EBITDA terms you think investments of of up air EBITDA and puts revenue is at lot is there. term, you the This XXXX the Long assuming about a to I margins? in number, of longer the guidance freighting million, from investment. term how EBITDA back margins margins, know guys think do it's there I coming probably difference, am margin. of about half some other relative EBITDA I shaking

XXXX. comments And question. on appreciate I the Great Yes.

you investments. in both gain of directly, So that of EBITDA upper mid-teens. we be big as year, making There just two reflect to over leverage the teens. the factors answer teens but the are are which And also of margins in good the our to economics And would question time, in and kind ideally the revenue for business, goal core this mentioned.

air higher investments. is million-ish, very $X the One of of economically, have million as worthwhile second them EBITDA normal And than that line. level we the is indicated, freight, but to obviously impacts in million $XX $XX

good the $X I investments. that the given raised of And million both have this that business, about in ROCCAT roughly, will $XX million, investments in and year. brand acquired some started those increased the double seeing over initiatives we and very investments the have more year, we portfolio, this of million strong we just term to this year, we year, did new revenue products performance. to with comment our long this So that already $XX benefits feel that we are other drive amount PC marketing we which made developments we made because product than growth,

So those are obviously two this abnormal bit year. a for factors

year the some than level to year. higher would investments, of probably we is every this While expect normal make level

back hop in will I Great. queue. the Thanks guys.

Thanks Mark.

you Thank Mark.

line Davidson. Elliot question the comes Alper And from Thank next with you. of our D.A.

Thank quarter? wanted different in able ask see you phases in the growth to geographies correlated what with reopening quarter. And you. were extent I Did of the you sales of country? sales see cadence Great. to about the through to some sequential the

Elliot. Good Yes. question,

So QX way, our supply. in the think we And the certainly this case. by basically driven is industrywide, by were sales but in

starting shelves that we have than soon. en we amount the mentioned, route of even I significant start that will at inventory hit more that's now factory A and output. XX arrive today quarter, was to in hitting lot of to As end transit supply starting of the the the

buy. buy market often tough natural if products for actually judge they consumers when to to can't it's the in want So actually demand the

way, demand more among So were there is the consoles by think a the that in off reflection a for and of lot of categories sell-through by whole stockouts market, way. we have consoles. reflection including a we including product of the what less seen the June, dropped of that is natural But

few we console demand retail, your a when up life the would find can't especially tick weeks And when to we again. almost right inventory save push the saw more in last immediately You into that now.

trended cycle sales then I has third I an new could expect you it with kind historically? we correctly. And as in of the a if Thank future? from the of as remote cycle talk that was quarter new in normalized should consumers, more learning a well and demand, I wonder gamers you. thought the how that heard of if refresh interesting, were about Great. the influx sales Okay.

Yes.

third said users. new a existing gamers, So and lapsed when we roughly the did a gamers, a third and analysis non-gaming third

demand. measure a was that that incremental the So of

some include into coming always demand market. gamers level normalized new the the So

into new incremental amount the beyond So the above one-third normal lapsed and coming of demand and gaming. gamers was

we factored new time. a first-time could done then time. XXXX,you had of "go purchase. to things And incoming the way, same They surge is they slow the lot the so buy the we of and back a obviously that headsets incoming, over to first normal", have starts down research that historical become key headset part by base. gamers millions they to a that the new way Fortnite as slowdown in the that all of start of that for in then and now and And have indicates installed thing The upgrade surveys that replace that though

XXXX. over was new rest by So part the the of to while of substantial that forward. the what gamers exactly, we XXXX XX%-something estimated base way, year, XXXX these a are up to start we over normalize have of is trends XXXX. in we prudently will installed the part saw going become factoring that And the in this

same caused Just the XXXX surge the the large trend run the up And of exactly industry because we of battle are gamers. rate kind base in now. installed was increase of seeing royale that's a the

I appreciate Thank it. you.

Instructions]. [Operator

the Our Aarde Group. from question with Maxim Jack next Vander comes line of

for quarter Congrats my and thanks morning. the on Good questions. solid Hi. taking

dig someone Juergen, you wanted the I to those drivers asked I the mentioned question, the this or but similar little core mentioned believe deeper. you that believe a you XQ a upside, in XQ just else question three So distribution of performs equal I mentioned. and

similar of expect do these the the remainder would of XXXX, greatest for at three remainder have some As of there? a Which equal year? shift the you as drivers the expect in confidence Or categories? these categories the you revenue you from you look contribution

incremental again, sales, me that those just And right. of reiterate the drivers the were the in let month, to over not the total increase a third of Sure. demand last

So we lot we sales what be their a our were of say we we significant, the that calls okay, sell-through have expected sources? know in listen significantly probably goes the forecasting. sales at, own are to We look would was one-third. and for what and others to and market at the earnings what roughly actual of our communicating use are analysis higher a lot we And did

and communicating each the three informing, we we have factoring more second because are sales for half out analysis and are have we we have broken have we obviously, we of of categories at we projected, segments, So are than groups numbers, and those incremental intentionally extensive precise those and three how a XXXX. performing also change three different it's activity also those level look done

groups come at in few we And we at more certainly looking say of demand. the of down so the going are those how to give come all next and beyond quarters three on to just analysis impact just and that we a long level a detail each to and for to competitive have into them somewhat reasons, not different I down different lot done a expect trends am have term the

it. this like And is? areas lower a is share Is the you along? too. change guidance as from to in what strongest also your core front then analysis look there helpful. what any your there. Thank back And strong of quarter comments Any contribution too, the your ROCCAT guys, market the And as tier? That's terms and is for this there into too, gaming premium share then the higher the terms just there you you the in acquisition headsets trajectory there it you outperformance year, on Got tier that coming between market similar for relates raised then half in clarity of tier console or how that the versus performance, around in mentioned are? your

Sure.

XX% we and over XX% from yes, initial over annual our have So raised by our outlook guidance.

And So level detailed in is very we that. analysis. prudent. think reasonably I of a factored for It very,

our for think and are recognize we I to what impact tiers. you is of priced including expected into but All have at reasons that competitive the detail, of in of for going price am performance trends, sell-through not in each our level various Again, to go these assumptions of tried that economic lower revised I have which are from asking. likely than guidance prudent to more expensive an example, be maybe products, products downturn an and more

of well Of new in the tiers the back see gamers as tend down kind by we course, leading certainly last revenues to that to they a mix and are. like a and to bit in, of shift the But normal. $XXX kind the share where normal by all a come frankly do as for majority expect to overall months, do while the And dynamics you next price market of market in we vast go of far down. year have have from return

And lastly. just too. helpful That's Yes. then

for margin half front, of million air margin $X second air than of to gross gross expect XXXX? was less XQ that, $X on what freight incremental million the XX%. freight over average, So you in We the quarterly On saw a that's alone. the

built to just driving clear, unless there well. rather certification something. mid-XXs? be am that about just level as be would a what that? I know may extra outlook, So margin into is into cost material gross tooling opposed may conservatism to I as low-XXs of conservatism is the there level or we built Or some in Can talk what missing this be

QX is part normal that. land. the promotional are in big our month, that normal as business. and consumer quarter math every conservatism, demand level is that it's Sure. activities. biggest driver difference, we not week, That a surges we estimates are the of electronics you it's Good happened question. sales all is every say than of running the trying on stock, give Jack, low to and behind a less reasonably When The every everybody and discount normal range And I wouldn't expect to

Plus activity that obviously, million. more $XX lack freight, you gross a example, of offsets operating the $X impact when on QX. QX the has of normal than an get deliver million as in that's the margin increased leverage large you So promotional air near

levels that mentioned, surprising I we shouldn't to be. start is normal at the specials, least or to where next, of demand Black return Stockouts, that back to back our as be running in stock therefore built certainly not activity promotional to should through holiday months for anymore people return So now anybody including the half that. assumption, is let's and get all Friday will say, normal, will as

like plus other our making that are So items of freight gross then investments the part Tooling and impacting are the air above margins is margin that. right. costs, we

points so market. of kind factored that's And the impact the has in And driver level all of half of the of the our back But is activity again, promotional difference on gross assumption. the margin that of big into this year.

appreciate the helpful. That's That's it for I quarter and time. me. Understood. Again, fantastic

Thank you.

you. Thank

now turn remarks. closing over [Operator for back any further Instructions]. Stark, no Juergen call I Chairman this at and the And am showing the questions will I time. CEO,

forward Thank much. investors to we and you. safety in Thank these our our We times. when health look with analysts quarter very November. We wish third unprecedented good speaking and everybody you report in results

and Ladies participating Thank disconnect. conference call. you gentlemen, today's you concludes and now for may this