Juergen Stark: Yeah, a good question Drew. So adjusted EBITDA is essentially transitioning in recovering this year, and it reflects €“ the roughly $5 million reflects around $10 million of impact from freight costs, which still residually are high, particularly in the first few quarters. That gets progressively better pretty quickly as we go through the year and it’s also quite reliable in terms of an improvement. Last year we had an impact of around $11 million from freight, and this year the impact is estimated to be around $3 million, so that’s kind of number one. Number two, aggressive competitive promotional discounting, which created roughly another $11 million impact last year, is expected to continue at least through the first half and has about a $7 million impact in our forecast and EBITDA guidance.
We expect you know that we €“ while we are good shape on inventory with pockets that are heavy and pockets that are light, we have to participate when competitors are driving heavy discounting and defend our turf, and so that’s kind of factored into our EBITDA plans this year. And the last thing is, remember that I think you were €“ were you comping to 2019?
Drew Crum: I mentioned 2017. You guys reported $149 million in sales that year.
Juergen Stark: Right. So remember that the business now is the revenue generated as a business now, spans multiple categories and geographies. And though those, each of those categories come with R&D costs, with marketing costs to launch products, with costs to support growth in geographies, we are €“ just as an example, we’re in Korea and Japan and that’s going really well with good growth over the past few years and this year. But each of those comes with a chunk of OpEx to support that business, and so you really can’t compare to a business years ago that was essentially single threaded in console gaming headsets that were mostly North America and Europe based.
Drew Crum: Got it. Okay, that makes sense. And then maybe a follow-up. I think Juergen, in your preamble you talked about APSs being up 7%. I miss if that was specific consoles or across the entire portfolio, but nonetheless, how are you thinking about pricing for ’23? Can you take pricing in this environment? Is that part of the revenue growth that you’re assuming or maybe not?
Juergen Stark: Yes, so a couple of things. The 7% growth in average selling price was across the mix of our console headsets portfolio in the United States, which is pretty impressive given that the market without us dropped 4%, and that 7% was significantly helped by us taking over 40% market share in $199 price tier, right. So really up from roughly zero by the way in that tier. So we’ve moved up tier in terms of pricing and that’s helped to pull our ASP’s up and that trend has continued going to this year. Part of that is inflation driven price increases as well, but in terms of our plans, we don’t have plans to somehow aggressively move pricing. Our hope is that you know in contrast to that, that the discounting level that’s been pervasive among competitors in the industry and all of our categories will go back to normal, and that will in and of itself drive better gross margins as we go through the year and better average pricing.
Drew Crum: Got it. Okay, all right, thanks guys.
A – Juergen Stark: Thanks Drew.
Operator: One moment for our next question. Our next question comes from the line of Jack Vander Aarde from Maxim Group. Your line is open.
Jack Vander Aarde : Okay, great. I appreciate the update, guys. Thanks for taking my questions. Juergen, non-console product sales has clearly ramped pretty nicely and it hit 25% of your 2022 revenue. Can you just remind me, remind us again of your targets for these non-console product sales mix over time, detailed ramping in 2023, just any kind of directional comments there. And then how that kind of splits throughout the balance of 2023 as well?
Juergen Stark: Sure. So yes, that 25% reflects significant progress over the past years given that number used to be close to zero a few years ago. We see this year, the PC accessories business continuing to be very challenged. That category was highly challenged, you know more so challenged even than console headsets in terms of market drop and competitive discounting. So we expect this year to be roughly flat in PC, up a bit in the new €“ other new product categories, controller simulation. Microphones, we have held off on our investments and plans in microphones, because that category already early in 2022 was really not tracking well. So that was the wrong time for a small new player to start marketing and developing a brand and promoting products. That we expect to return more aggressively in the microphone category in 2024, but not in 2023, and so I would expect the 25% to be roughly similar in 2023 given all those dynamics.
Jack Vander Aarde : Got you! That’s helpful color. And then kind of just back to gross margin on the unit economics basis, I think in the past you’ve kind of had this idea. I think the picture is like basically every product is roughly similar gross margins on a unit basis. But we’ve €“ you know you’ve done some price increases on certain products recently, had some freight impact and other impacts on inventory. Is that still the case today, kind of roughly the same across your whole product portfolio or is it €“ are you seeing a shift?
Juergen Stark: It still is roughly the same Jack, and we’ve got products in all categories that some have better gross margins than our target of mid-30’s, some have lower gross margins. It really depends on the type of product, the cost structure of that product, and most importantly, the specific price tier we’re trying to hit with the product. So that’s kind of an overall view. PC tends to track a bit lower than the mid-30’s target and other new categories like simulation in particular tend to track a little above, and console ends to track right around the mid-30’s target. And despite the challenges for gross margins driven by freight costs which are coming down and an excessive level of competitive discounting, we’re maintaining our long-term gross margin target to be in the mid-30’s.
Jack Vander Aarde : Okay, great. That’s it for me. Thank you.
