Leading gaming accessory maker Turtle Beach Corporation (Nasdaq: HEAR), reported financial results for the first quarter ended March 31, 2021. "We turned in another stellar performance in the first quarter, with sales, gross margin, net income and adjusted EBITDA all reaching record high levels for the first quarter," said Juergen Stark, CEO, Turtle Beach. "Consumer demand for console headsets and PC gaming accessories remained at elevated levels, our category expansions are going well, and our operational excellence again allowed us to gain market share, leverage operating costs, and deliver better than expected results.

The strong secular trends that make gaming such a great category continue. According to NPD, U.S. retail sales of console headsets in the first quarter continued at record levels. During the quarter, the overall console market in the US rose 60% in dollars while our retail sales exceeded that growth. US sales of PC headsets, keyboards, and mice rose more than 90% and we more than doubled that reflecting the impact of our expanding line of PC accessories.First Quarter Summary vs. Year-Ago Quarter:

• Net revenue was $93.1 million, an increase of 166% compared to $35.0 million;
• Net income of $8.8 million, or $0.49 per diluted share, compared to net loss of $(3.6) million, or $(0.25) per diluted share;
• Adjusted EBITDA was $15.3 million, an increase of $18.0 million compared to $(2.7) million; and
• Cash flow from operations was $21.1 million, an increase of 20% compared to $17.5 million.

"We believe these results continue to underscore the strength of our brand, the innovation of our products and the superiority of our execution. Although a number of factors will drive a different phasing of our revenue this year, we believe the combination of our strong market share in console headsets, greatly expanded offering of PC gaming accessories and new product launches in several new categories will allow us to increase our annual sales and top a record 2020. In fact, we are raising our full year revenue and profit outlook to reflect the degree to which our first quarter results exceeded our prior outlook.

"As previously announced, we have multiple new product initiatives planned for 2021, including the continued significant expansion of our PC gaming accessories line, the launch of several new Neat Microphone products, and the entry into other new product categories. We are making the necessary investments to fuel these product launches, and believe they will contribute meaningfully to our growth this year and well beyond.

First Quarter 2021 Financial Results
Net revenue in the first quarter of 2021 was $93.1 million, a record for the first quarter, compared to $35.0 million in the year-ago quarter. The 166% increase was the result of continued strong demand for console headsets, fueled in part by the fourth quarter 2020 launches of new PlayStation and Xbox consoles and strong growth in the Company's PC accessories.

Gross margin in the first quarter of 2021 was 37.5% of net sales, a record for the first quarter, compared to 30.8% in the first quarter of 2020. The increase in gross margin was driven by lower than normal promotional spending and fixed cost leverage on higher revenues.

Operating expenses in the first quarter of 2021 were $22.6 million compared to $15.8 million in the 2020 period, with the increase reflecting the larger size of our business, R&D investments in new categories, and higher general and administrative costs resulting from the Neat acquisition in January of this year.

Net income in the first quarter of 2021 was $8.8 million, or $0.49 per diluted share (both of which are records for the March quarter), compared to a net loss of $(3.6) million, or $(0.25) per diluted share in the year-ago quarter. Excluding a number of adjustments to net income in both periods (as summarized below in Table 4), adjusted net income (as defined below in "Non-GAAP Financial Measures") in the first quarter of 2021 was $9.4 million, or $0.52 per diluted share, compared to a loss of $3.4 million or $(0.23) per diluted share. The weighted average diluted share count for the first quarter of 2021 was 18.1 million compared to 14.5 million in 2020, with the increase primarily due to the the fact that in periods where there is a net loss, certain dilutive securities are not included.

Adjusted EBITDA (as defined below in "Non-GAAP Financial Measures") in the first quarter of 2021 was $15.3 million compared to negative $2.7 million in the year-ago quarter.

Balance Sheet and Cash Flow Highlights
At March 31, 2021, the Company had $63.0 million of cash and cash equivalents with no outstanding debt under its revolving credit facility. This compares to $8.7 million of cash and cash equivalents at March 31, 2020, and $46.7 million of cash and cash equivalents at December 31, 2020, with no outstanding revolving debt in either prior period. The Company generated $21.1 million of cash flow from operations in the first quarter 2021, compared to $17.5 million in the first quarter 2020.

Revised 2021 Outlook
For the full year 2021, the Company now expects revenue to be approximately $385 million, up seven percent from $360 million in 2020 and a $15 million increase to the prior guidance of approximately $370 million. This anticipated growth even above the record level of revenues in 2020 is driven by continued strong sell through of our core products, expansion of our PC accessories business, and additional revenues from new categories. Adjusted EBITDA is now expected to be approximately $50 million, compared to the prior guidance of approximately $45 million, reflecting a strong 13% EBITDA margin while accommodating continued investments to drive current and future growth. Adjusted net income per diluted share is expected to be approximately $1.50, compared to the prior guidance of $1.35, reflecting the aforementioned revenue and EBITDA forecasts. Per share figures for the full year 2021 assume approximately 18 million diluted shares outstanding.

For the second quarter of 2021, the Company expects revenue to be approximately $70 million, somewhat lower than the second quarter of 2020, when sales rose 93% as a result of sudden and significant increases in consumer demand caused in part by the stay-at-home orders. Adjusted EBITDA is expected to be approximately $2 million, reflecting alignment of staff and infrastructure with the significantly higher run-rate of the business, an expected return to more normal levels of promotional spending, and investments to support INAL significant new product launches during second quarter. Adjusted loss per diluted share is expected to be approximately $(0.07), reflecting the aforementioned revenue and EBITDA forecasts. Per share figures for the second quarter of 2021 assume approximately 15.5 million diluted shares outstanding.