Turtle Beach (HEAR) Q4 2021 Earnings Call Transcript

Turtle Beach (HEAR -1.81%)
Q4 2021 Earnings Call
Mar 02, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Turtle Beach fourth quarter and full year 2021 conference call. Delivering today's prepared remarks are chairman and chief executive officer, Juergen Stark; and chief financial officer, John Hanson. Following the prepared remarks, the management team will open the call for questions. Before we go further, I would like to turn the call over to Alex Thompson of Gateway Investor Relations, Turtle Beach's IR advisor, as he reads the company's safe harbor statement that provides important cautions regarding forward-looking statements.

Alex, please go ahead.

Alex Thompson -- Investor Relations

Thank you. On today's call, we'll be referring to the press release filed this afternoon that details the company's full year and fourth quarter of 2021 results, which can be downloaded from the investor relations page at corp.turtlebeach.com, where you'll also find the latest earnings presentation that supplements information discussed on today's call. Finally, a recording of the call will be available on the investor section of the company's website later today. Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws.

Statements about the company's beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding the company's operations and future results that could cause Turtle Beach Corporation's results to differ materially from management's current expectations and any forward-looking statements made during this call. While the company believes that its expectations are based upon reasonable assumptions, there can be no assurances that its goals and strategy will be realized, and numerous factors may affect actual results and may cause results to differ materially. So, the company encourages you to review the safe harbor statements and risk factors contained in today's press release and in its filings with the Securities and Exchange Commission, including, without limitation, its annual report on Form 10-K and other periodic reports, which identify specific risk factors that also may cause actual results or events to differ materially from those described in our forward-looking statements.

The company is under no obligation to publicly update or revise any forward-looking statements after this conference call. The company also notes that on this call, they will be discussing non-GAAP financial information. The company is providing that information as a supplement information prepared in accordance with the accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.

And I'll turn the call over to Juergen Stark, the company's chairman and chief executive officer. Juergen.

Juergen Stark -- Chairman and Chief Executive Officer

Good afternoon, everyone, and thank you for joining us. I'm pleased to discuss our strong full year and fourth quarter 2021 results, and I'm especially proud to announce that in 2021, we delivered the highest total revenues in the company's history, following a record year in 2020. We also delivered 36.6 million in adjusted EBITDA, in line with our previously provided guidance range. While we delivered another year of growth, 2021 certainly had industrywide challenges.

Semiconductor constraints limited our sales, shipping times were much longer and more unreliable than normal, and airfreight costs hit over four times normal levels. The holiday period suffered from lower retail foot traffic, disappointing AAA game -- video game releases, and Xbox and PlayStation console availability constraints that impacted the console accessory market. Our success, despite the challenging operating environment, is a testament to our team's hard work, operational excellence, and commitment to our brands and customers. Our 2021 performance reinforces our belief that our diverse portfolio, expert operational management, and strong consumer demand for our products have us well-positioned for future success.

We continue to believe that the gaming market remains the market to be in, and we expect pent-up consumer demand for the latest Xbox and PlayStation consoles to result in strong hardware and peripheral sales over the next several years as supply constraints ease, new games emerge, and gamers level up their gaming accessories. Last year, our Turtle Beach console headset brand maintained our 40 -- our market share of 40% or more in the U.S. for the 12th consecutive year. And per Newzoo's U.S.

Consumer Insights report, Turtle Beach has the highest brand loyalty among active console gamers. We're dedicated to ensuring our fans are happy, not only with their product but with their entire experience with us. Per U.S. NPD retail data, Turtle Beach continued with many market-leading headsets throughout 2021.

In fact, Turtle Beach headsets represented five of the Top 10 best sellers and 11 of the Top 20 best sellers in 2021 in terms of dollar sales. Our wireless Stealth 600 Gen 2 and Stealth 700 Gen 2 headsets were Xbox's most popular headsets throughout the year as the first and second best selling Xbox headsets on the list. For PlayStation, our Stealth 600 Gen 2 and Stealth 700 Gen 2 products were the second and third best-selling headsets. It's important to highlight that this was despite semiconductor constraints that limited our ability to sell these ultra-popular Xbox and PlayStation wireless headsets.

I'll cover more about our wireless Xbox and PlayStation headsets in a moment. In addition to best-selling console headsets, our first-ever gaming controller, the Recon Controller for Xbox, performed well and proved to be a strong entry into this new category for us. Since being revealed, the Recon Controller has gained multiple new placements at major retailers and has been met with great reviews. Of note, the Recon Controller for Xbox was recently named our best Xbox controller by IGN, with a nine out of 10 review score and Editors' Choice accolade.

In our new gaming simulation accessories category, we launched our VelocityOne Flight simulation control system in November. Since its debut, the VelocityOne Flight has generated significant consumer demand and critical acclaim. In fact, in November, our preorders sold out in less than an hour globally and in under 15 minutes in key markets, clearly indicating that we have delivered a great first product into the flight simulation category. Given the strong start and positive community chatter, we expect this product to continue to sell well in 2022 and onward.

We also continued significant progress across our ROCCAT PC gaming accessories business. In the fourth quarter, we unveiled the Arctic White version of ROCCAT's fan-favorite, Vulcan TKL Pro keyboard, adding yet another option to our award-winning PC gaming keyboard series. We launched a new family of Sense mouse pads with various sizes, shapes, and textures. Additionally, we expanded our mobile-gaming lineup by launching new wired gaming earbuds in Asia, with plans to bring them into additional markets and add a wireless option in the future.

We also announced a new partnership with the popular online personality, gamer, entrepreneur, and businesswoman for the world-renowned Team Ninja brand, Jessica Blevins. In 2021, we launched 23 new ROCCAT PC gaming accessories and announced 12 new partnerships as we continue to broaden our PC portfolio and the ROCCAT brand. As a good metric of our progress, we gained share in all core PC markets -- accessories markets, outperforming the competition and again growing our PC business at a rapid rate. The PC gaming accessories market for headsets, keyboards, and mice has now grown to $3.8 billion, and we will continue our investments to capture an increasing share of that market.

We acquired Neat Microphones in January of 2021, which brought us a highly skilled team, the team that built Blue Microphones before creating Neat, and gave us a great advantage in creating cutting-edge microphones. In 2021, we launched four new products under the Neat brand. In the fourth quarter, we launched Neat's sleek Skyline USB conferencing microphone, which is great for working from home or in the office. We also launched Neat's flagship product, the eagerly anticipated King Bee II XLR microphone.

At the end of Q4, we added the Bumblebee II USB microphone and Worker Bee II XLR microphone to Neat's 2021 lineup. These new products enable us to pursue the market for streamer and creator microphones that totals over 2 billion. As I noted last quarter, across all our product categories, we have also made targeted investments in geographic expansion, particularly in Japan and Korea, where we have developed new distribution and retail relationships. The investments in sales and marketing paid early dividends, with year-over-year revenue growth in Asia of well over 100%.

Asia holds tremendous potential, and I'm encouraged by the excellent progress we've made there in 2021. Next, I'll turn it over to John to cover the financials in further detail. After which, I'll provide commentary on our outlook and the continued progress we're making in the new year. John.

John Hanson -- Chief Financial Officer

Hey, thanks, Juergen, and good afternoon, everyone. As Juergen noted, we are pleased to report revenue of 366.4 million for 2021, the highest in the company's history, compared to our previous record of 360.1 million in 2020. As we've discussed, our 2021 revenue was actually constrained by limited wireless semiconductor components. In 2021, gross margin was 35%, compared to 37.2% in 2020, which was due to the global increase in freight costs and more normalized holiday promotional activity compared to 2020.

Operating expenses in the full year of 2021 were 108 million, compared to 84.6 million in 2020. The increase was predominantly driven by the full year run rate of cost added during 2020 to support a more than 50% increase in revenues from the prior year. A record number of new product launches, geographic expansion, and marketing investments to support those growth activities. Our full year adjusted EBITDA was 36.6 million, compared to 61.4 million in 2020, which reflects the items I just covered.

Adjusted net income for the full year in 2021 was 20.2 million, or $1.11 per diluted share, compared to 36.3 million, or $2.22 per diluted share, in 2020. Our effective tax rate for the full year was 12.1%. Full year 2021 cash used for operating activities was 0.3 million, compared to cash generated totaling 51 million a year ago due to lower operating income and increased inventories, driven by longer transit times and supply chain risk mitigation actions. Turning to the balance sheet.

At December 31, 2021, we had 37.7 million of cash and cash equivalents with zero debt, including no borrowings on our revolving credit line. Inventories at December 31, 2021, were 101.9 million, compared to 71.3 million a year ago for the reasons I just noted. As supply chain risks subside over time, we plan to reduce inventory levels. The company also repurchased nearly $5 million in stock during 2021.

Looking at the fourth quarter of 2021, net revenue was 109.4 million, compared to 132.9 million in the same period a year ago. Like others in the gaming market, we were impacted by a slower holiday season, mostly due to disappointing AAA video game releases, constraints on new Xbox and PlayStation availability, and weak retail traffic as we noted in our pre-announcement back in January. Revenue phasing was unusual in 2021, as the first half of the year benefited from the exceptionally strong sell-through, driven by stimulus checks and some continued lockdowns, as well as significant channel replenishment in the first quarter. Gross margin in the fourth quarter of 2021 was 32.5%, compared to 35.8% in the year-ago quarter.

This decrease was mostly due to increased freight costs, a more normalized level of promotional activity during holiday, and reduced operating leverage. Operating expenses in the fourth quarter of 2021 were 29.3 million, compared to 27.6 million in the 2020 period. The small year-over-year increase was due to the incremental product development investments and the new categories we entered in 2021 and continued expansion of our PC accessories portfolio. In the fourth quarter of 2021, we reported adjusted EBITDA of 9.6 million, versus 23.6 million in the year-ago quarter.

The year-over-year change was mainly driven by the reasons cited above. Adjusted net income for the fourth quarter of 2021 was 2.8 million, or $0.16 per diluted share, compared to 14.8 million, or $0.84 per diluted share, in the corresponding period in 2020. Now, I'll turn the call back over to Juergen for additional comments. Juergen.

Juergen Stark -- Chairman and Chief Executive Officer

Thanks, John. As we said, we're pleased with our 2021 results, which again demonstrated our ability to achieve strong operational execution in spite of challenging external circumstances like semiconductor shortages, increased freight cost, and shipping bottlenecks. Our execution across our respective business categories allowed us to launch a record number of new products and deliver a 10% EBITDA margin despite this backdrop. Had we been solely dependent on the performance of our leading console gaming headset business, we would not have achieved growth given that the console gaming headset market declined mid-single digits year over year.

Instead, revenue growth in PC accessories and successful entry into controllers, flight simulation, and microphones provided a top-line benefit and enabled growth following a record 2020. Let's move now to our outlook for 2022. For the full year 2022, we expect revenues to be approximately flat, plus or minus 5% from our record 2021 revenues. The midpoint of this range reflects anticipated growth in sell-through and share gains in all categories, offset by reduction in channel inventory and the expectation that console and PC markets may decline somewhat from 2021 given the absence of stimulus checks and stay-at-home orders that drove an exceptionally strong first half in 2021.

The first quarter of 2022 is also impacted by slower channel replenishment as retailers bring post-holiday inventories back to normal levels. We expect quarterly revenue phasing to be more normal in 2022, following several years of abnormal quarterly revenues, driven by lockdowns and other COVID-related impacts. So, as we previously communicated, shareholders and analysts should track our progress on an annualized basis versus individual quarters. That said, we anticipate our quarterly revenue phasing in 2022 to be roughly 11% to 13% in Q1, 17% to 19% in Q2, and around 70% in the second half.

Next, this year, we expect gross margins to be roughly 2% to 3% below our mid-30s target range, which reflects a roughly 3% to 4% impact from higher freight and component costs, as well as expected return to normal promotional levels for the full year, partially offset by factoring higher costs into new product pricing. While freight costs may come down somewhat, we are assuming that they will remain well above normal pre-pandemic levels. We expect the timing of these items to focus margin pressure on the first half, particularly on the first quarter, given high freight costs from late 2021, which flow to the P&L early in the year as products move out of inventory and margins to normalize somewhat later in the year. We expect our adjusted EBITDA margin to be within the range of 9% to 11% for the year, inside or slightly below our target of 10-plus percent due to the factors I just discussed.

And we continue to maintain our long-term target of mid-30s gross margins and an EBITDA margin that grows from 10%. Net income per diluted share is expected to be within the range of $0.70 to $1.20 based on 17.5 million diluted shares for 2022. We expect the gaming accessories markets to produce good growth in the second half of the year as we anticipate a significantly stronger holiday season, a new lineup of AAA games, and easing Xbox and PlayStation supply constraints, complemented by the gaming industry's continued underlying growth. The gaming market is by far the largest and most expansive entertainment industry in the world, and per Newzoo's January Global Games Market report, the number of global gamers continues to grow and is expected to reach more than 3 billion by the end of 2022.

By extension, this drives higher demand for quality gaming product on all platforms and across the seven product categories we now compete in. So, with all signs indicating that the gaming universe will continue to boom, we believe we're well-positioned to capitalize on the opportunities ahead. Since 2019, we have transformed from a market-leading console gaming headset business into a diversified gaming and creator accessories business, with ample room for growth in a massive total addressable market of now 8.8 billion. Here are our priorities for 2022 in that context.

First, continue to lead in console headsets. We continue to lead this category with more share than the next three competitors combined per U.S. NPD data. And we just announced the first set of a new wireless products, our Stealth 600 Gen 2 MAX, with new multiplatform capabilities and best-in-class 48-plus hour battery life.

That's two full days you can game on the MAX. And the Stealth 600 Gen 2 USB, which keeps the 600's attractive $100 MSRP and adds approximately 10 hours of battery over the earlier version. We have more exciting products coming in our console category -- headset category this year. Second, continue to expand our PC gaming portfolio of headsets, keyboards, and mice and grow our share in that $3.8 billion category.

We just launched the Kone XP mouse, which redefines ROCCAT's fan-favorite ergonomic design and best-in-class versatility, 15 buttons assignable to 29 functions, as well as groundbreaking 3D RGB lighting. I use this mouse myself, and it not only feels and works great, it looks stunningly cool. We will continue expanding our ROCCAT product portfolio with some more exciting products coming this year, and you'll also see further expansion of our mobile gaming products portfolio. Third on the list of our priorities is to drive growth in the gamepad controller, gaming simulation accessories, and microphone categories we entered last year.

We will continue to expand the portfolio products in these new categories, and together with the above PC portfolio, we expect to deliver roughly 100 million of revenue from these combined categories this year. And fourth, we will continue to identify and selectively pursue other growth opportunities. Our investments in expanding our business in Asia have gone very well and will continue. And we will continue to look for organic growth and acquisition opportunities to expand our addressable markets and drive growth in line with our 10% to 20% annual growth target.

Of course, delivering on these priorities requires diligent operational and financial execution, with a lean, high talent team and tight collaboration with our external partners, which are always part of our day-to-day focus. It's an exciting time to be a leader in providing high-quality accessories for gamers across now seven product categories. We're coming off a record year with great momentum while remaining disciplined and focused on delivering on our priorities for the continued benefit of all of our stakeholders. Finally, as always, and especially given our accomplishments throughout 2021, I want to extend my thanks to the entire Turtle Beach team.

Their continued focus, execution, and diligence has allowed us to achieve record revenues while innovating and delivering a record number of new products in challenging circumstances. We have much more in store for 2022 and beyond, and I'm excited to update you all again following Q1. Thank you. Operator, we're now ready to take questions.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Now, our first question coming from the line of Drew Crum with Stifel. Your line is open.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK, thanks. Hey, guys, good afternoon. Juergen, I wonder if you could provide more detail on how you see the console headset category performing in 2022. Your commentary suggests you're a share gainer, with your business down mid-single digits if my math is right.

And then I have a follow-up.

Juergen Stark -- Chairman and Chief Executive Officer

Sure. So, we see the console headset market declining a bit this year. So -- and that's driven by that very high first half of 2021, and in particular, Q1 of last year. I think console gaming headsets were up about 60% in Q1 2021 over 2020.

And our Q1 was up 93%. So, we performed really well in Q1 last year, including channel refill and all that. But so did the whole market. And that really went through about half of Q2 of last year.

Lockdowns, stimulus checks, all of that really drove an outsized first half. By the way, if we normalize for that kind of extraordinary impact last year, our forecast for the console gaming headset market sell-through would actually be up lower mid-single digits, right? But because of the outside first part of last year, our forecast is actually a modest market decline for the year. Our business will -- in terms of sell-through, our guidance anticipates an increase in sell-through year over year, so growth for us in sell-through, and share gain given the new products we have announced and new products we have coming and the fact that we won't have -- don't expect to have at least the semiconductor constraints that we had last year as we've redesigned a number of products. That's different than sales obviously.

Sales or our revenues in that category are also just affected by channel inventory dynamics, including the fact that whenever Q4 is weaker than retailers expect, there's less channel replenishment in Q1, in particular, as the retailers align their kind of post-holiday inventory levels.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK, got it, thanks. And then just on gross margin, you mentioned a 3-percentage-point to 4-percentage-point hit from higher freight and component costs that would abate. I think the language used was over time. Can you clarify that? And also, what is the headwind this year for a more normalized promotional spending? Thanks.

Juergen Stark -- Chairman and Chief Executive Officer

Sure. Yeah, our estimate is there's about a 3% to 4% impact from higher freight and in some component cost increases. Semiconductors, in particular, are more expensive. But there are inflationary pressures across many parts of the business like there are for everybody else.

We -- you know, unlike others, we expect while freight costs may come down over time, and we expect them to come down somewhat this year, we don't expect them to go back to pre-pandemic levels for quite some time. So, we are continuing, you know, a very aggressive focus on returning to a mid-30s gross margin, which we expect to, you know, be more in line with as we approach the back half of the year and certainly would target again for 2023 and beyond by finding other cost opportunities -- cost reduction opportunities. And we're also factoring higher costs across the board into our new product pricing. So, as those products launch and become part of the financials, we do expect to return to back on track to our mid-30s target over time.

Drew Crum -- Stifel Financial Corp. -- Analyst

Got it. OK, thanks, guys.

John Hanson -- Chief Financial Officer

Thanks, Drew.

Operator

Our next question coming from the line of Mark Argento with Lake Street Capital Markets. Your line is open.

Mark Argento -- Lake Street Capital Markets -- Analyst

Hey, Juergen. Hey, John. Just want to dig in a little bit on operating expenses. I know you guys kind of cranked up opex in 2021 to kind of, you know, position yourself for continued growth.

Obviously, the market hasn't really given you guys the opportunity to, you know, at least on the console side, grow maybe as quickly as you anticipated. And any thoughts on kind of normalized opex kind of going forward and, you know, how much of that opex you guys have slated for and on kind of marketing promotional activities, and does that maybe change a little bit given the environment?

Juergen Stark -- Chairman and Chief Executive Officer

Sure. So, we did -- given the record number of product launches last year, our product marketing spend was, you know, several million dollars higher than normal. Every product you launch, no matter what category it's in, has a required amount or, you know, a prudent amount of product marketing that happens alongside of it. We expect to continue to launch an expansion in the portfolio in multiple categories, but not at the same rate of 2022.

So -- or 2021, sorry. So, that will take the product marketing spend down, you know, some single-digit millions of dollars, just as we look at the product launches. And of course, brand marketing will continue across all of the brands but in a measured way, as we were in 2021. So, it's really the product-specific marketing that will come down somewhat.

So -- and then opex, overall, there are, you know, inflationary pressures on all parts of the business, including opex. Labor markets are tight. And -- but despite that, we expect the overall opex of the business to come down, you know, roughly 5-plus million dollars for the year.

Mark Argento -- Lake Street Capital Markets -- Analyst

That's helpful. You know, the kind of the guided -- historical kind of targeted EBITDA margin range, I think you guys talked 9% to 11% or 10%. You guys are getting 9 to 11. Does that 10%, you know, does that give you some decent cushion in terms of being able to reinvest into the business? You know, what's kind of a good reinvestment EBITDA margin versus if wanted to lean things out a little bit and try to generate some more cash?

Juergen Stark -- Chairman and Chief Executive Officer

I think it is a good balance with the 10%. It's a couple of percent below where we'd like to be, and that's all driven by the gross margin line. Opex, as I mentioned, we're going to make some reductions this year to stay kind of on track with a roughly 10% EBITDA margin. But like any other business, Mark, that, you know, we -- that our operation expenses include running all parts of our business, including the parts of our business that are growing and expanding.

And, you know, we do very carefully try to balance to produce a good level of profitability. Ten percent, by the way, happens to be roughly aligned with Corsair, who is five times our size and should actually have a lot more operating leverage than we do. But, you know, we run lean. There's not a lot of companies in our type of category that do more than a million dollars of revenue per head.

And we're going to keep that level of financial discipline in our -- you know, as we go through the year and in our future plans.

Mark Argento -- Lake Street Capital Markets -- Analyst

And then just last question. In regards to, you know, semiconductor shortages, in particular, more on the console side and the availability of console hardware, you know, where do you think the market is and where do you think, you know, Sony and Microsoft are in terms of their ability to supply enough boxes in the market this year? And maybe just kind of juxtapose that with your guidance.

Juergen Stark -- Chairman and Chief Executive Officer

Sure. So, we don't have good visibility into that, to be clear. They're running their supply chains. They were highly constrained last year, disappointingly so, particularly doing -- during holiday.

But, you know, we are assuming they're going to continue to make good progress. We obviously have to use some estimates when we do our financial forecasts, and we're assuming that the supply constraints abate as we go through the year. And we're hopeful that by the time Q4 rolls around, we expect better AAA game launches and hopefully much less constraint or no constraint on console supplies by that time, and expect that to produce a, you know, significant amount of growth in Q4.

Mark Argento -- Lake Street Capital Markets -- Analyst

Great. It's helpful. Good luck the rest of the way, guys.

Juergen Stark -- Chairman and Chief Executive Officer

Thanks, Mark.

John Hanson -- Chief Financial Officer

Yup, thank you, Mark.

Operator

[Operator instructions] Our next question coming from the line of Jack Vander Aarde with Maxim Group. Your line is open.

Jack Vander Aarde -- Maxim Group -- Analyst

Great, thanks, guys, for taking my questions. Juergen, you mentioned geographical expansion, and particularly, Japan and Korea, I believe. Revenue is growing well over 100% there. Just in terms of, you know, your revenue mix and looking forward, any rough target you can provide, what do you expect Asia's sales mix to represent, you know, in the next year or, you know, over time? Just to put something, you know, more quantified material numbers behind it.

Juergen Stark -- Chairman and Chief Executive Officer

I probably won't set specific targets around that, but I will reinforce the fact that we have grown our international business quite a bit. Our percent of revenues outside of North America have gone from 73% of our business to 66%. And that's really progress, not just in Asia. And Asia is still somewhat small, but it's actually, you know, approaching double digits now and becoming more meaningful in the overall business.

It's also just good progress in other European markets. And, you know, we expect that to continue.

Jack Vander Aarde -- Maxim Group -- Analyst

OK, great. That's helpful. And then I believe you estimated supply chain-related constraints dragged on, you know, your 2021 revenue approximately 25 million to 30 million or so. And I think this is due to a certain wireless chipset module, in particular.

Do you have an embedded estimate for what you expect, you know, these certain supply chain issues to have on 2022 revenues or any implied or embedded kind of impact there?

Juergen Stark -- Chairman and Chief Executive Officer

That's a great question, and I'm glad you asked. We don't expect to have semi -- any meaningful semiconductor supply constraints related to that issue for 2022 because we expended an enormous amount of effort and resource in -- at record speed last year to actually fully redesign out of and around that most constrained specific semiconductor. And you're seeing the first of a set of new wireless products with the announcement we just put out in the last couple of days, the new Stealth 600 Gen 2 MAX and USB. Those products not only, you know, work around that semiconductor constraint but also deliver an improved value proposition even, with 48 hours of battery life on the MAX, an additional 10 hours, which is a significant increase, by the way, on the 600 USB.

And again, there are more wireless products coming now. And so, we think barring a surprise on the new semiconductors, the new platforms, we expect to have successfully executed around that constraint now for 2022.

Jack Vander Aarde -- Maxim Group -- Analyst

OK. So, that is a obstacle or a challenge that is kind of completely structurally removed from the equation now across all of your product categories? Is that fair to say?

Juergen Stark -- Chairman and Chief Executive Officer

Well -- so we can't forecast what happens in the semiconductor industry overall. So, I wouldn't make quite that blanket statement. But there was a very specific semiconductor that was the lion's share of the constraint last year that we have now worked around. We have orders in for the semiconductors we think we're going to need for the year.

Barring surprises on availability for those semiconductors, which could hit us or anybody at any time, we have, you know, factored our supply in semiconductor situation fully into our guidance for the year.

Jack Vander Aarde -- Maxim Group -- Analyst

OK. And then just one more. Of the 100 million target revenue from [Inaudible] console headsets, is it fair to assume -- I imagine the bulk of this, you know, is ROCCAT-related, but is there a number there? I mean, is it like 80-plus percent is kind of what I was thinking. Is there a fair number you're willing to talk about just between your flight simulator and your custom controllers and USB microphones and all the other stuff? Is the bulk of it ROCCAT? Is that fair?

Juergen Stark -- Chairman and Chief Executive Officer

The majority of it is ROCCAT. I wouldn't say bulk of it is ROCCAT. We're not going to provide the specific breakdowns, but suffice -- you know, ROCCAT's got a two-year head start over the other categories, right? And so, that's reflected in the number. I will tell you that the other categories, particularly controllers and the flight sim products, which launched during the year, versus the microphones, which launched very late in the year, are off to a terrific start and contributed -- contributing materially to our 2022 guidance and to that 100 million.

Jack Vander Aarde -- Maxim Group -- Analyst

That's helpful. I appreciate your time. I'll hop back in the queue.

Juergen Stark -- Chairman and Chief Executive Officer

Thanks, Jack.

Operator

Our next question coming from the line of Martin Yang from Oppenheimer. Your line is now open.

Martin Yang -- Oppenheimer and Company -- Analyst

Hi, good afternoon. Thank you for taking my question. My first question is on your opex. Juergen, you know, where do you see -- reflecting on 2021, where do you see higher returns on investments, on the new spending, on opex, looking across new product development, geographic expansion, and some of the marketing around influencers?

Juergen Stark -- Chairman and Chief Executive Officer

Sure. If I understand your question correctly, let me first kind of reoutline what John covered in his prepared remarks. The business grew from 234 million in 2019, 235 million roughly to 360 million in 2020. When that happens, you have to invest in people, infrastructure, resources, everything that's related to the size and scale of the business.

But you can't do that, you know, instantly, in one fell swoop. So, we added staff, resources, facilities, all of that throughout the company during the course of 2020. Those full year -- once you hit 2021, those costs then have a full year impact, right? Many of that were added late in the year, for example, impact the full year in 2021. That's why like the opex goes up about 28% for the year, but only about 6% or 7% Q4 over Q4 because by the time you're in Q4, you've got kind of the full year -- you've got the run rate and those resource adds already in.

And so, that's the biggest driver by far of the opex increase, just the scale of the business. And then as we did in 2020, by the way, we continued making investments in multiple parts of the business. We don't break those out. The business is run fully integrated, other than some very specific categories like product marketing and engineering staff for the new products.

The rest of the business is run fully integrated and is scaled to accommodate the larger business, including the growth opportunities and new geographies and new product categories.

Martin Yang -- Oppenheimer and Company -- Analyst

Got it. Thanks. The next question is on your thoughts on your -- you know, it seems like the second half -- based on guidance, you're more comfortable with the growth on the second half this year. Is there any gains or broader view in trends you see that makes you more comfortable on the holiday performance this year?

Juergen Stark -- Chairman and Chief Executive Officer

Well, there are two really important items in the quarterly phasing for the year. One is the exceptionally strong first half of 2021, stimulus checks, remaining lockdowns, things like that, you know, drove -- again, it drove console gaming headsets up. If I remember right, the market, in general, U.S. retail sell-through up 60% year over year in Q1, right? So -- and that -- a lot of that effect continued into Q2.

So, Q1 and Q2 for everybody is not going to be a good comp year over year because there's no stimulus checks or lockdowns expected in the first half of this year. So, that's a big driver of returning quarterly phasing more to a normal level, which we really haven't had for many years now because every year for the past few has had unusual dynamics. The second thing is Q1, in particular, also has a -- not a sell-through impact, but a revenue impact, just as channel replenishment is lower as retailers get their post-holiday inventory levels back to normal. So, all of that kind of affects the first half.

The other important item is Q4 2021 was just not strong. You know, the PC -- the console market, the PC accessories market both declined double digits in Q4. Game releases -- AAA game releases were weak, lowest review scores I think in multiple of those games' franchise histories. Console supplies for Xbox and PlayStation were constrained.

That has more of an impact on console, obviously. And then there was somewhat weaker foot traffic, particularly on Black Friday, which is a big driver of gaming accessory sales, that day, in particular. So, because of that, we expect by the time we had Q4 this year, the game -- AAA titles will hopefully do a much better job with a set of new launches. Hopefully, Xbox and PlayStation will work out of their supply chain constraints.

And those two items alone, we think, give us confidence in a much stronger Q4 for the year.

Martin Yang -- Oppenheimer and Company -- Analyst

Got it. Thank you.

Operator

[Operator instructions] And we have a follow-up question coming from the line of Martin Yang from Oppenheimer. Your line is open.

Martin Yang -- Oppenheimer and Company -- Analyst

Juergen, just a quick question on your comments, you know, defining your company as part of a creator accessories business. Does that indicate anything on your long-term  business? Do you think that you will explore more new products outside of the conventional keyboard and mouse accessories?

Juergen Stark -- Chairman and Chief Executive Officer

Yeah, great question. So, obviously, the primary product portfolio that's now new for us are the Neat Microphones. Those are, you know, major tools for creators and streamers. And that's why we've added that terminology because that's not just a gaming market, that's its own kind of adjacent market.

The mic market, overall, is actually about $2.3 billion. Obviously, gaming accessories -- PC gaming accessories have lots of uses. If people want highly functional mice with, you know, lots of buttons and things like that, but the primary driver for my use of that language is the new Neat Mic portfolio that just launched.

Martin Yang -- Oppenheimer and Company -- Analyst

Got it. Thanks for the time.

Juergen Stark -- Chairman and Chief Executive Officer

And I didn't answer one part, which is yes, given that we now have the start of a portfolio in this creator segment, that's certainly on the radar. Streamer, creators, and gamers, there are lots of overlaps and synergies between those markets. So, that definitely is on our radar to look at for expanding portfolio and growth opportunities.

Martin Yang -- Oppenheimer and Company -- Analyst

Yeah, makes sense. Thanks.

Operator

Currently, this concludes going our question-and-answer session. I would now like to turn the call back over to Mr. Stark for closing remarks.

Juergen Stark -- Chairman and Chief Executive Officer

All right. Thank you very much, everybody. We're excited to be operating in 2022 with great momentum and look forward to speaking again on our Q1 call this spring. Thanks very much, and have a great day.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Alex Thompson -- Investor Relations

Juergen Stark -- Chairman and Chief Executive Officer

John Hanson -- Chief Financial Officer

Drew Crum -- Stifel Financial Corp. -- Analyst

Mark Argento -- Lake Street Capital Markets -- Analyst

Jack Vander Aarde -- Maxim Group -- Analyst

Martin Yang -- Oppenheimer and Company -- Analyst

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