株探米国株
英語
エドガーで原本を確認する
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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-39533

 

Corsair Gaming, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

82-2335306

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

115 N. McCarthy Boulevard

Milpitas, CA 95035

(Address of Principal Executive Offices and zip code)

 

 

(510) 657-8747

(Registrant’s Telephone Number, Including Area Code)

 

 

 

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

CRSR

 

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 24, 2023, the registrant had 102,781,870 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2023 and June 30, 2022

2

Condensed Consolidated Statements of Comprehensive Loss - Three and Six Months Ended June 30, 2023 and June 30, 2022

3

Condensed Consolidated Balance Sheets - As of June 30, 2023 and December 31, 2022

4

 

Condensed Consolidated Statements of Shareholder’s Equity - Three and Six Months Ended June 30, 2023 and June 30, 2022

5

Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2023 and June 30, 2022

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

i


Table of Contents

 

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) that reflect our current views with respect to, among other things, our operations and financial performance. These forward-looking statements are included throughout this Quarterly Report and relate to matters such as our industry and the markets we operate in, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foreseeable,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “will” and similar terms and phrases to identify the forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on management’s current expectations and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, including, for example, general economic conditions and supply chain issues. We believe that these factors include but are not limited to those described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
 

1


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Corsair Gaming, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

325,432

 

 

$

283,908

 

 

$

679,396

 

 

$

664,599

 

Cost of revenue

 

 

242,600

 

 

 

247,449

 

 

 

511,160

 

 

 

537,384

 

Gross profit

 

 

82,832

 

 

 

36,459

 

 

 

168,236

 

 

 

127,215

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

69,953

 

 

 

73,393

 

 

 

137,482

 

 

 

149,524

 

Product development

 

 

15,593

 

 

 

18,026

 

 

 

32,431

 

 

 

35,136

 

Total operating expenses

 

 

85,546

 

 

 

91,419

 

 

 

169,913

 

 

 

184,660

 

Operating loss

 

 

(2,714

)

 

 

(54,960

)

 

 

(1,677

)

 

 

(57,445

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,518

)

 

 

(1,676

)

 

 

(5,346

)

 

 

(2,955

)

Other (expense) income, net

 

 

(1,134

)

 

 

633

 

 

 

(1,630

)

 

 

134

 

Total other expense, net

 

 

(3,652

)

 

 

(1,043

)

 

 

(6,976

)

 

 

(2,821

)

Loss before income taxes

 

 

(6,366

)

 

 

(56,003

)

 

 

(8,653

)

 

 

(60,266

)

Income tax benefit

 

 

2,287

 

 

 

4,164

 

 

 

2,926

 

 

 

5,147

 

Net loss

 

 

(4,079

)

 

 

(51,839

)

 

 

(5,727

)

 

 

(55,119

)

Less: Net income (loss) attributable to noncontrolling interest

 

 

401

 

 

 

174

 

 

 

765

 

 

 

(233

)

Net loss attributable to Corsair Gaming, Inc.

 

$

(4,480

)

 

$

(52,013

)

 

$

(6,492

)

 

$

(54,886

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of net loss per share attributable to common stockholders of Corsair Gaming, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Corsair Gaming, Inc.

 

$

(4,480

)

 

$

(52,013

)

 

$

(6,492

)

 

$

(54,886

)

Change in redemption value of redeemable noncontrolling interest

 

 

5,577

 

 

 

(7,379

)

 

 

6,535

 

 

 

(9,640

)

Net income (loss) attributable to common stockholders of Corsair Gaming, Inc.

 

$

1,097

 

 

$

(59,392

)

 

$

43

 

 

$

(64,526

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

(0.62

)

 

$

0.00

 

 

$

(0.68

)

Diluted

 

$

0.01

 

 

$

(0.62

)

 

$

0.00

 

 

$

(0.68

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

102,304

 

 

 

95,467

 

 

 

101,996

 

 

 

95,372

 

Diluted

 

 

106,502

 

 

 

95,467

 

 

 

106,169

 

 

 

95,372

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

2


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,079

)

 

$

(51,839

)

 

$

(5,727

)

 

$

(55,119

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustments, net of tax (expense) benefit of $64 and $(164) for the three months ended June 30, 2023 and 2022, respectively, and $46 and $(13) for the six months ended June 30, 2023 and 2022, respectively.

 

 

1,385

 

 

 

(5,154

)

 

 

3,052

 

 

 

(7,412

)

   Unrealized foreign exchange loss from long-term intercompany loans, net of tax (expense) benefit of nil and $55 for the three months ended June 30, 2023 and 2022, respectively, and $(127) and $74 for the six months ended June 30, 2023 and 2022, respectively.

 

 

4

 

 

 

(277

)

 

 

(22

)

 

 

(372

)

Comprehensive loss

 

 

(2,690

)

 

 

(57,270

)

 

 

(2,697

)

 

 

(62,903

)

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

 

275

 

 

 

(91

)

 

 

675

 

 

 

(697

)

Comprehensive loss attributable to Corsair Gaming, Inc.

 

$

(2,965

)

 

$

(57,179

)

 

$

(3,372

)

 

$

(62,206

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

3


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except per share amounts)

 

 

 

June 30,
2023

 

 

December 31,
2022

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

181,100

 

 

$

151,180

 

Restricted cash

 

 

2,676

 

 

 

2,647

 

Accounts receivable, net

 

 

220,219

 

 

 

235,656

 

Inventories

 

 

212,538

 

 

 

192,717

 

Prepaid expenses and other current assets

 

 

45,147

 

 

 

40,593

 

Total current assets

 

 

661,680

 

 

 

622,793

 

Restricted cash, noncurrent

 

 

236

 

 

 

233

 

Property and equipment, net

 

 

33,589

 

 

 

34,927

 

Goodwill

 

 

348,554

 

 

 

347,747

 

Intangible assets, net

 

 

197,689

 

 

 

216,255

 

Other assets

 

 

77,216

 

 

 

75,290

 

Total assets

 

$

1,318,964

 

 

$

1,297,245

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Debt maturing within one year, net

 

$

10,251

 

 

$

6,495

 

Accounts payable

 

 

196,275

 

 

 

172,033

 

Other liabilities and accrued expenses

 

 

159,209

 

 

 

164,470

 

Total current liabilities

 

 

365,735

 

 

 

342,998

 

Long-term debt, net

 

 

217,357

 

 

 

232,170

 

Deferred tax liabilities

 

 

16,932

 

 

 

18,054

 

Other liabilities, noncurrent

 

 

45,018

 

 

 

48,589

 

Total liabilities

 

 

645,042

 

 

 

641,811

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

Temporary equity

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

15,231

 

 

 

21,367

 

Permanent equity

 

 

 

 

 

 

Corsair Gaming, Inc. stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 5,000 shares authorized, nil and nil shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value: 300,000 shares authorized, 102,748 and 101,385 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

614,671

 

 

 

593,486

 

Retained earnings

 

 

37,266

 

 

 

37,223

 

Accumulated other comprehensive loss

 

 

(3,761

)

 

 

(6,881

)

Total Corsair Gaming, Inc. stockholders’ equity

 

 

648,186

 

 

 

623,838

 

Nonredeemable noncontrolling interest

 

 

10,505

 

 

 

10,229

 

Total permanent equity

 

 

658,691

 

 

 

634,067

 

Total liabilities, temporary equity and permanent equity

 

$

1,318,964

 

 

$

1,297,245

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands)

 

 

 

Three Months Ended June 30, 2023

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Corsair
Gaming, Inc.
Stockholders’

 

 

Nonredeemable
Noncontrolling

 

 

Total
Permanent

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interest

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2023

 

 

102,017

 

 

$

10

 

 

$

602,368

 

 

$

36,169

 

 

$

(5,276

)

 

$

633,271

 

 

$

10,392

 

 

$

643,663

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(4,480

)

 

 

 

 

 

(4,480

)

 

 

164

 

 

 

(4,316

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,515

 

 

 

1,515

 

 

 

(51

)

 

 

1,464

 

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

5,577

 

 

 

 

 

 

5,577

 

 

 

 

 

 

5,577

 

Issuance of common stock in connection with employee equity incentive plans

 

 

744

 

 

 

 

 

 

4,262

 

 

 

 

 

 

 

 

 

4,262

 

 

 

 

 

 

4,262

 

Shares withheld related to net share settlement

 

 

(13

)

 

 

 

 

 

(231

)

 

 

 

 

 

 

 

 

(231

)

 

 

 

 

 

(231

)

Stock-based compensation

 

 

 

 

 

 

 

 

8,272

 

 

 

 

 

 

 

 

 

8,272

 

 

 

 

 

 

8,272

 

Balance as of June 30, 2023

 

 

102,748

 

 

$

10

 

 

$

614,671

 

 

$

37,266

 

 

$

(3,761

)

 

$

648,186

 

 

$

10,505

 

 

$

658,691

 

 

 

 

Three Months Ended June 30, 2022

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Corsair
Gaming, Inc.
Stockholders’

 

 

 

Nonredeemable
Noncontrolling

 

 

 

Total
Permanent

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

 

Interest

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2022

 

 

95,373

 

 

$

10

 

 

$

489,745

 

 

$

93,013

 

 

$

(2,494

)

 

$

580,274

 

 

 

 

$

11,837

 

 

 

$

592,111

 

Net income

 

 

 

 

 

 

 

 

 

 

 

(52,013

)

 

 

 

 

 

(52,013

)

 

 

 

71

 

 

 

 

(51,942

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,166

)

 

 

(5,166

)

 

 

 

(108

)

 

 

 

(5,274

)

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(7,379

)

 

 

 

 

 

(7,379

)

 

 

 

 

 

 

 

(7,379

)

Dividend declared to nonredeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(900

)

 

 

 

(900

)

Issuance of common stock in connection with employee equity incentive plans

 

 

413

 

 

 

 

 

 

2,981

 

 

 

 

 

 

 

 

 

2,981

 

 

 

 

 

 

 

 

2,981

 

Shares withheld related to net share settlement

 

 

(6

)

 

 

 

 

 

(110

)

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

 

 

 

(110

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,125

 

 

 

 

 

 

 

 

 

6,125

 

 

 

 

 

 

 

 

6,125

 

Balance as of June 30, 2022

 

 

95,780

 

 

$

10

 

 

$

498,741

 

 

$

33,621

 

 

$

(7,660

)

 

$

524,712

 

 

 

 

$

10,900

 

 

 

 

$

535,612

 

 

5


Table of Contents

 

 

 

 

Six Months Ended June 30, 2023

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total Corsair Gaming, Inc.
Stockholders’

 

 

Nonredeemable
Noncontrolling

 

 

Total
Permanent

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interest

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

 

101,385

 

 

$

10

 

 

$

593,486

 

 

$

37,223

 

 

$

(6,881

)

 

$

623,838

 

 

$

10,229

 

 

$

634,067

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(6,492

)

 

 

 

 

 

(6,492

)

 

 

313

 

 

 

(6,179

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,120

 

 

 

3,120

 

 

 

(37

)

 

 

3,083

 

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

6,535

 

 

 

 

 

 

6,535

 

 

 

 

 

 

6,535

 

Issuance of common stock in connection with employee equity incentive plans

 

 

1,415

 

 

 

 

 

 

6,379

 

 

 

 

 

 

 

 

 

6,379

 

 

 

 

 

 

6,379

 

Shares withheld related to net share settlement

 

 

(52

)

 

 

 

 

 

(787

)

 

 

 

 

 

 

 

 

(787

)

 

 

 

 

 

(787

)

Stock-based compensation

 

 

 

 

 

 

 

 

15,593

 

 

 

 

 

 

 

 

 

15,593

 

 

 

 

 

 

15,593

 

Balance as of June 30, 2023

 

 

102,748

 

 

$

10

 

 

$

614,671

 

 

$

37,266

 

 

$

(3,761

)

 

$

648,186

 

 

$

10,505

 

 

$

658,691

 

 

 

 

 

Six Months Ended June 30, 2022

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total Corsair Gaming, Inc.
Stockholders’

 

 

Nonredeemable
Noncontrolling

 

 

Total
Permanent

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

Interest

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

94,510

 

 

$

9

 

 

$

470,364

 

 

$

98,147

 

 

$

(340

)

 

$

568,180

 

 

$

 

 

$

568,180

 

Issuance of common stock in relation to business acquisition

 

 

690

 

 

 

1

 

 

 

14,504

 

 

 

 

 

 

 

 

 

14,505

 

 

 

 

 

 

14,505

 

Noncontrolling interest from business combination

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,084

 

 

 

12,084

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(54,886

)

 

 

 

 

 

(54,886

)

 

 

(95

)

 

 

(54,981

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,320

)

 

 

(7,320

)

 

 

(189

)

 

 

(7,509

)

Change in redemption value of redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(9,640

)

 

 

 

 

 

(9,640

)

 

 

 

 

 

(9,640

)

Dividend declared to nonredeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(900

)

 

 

(900

)

Issuance of common stock in connection with employee equity incentive plans

 

 

627

 

 

 

 

 

 

3,508

 

 

 

 

 

 

 

 

 

3,508

 

 

 

 

 

 

3,508

 

Shares withheld related to net share settlement

 

 

(47

)

 

 

 

 

 

(977

)

 

 

 

 

 

 

 

 

(977

)

 

 

 

 

 

(977

)

Stock-based compensation

 

 

 

 

 

 

 

 

11,342

 

 

 

 

 

 

 

 

 

11,342

 

 

 

 

 

 

11,342

 

Balance as of June 30, 2022

 

 

95,780

 

 

$

10

 

 

$

498,741

 

 

$

33,621

 

 

$

(7,660

)

 

$

524,712

 

 

$

10,900

 

 

$

535,612

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

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Corsair Gaming, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(5,727

)

 

$

(55,119

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

   Stock-based compensation

 

 

15,420

 

 

 

11,234

 

   Depreciation

 

 

5,933

 

 

 

5,149

 

   Amortization

 

 

19,498

 

 

 

23,572

 

   Deferred income taxes

 

 

(5,699

)

 

 

(10,820

)

   Other

 

 

2,282

 

 

 

3,087

 

   Changes in operating assets and liabilities:

 

 

 

 

 

 

      Accounts receivable

 

 

13,926

 

 

 

120,046

 

      Inventories

 

 

(19,342

)

 

 

10,559

 

      Prepaid expenses and other assets

 

 

(5,587

)

 

 

(9,481

)

      Accounts payable

 

 

25,560

 

 

 

(43,496

)

      Other liabilities and accrued expenses

 

 

(2,292

)

 

 

(44,680

)

         Net cash provided by operating activities

 

 

43,972

 

 

 

10,051

 

Cash flows from investing activities:

 

 

 

 

 

 

   Acquisition of business, net of cash acquired

 

 

 

 

 

(19,534

)

   Payment of deferred consideration

 

 

 

 

 

(95

)

   Purchase of property and equipment

 

 

(7,457

)

 

 

(11,921

)

   Investment in available-for-sale convertible note

 

 

 

 

 

(1,000

)

         Net cash used in investing activities

 

 

(7,457

)

 

 

(32,550

)

Cash flows from financing activities:

 

 

 

 

 

 

   Repayment of debt

 

 

(11,250

)

 

 

(2,750

)

   Borrowing from line of credit

 

 

 

 

 

403,000

 

   Repayment of line of credit

 

 

 

 

 

(403,000

)

   Payment of other offering costs

 

 

(497

)

 

 

 

   Payment of contingent consideration

 

 

(950

)

 

 

(438

)

   Proceeds from issuance of shares through employee equity incentive plans

 

 

6,379

 

 

 

3,508

 

   Payment of taxes related to net share settlement of equity awards

 

 

(787

)

 

 

(997

)

         Net cash used in financing activities

 

 

(7,105

)

 

 

(677

)

Effect of exchange rate changes on cash

 

 

542

 

 

 

(3,502

)

Net increase (decrease) in cash and restricted cash

 

 

29,952

 

 

 

(26,678

)

Cash and restricted cash at the beginning of the period

 

 

154,060

 

 

 

65,380

 

Cash and restricted cash at the end of the period

 

$

184,012

 

 

$

38,702

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

8,349

 

 

$

2,665

 

Cash paid for income taxes, net

 

 

541

 

 

 

8,235

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

   Equipment purchased and unpaid at period end

 

$

1,806

 

 

$

2,204

 

   Right-of-use assets obtained in exchange for operating lease liabilities

 

 

2,161

 

 

 

565

 

   Issuance of common stock relating to business acquisition

 

 

 

 

 

14,504

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

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Corsair Gaming, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Corsair Gaming, Inc., a Delaware corporation, together with its subsidiaries (collectively, “Corsair” the “Company”, “we”, “us”, or “our”), is a global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components.

Corsair is organized into two reportable segments:

Gamer and creator peripherals. Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, among others.
Gaming components and systems. Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others.

2. Summary of Significant Accounting Policies

Basis of Presentation

Our interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accounting policies we follow are set forth in Part II, Item 8, Note 2, “Significant Accounting Policies”, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10K for the year ended December 31, 2022 which was filed with the SEC on February 27, 2023.

The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed, combined or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K.

The interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of our condensed consolidated balance sheet as of June 30, 2023 and our results of operations for the three and six months ended June 30, 2023 and 2022. The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Corsair and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For consolidated entities where we own less than 100% of the equity, our consolidated net comprehensive income (loss) is reduced by the portion attributable to the noncontrolling interest.

In determining whether an entity is considered a controlled entity, we apply the VIE (Variable Interest Entity) and VOE (voting interest entity) models. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, we consolidate the entity if we determine that we have a controlling financial interest in the entity through our ownership of greater than 50% of the outstanding voting shares of the entity and that other equity holders do not have substantive voting, participating or liquidation rights.

On January 1, 2022 (the “Closing” or “Closing Date”), we completed the acquisition of a 51% ownership stake in Elgato iDisplay Holdings LTD. and its related companies (together “iDisplay”). (See Note 5, “Business Combination - iDisplay Acquisition” for more details on the iDisplay Acquisition). We have determined that iDisplay does not qualify as a VIE and Corsair has a controlling financial interest in iDisplay under the VOE model and therefore, iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022.

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the valuation of intangible assets, accounts receivable, sales return reserves, reserves for customer incentives, warranty reserves, inventory, derivative instruments, stock-based compensation, and deferred income tax. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the potential impacts from the events in the current economic environment and the events in Ukraine. We adjust such estimates and assumptions when facts and circumstances dictate. The extent to which the current macroeconomic factors and the development in Ukraine will impact our business going forward depends on numerous dynamic factors that we cannot reliably predict. Actual results could differ materially from those estimates.

Recently Adopted Accounting Pronouncements

None.

Accounting Pronouncements Issued but Not Yet Adopted

None.

3. Fair Value Measurement

U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into the following three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the measurement date.

Level 2—Pricing inputs are other than quoted prices in active market, which are either directly or indirectly observable as of the report date. The nature of these securities includes investments for which quoted prices are available but traded less frequently and investments that are fair valued using other securities, the parameters of which can be directly observed.

Level 3—Securities that have little to no pricing observability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation.

Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed at fair value in our condensed consolidated financial statements on a recurring basis. Our financial instruments, including cash, restricted cash, accounts receivable, accounts payable, borrowings from credit lines and other liabilities and accrued expenses approximate fair value due to their short-term maturities. The balances of our financial assets that were measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 were not material. The following tables summarize our financial liabilities that were measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

 

 

 

June 30, 2023

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts(1)

 

$

 

 

$

221

 

 

$

 

 

$

221

 

Total liabilities

 

$

 

 

$

221

 

 

$

 

 

$

221

 

 

 

 

December 31, 2022

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred cash consideration in connection with a business acquisition—SCUF(2)

 

$

 

 

$

 

 

$

954

 

 

$

954

 

Foreign currency forward contracts(1)

 

 

 

 

 

484

 

 

 

 

 

 

484

 

Total liabilities

 

$

 

 

$

484

 

 

$

954

 

 

$

1,438

 

 

(1)
The fair values of the forward contracts were based on similar exchange traded derivatives and the related asset or liability is included within Level 2 of the fair value hierarchy.

 

(2)
In December 2019, one of our subsidiaries entered into an Agreement and Plan of Merger with Scuf Holdings, Inc. and its subsidiaries (collectively, “SCUF”) and acquired 100% of their equity interests (the “SCUF Acquisition”). The fair value of the SCUF contingent consideration was determined based on the estimates of acquired tax benefits owed to SCUF’s sellers according to the merger agreement, and these estimates represent a level 3 fair value measurement. The $1.0 million liability as of December 31, 2022 was finalized in the fourth quarter of 2022, and this amount was paid in the first quarter of 2023.

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4. Derivative Financial Instruments

From time to time, we enter into derivative instruments such as foreign currency forward contracts, to minimize the short-term impact of foreign currency exchange rate fluctuations on certain foreign currency denominated assets and liabilities, and interest rate cap contracts, to minimize our exposure to interest rate movements on our variable rate debts. The derivative instruments are recorded at fair value in prepaid expenses and other current assets or other liabilities and accrued expenses on the condensed consolidated balance sheets. We do not designate such instruments as hedges for accounting purposes; accordingly, changes in the value of these contracts are recognized in each reporting period in other (expense) income, net in the condensed consolidated statements of operations. We do not enter into derivative instruments for trading purposes.

The foreign currency forward contracts generally mature within two to four months. The notional principal amount of outstanding foreign exchange forward contracts was $24.4 million and $23.4 million as of June 30, 2023 and December 31, 2022, respectively, none of which have been designated as hedging instruments during the periods presented. The net fair value gains (losses) recognized in other (expense) income, net in relation to these derivative instruments was $(0.2) million and $2.1 million for the three months ended June 30, 2023 and 2022, respectively, and was $(0.6) million and $2.6 million for the six months ended June 30, 2023 and 2022, respectively.

5. Business Combinations

 

iDisplay Acquisition

On January 1, 2022, we completed the acquisition of a 51% ownership stake in iDisplay (the “iDisplay Acquisition”), a leader in electronic development and design specializing in display technology, headquartered in Taiwan.

The fair value consideration for iDisplay was $36.4 million, including $21.9 million in cash and the issuance of 690,333 shares of our common stock with a fair value of $14.5 million at Closing Date. The consideration was reduced for the effective 51% settlement of a pre-existing contractual accounts payable balance owed to iDisplay of $3.5 million. The iDisplay Acquisition has allowed us to direct the development and integration of iDisplay’s display-based touch-screen technologies into our products for creators, gamers and streamers. iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022.

The seller of iDisplay (the “iDisplay Seller”) has retained a 49% noncontrolling interest in iDisplay. Under the Shareholders Agreement between Corsair and the iDisplay Seller, a put option was provided to the iDisplay Seller and a call option was provided to Corsair for the option to transfer (i) 14% ownership interest in iDisplay to Corsair upon the first anniversary of the Closing and (ii) an additional 15% of ownership interest in iDisplay to Corsair upon the second anniversary of the Closing. Both put and call options expire on January 1, 2025. The exercise price of the put option and the call option is based on multiples of iDisplay’s trailing twelve-month earnings before interest, income tax, depreciation and amortization (“TTM EBITDA”) less any debt. The 29% noncontrolling interest subject to the put option is considered a redeemable noncontrolling interest ("RNCI"). See Note 15, “Redeemable Noncontrolling Interest” for more information regarding such RNCI.

The fair value of the 49% noncontrolling interest was estimated to be $29.6 million. The control premium was based on an analysis considering similar market transactions involving control premiums, as well as factors specific to iDisplay, including its significant customer concentration.

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Subsequent to the iDisplay Acquisition Closing Date, we recorded measurement period adjustments which increased goodwill by $1.0 million and decreased identifiable intangible assets and deferred liabilities by $1.1 million and $0.1 million, respectively. The final allocation of the iDisplay Acquisition purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows (in thousands):

 

 

Amounts

 

 

 

 

 

Cash

 

$

2,330

 

Accounts receivable

 

 

3,382

 

Inventories

 

 

2,772

 

Prepaid and other assets

 

 

424

 

Operating lease right-of-use asset

 

 

360

 

Property and equipment

 

 

277

 

Identifiable intangible assets

 

 

34,200

 

Goodwill

 

 

32,987

 

Total assets acquired

 

 

76,732

 

Accounts payable

 

 

(5,106

)

Deferred tax liabilities

 

 

(4,561

)

Accrued liabilities

 

 

(731

)

Operating lease liabilities

 

 

(360

)

Total liabilities assumed

 

 

(10,758

)

Net assets acquired

 

 

65,974

 

Noncontrolling interest

 

 

(29,606

)

Fair value of consideration transferred

 

$

36,368

 

 

 

 

 

Purchase consideration:

 

 

 

Cash

 

$

21,864

 

Corsair common stock

 

 

14,504

 

Fair value of consideration transferred

 

$

36,368

 

The fair value of certain working capital related items, including accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, as well as the fair value of property and equipment approximated their book values at the date of the iDisplay Acquisition. The fair value of the inventories was estimated by major category, at net realizable value, which we believe approximates the price a market participant could achieve in a current sale. The difference between the fair value of the inventories and the book value recorded by iDisplay on the acquisition date was $0.3 million, which was recognized in cost of revenue in the consolidated statements of operations upon the sale of the acquired inventory.

The goodwill recognized for the iDisplay Acquisition, which is the excess of the purchase consideration over the fair value of the identifiable intangible assets and the net tangible assets and liabilities acquired, has been estimated to be $33.0 million, of which $29.3 million and $3.7 million are assigned to our gamer and creator peripherals reporting unit and gaming component and systems reporting unit, respectively. We believe goodwill represents the strengthening of our supply chain with display-based touch-screen technologies into our products for creators, gamers and streamers, and the ability to design and generate new technologies to enhance the features of our products.

A portion of the identifiable intangible assets are not deductible for tax purposes for which a $4.6 million deferred tax liability has been estimated at the date of acquisition for the difference between the book and tax bases of these assets. The goodwill is not deductible for tax purposes.

Valuation of identified intangible assets

The following table summarizes the valuation of the identifiable intangible assets acquired in the iDisplay Acquisition and the estimate of their respective useful lives as of the Closing Date, including subsequent measurement period adjustments:

 

 

Valuation

 

 

Useful
Life

 

 

 

(In thousands)

 

 

(In years)

 

 

 

 

 

 

 

 

Patent portfolio

 

$

5,100

 

 

 

6

 

Supplier relationships

 

 

6,800

 

 

 

6

 

Developed technology

 

 

22,300

 

 

 

6

 

Total identifiable intangible assets

 

$

34,200

 

 

 

 

The fair value of patent portfolio was estimated using the relief from royalty approach and the economic useful life was determined based on the average product life cycle of the products manufactured by iDisplay. The supplier relationships intangible asset represents the value assigned to the relationship iDisplay had established over the years with a broad network of suppliers and OEMs that have been crucial to the quality and magnitude of iDisplay manufacturing capability.

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The fair value of supplier relationships was estimated using the multi-period excess earnings approach and the economic useful life was determined to be aligned with the estimated useful life of the developed technology acquired from iDisplay. The developed technology intangible asset represents unpatented propriety technologies, such as hardware designs and architectures and process technologies used in the on-going research and design of the products manufactured by iDisplay. The fair value of developed technology was estimated using the income approach and the economic useful life was based on the technology cycle of the products manufactured, as well as the cash flows anticipated over the forecasted periods. The valuations of the intangible assets were calculated with the assistance of a third-party valuation firm. The fair values of these intangibles were valued based on long-term cash flow projections, which we consider to be Level 3 inputs.

These intangibles are being amortized over their estimated useful lives using the straight-line method of amortization, which reflects the pattern in which the economic benefits of the intangible asset are consumed. Amortization of patent portfolio and supplier relationships is included in cost of revenue and amortization of developed technology is included in product development expense in our condensed consolidated statements of operations.

Acquisition-related costs

For the iDisplay acquisition, we incurred acquisition-related costs of approximately $0.1 million and $0.6 million for the three and six months ended June 30, 2022, respectively. These costs are recorded in sales, general and administrative expenses in the condensed consolidated statement of operations. There were no additional acquisition-related costs incurred for the iDisplay acquisition after 2022.

6. Goodwill and Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by reportable segment (in thousands):

 

 

Gaming
Components
and
Systems

 

 

Gamer and
Creator
Peripherals

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2022

 

$

148,931

 

 

$

198,816

 

 

$

347,747

 

Effect of foreign currency exchange rates

 

 

(16

)

 

 

823

 

 

 

807

 

Balance as of June 30, 2023

 

$

148,915

 

 

$

199,639

 

 

$

348,554

 

Intangible assets, net

The following table is a summary of intangible assets, net (in thousands):

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

$

53,726

 

 

$

28,822

 

 

$

24,904

 

 

$

53,726

 

 

$

24,088

 

 

$

29,638

 

Trade name

 

 

30,071

 

 

 

7,880

 

 

 

22,191

 

 

 

29,735

 

 

 

6,802

 

 

 

22,933

 

Customer relationships

 

 

218,452

 

 

 

127,814

 

 

 

90,638

 

 

 

218,542

 

 

 

116,919

 

 

 

101,623

 

Patent portfolio

 

 

34,602

 

 

 

14,624

 

 

 

19,978

 

 

 

33,198

 

 

 

11,764

 

 

 

21,434

 

Supplier relationships

 

 

6,042

 

 

 

1,510

 

 

 

4,532

 

 

 

6,129

 

 

 

1,021

 

 

 

5,108

 

Total finite-life intangibles

 

 

342,893

 

 

 

180,650

 

 

 

162,243

 

 

 

341,330

 

 

 

160,594

 

 

 

180,736

 

Indefinite life trade name

 

 

35,430

 

 

 

 

 

 

35,430

 

 

 

35,430

 

 

 

 

 

 

35,430

 

Other

 

 

16

 

 

 

 

 

 

16

 

 

 

89

 

 

 

 

 

 

89

 

Total intangible assets

 

$

378,339

 

 

$

180,650

 

 

$

197,689

 

 

$

376,849

 

 

$

160,594

 

 

$

216,255

 

 

In the year after an identified intangible asset becomes fully amortized, we remove the fully amortized balances from the gross asset and accumulated amortization amounts from the table above.

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The estimated future amortization expense of intangible assets as of June 30, 2023 is as follows (in thousands):

 

 

Amounts

 

 

 

 

 

Remainder of 2023

 

$

18,471

 

2024

 

 

36,572

 

2025

 

 

36,283

 

2026

 

 

32,978

 

2027

 

 

23,318

 

Thereafter

 

 

14,621

 

Total

 

$

162,243

 

 

7. Balance Sheet Components

The following tables present the components of certain balance sheet amounts (in thousands):

 

 

 

June 30,
2023

 

 

December 31,
2022

 

 

 

 

 

 

 

 

Cash

 

$

181,100

 

 

$

151,180

 

Restricted cash—short term

 

 

2,676

 

 

 

2,647

 

Restricted cash—noncurrent

 

 

236

 

 

 

233

 

Total cash and restricted cash

 

$

184,012

 

 

$

154,060

 

 

Accounts receivable

 

$

150,714

 

 

$

145,380

 

Due from Factor

 

 

71,220

 

 

 

91,061

 

Allowance for doubtful accounts

 

 

(1,715

)

 

 

(785

)

Accounts receivable, net

 

$

220,219

 

 

$

235,656

 

On September 29, 2022, one of our fully consolidated subsidiaries entered into an accounts receivable factoring agreement (“Factoring Agreement”) with a third-party financial institution (“Factor”). Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. Proceeds from factoring the accounts receivable are due upon collection of payments from the customers, but upon our request, the Factor may, at their sole discretion, remit a portion of the proceeds to us prior to their collection of payments from the customers. Our obligations to the Factor arising from the Factoring Agreement are secured by certain assets of our subsidiary. In the three and six months ended June 30, 2023, we sold receivables of $84.6 million and $167.5 million to the Factor, respectively. In the three and six months ended June 30, 2023, we received cash proceeds of $88.3 million and $186.9 million from the Factor, respectively. The cost of factoring is included in selling, general and administrative expenses in our condensed consolidated statements of operations and the amounts incurred in the three and six months ended June 30, 2023, were immaterial.

Besides the Factor, one other customer represented 33.9% and 28.1% of our accounts receivable, net balance as of June 30, 2023 and December 31, 2022, respectively.

 

 

 

June 30,
2023

 

 

December 31,
2022

 

 

 

 

 

 

 

 

Raw materials

 

$

39,735

 

 

$

49,926

 

Work in progress

 

 

9,282

 

 

 

4,171

 

Finished goods

 

 

163,521

 

 

 

138,620

 

Inventories

 

$

212,538

 

 

$

192,717

 

 

Manufacturing equipment

 

$

31,960

 

 

$

28,993

 

Leasehold improvements

 

 

19,089

 

 

 

18,903

 

Computer equipment, software and office equipment

 

 

17,279

 

 

 

16,205

 

Furniture and fixtures

 

 

3,894

 

 

 

3,277

 

Total property and equipment

 

$

72,222

 

 

$

67,378

 

Less: Accumulated depreciation and amortization

 

 

(38,633

)

 

 

(32,451

)

Property and equipment, net

 

$

33,589

 

 

$

34,927

 

 

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Right-of-use assets

 

$

42,460

 

 

$

45,175

 

Deferred tax asset

 

 

27,829

 

 

 

23,569

 

Other

 

 

6,927

 

 

 

6,546

 

        Other assets

 

$

77,216

 

 

$

75,290

 

 

Accrued reserves for customer incentive programs

 

$

55,447

 

 

$

58,621

 

Accrued reserves for sales return

 

 

29,481

 

 

 

27,199

 

Accrued payroll and related expense

 

 

14,919

 

 

 

10,511

 

Operating lease liabilities, current

 

 

11,821

 

 

 

11,051

 

Accrued freight expenses

 

 

9,751

 

 

 

12,486

 

Income tax payable

 

 

5,195

 

 

 

5,322

 

Contract liabilities

 

 

2,596

 

 

 

6,259

 

Other

 

 

29,999

 

 

 

33,021

 

Other liabilities and accrued expenses

 

$

159,209

 

 

$

164,470

 

 

Operating lease liabilities, noncurrent

 

$

42,202

 

 

$

45,457

 

Other

 

 

2,816

 

 

 

3,132

 

        Other liabilities, noncurrent

 

$

45,018

 

 

$

48,589

 

 

8. Debt

Our debt consisted of the following (in thousands):

 

 

June 30,
2023

 

 

December 31,
2022

 

 

 

 

 

 

 

 

Term Loan (variable rate) due September 2026

 

$

228,750

 

 

$

240,000

 

Debt discount and issuance cost, net of amortization

 

 

(1,142

)

 

 

(1,335

)

Total debt, net

 

 

227,608

 

 

 

238,665

 

Less: debt maturing within one year, net

 

 

10,251

 

 

 

6,495

 

Long-term debt, net

 

$

217,357

 

 

$

232,170

 

Credit Agreement

On September 3, 2021, we entered into a new Credit Agreement (as amended, the “Credit Agreement”) which provides for a $100.0 million five-year revolving credit facility (“Revolving Facility”) and a $250.0 million five-year term loan facility (“Term Loan”), with each maturing in September 2026. The Credit Agreement also permits, subject to conditions stated therein, additional incremental facilities in a maximum aggregate principal amount not to exceed $250.0 million. We may prepay the Term Loan and the Revolving Facility at any time without premium or penalty. We prepaid $3.75 million and $8.75 million of the Term Loan principal in the year ended December 31, 2022 and in the six months ended June 30, 2023, respectively.

The Term Loan and Revolving Facility under the Credit Agreement initially carried interest at the Company’s election at either (a) LIBOR plus a percentage spread (ranging from 1.25% to 2.0%) based on our total net leverage ratio, or (b) the base rate (described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.0%) based on our net leverage ratio.

The Credit Agreement contains covenants with which we must comply during the term of the agreement, which we believe are ordinary and standard for agreements of this nature. The financial covenants include the maintenance of a maximum Consolidated Total Net Leverage Ratio of 3.0 to 1.0 and a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0 (as defined in the Credit Agreement). The Credit Agreement also includes events of default customary for facilities of this nature and upon the occurrence of such events of default, among other things, all outstanding amounts under the Credit Agreement may be accelerated and/or the lenders’ commitments terminated.

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In addition, upon the occurrence of certain events of default, the interest on the Term loan and Revolving Facility can be increased by 2.0%.

Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.

On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”), which among other changes resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR. Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at the Company’s election at either (a) BSBY plus a percentage spread (ranging from 1.25% to 2.25%) based on our total net leverage ratio, or (b) the base rate (as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month BSBY plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.25%) based on our total net leverage ratio. In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) was also amended to increase to 3.50 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.00 to 1.00 from the quarter ended June 30, 2023 and each quarter thereafter, provided that, upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.50 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met.

On September 29, 2022, we entered into an accounts receivable Factoring Agreement with a Factor. See Note 7 “Balance Sheet Components – Accounts Receivable, Net” for additional information on the Factoring Agreement. In connection with the Factoring Agreement, we also entered into (i) a Second Amendment (“Second Amendment”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral.

On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement that provides for, among other things, (i) a decrease in the required minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to 2.50 to 1.00 for the quarters ending on and after March 31, 2023 through and including December 31, 2023, (ii) an increase in the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to 3.75 to 1.00 for the quarters ending December 31, 2022 and March 31, 2023, stepping down to 3.50 to 1.00 for the quarter ending June 30, 2023, and 3.25 to 1.00 for the quarters ending September 30, 2023 and December 31, 2023, and (iii) a modified pricing grid providing for an increased margin (ranging from (x) 1.50% per annum to 3.25% per annum for loans bearing interest at the BSBY rate, and (y) 0.50% per annum to 2.25% per annum for loans bearing interest at the base rate, in each case depending on the Company’s Consolidated Total Net Leverage Ratio) for the period of December 31, 2022 through December 31, 2023.

The First, Second and Third Amendment were accounted for as debt modifications.

As of June 30, 2023, we were not in default under the Credit Agreement.

As of June 30, 2023 and December 31, 2022, we had no outstanding balance under the Revolving Facility.

As of June 30, 2023 and December 31, 2022, the carrying value of our Term Loan was $227.6 million and $238.7 million, respectively. The estimated fair value of the Term Loan as of June 30, 2023, which we have classified as a Level 2 financial instrument, was approximately $226.1 million.

The effective interest rate inclusive of the debt discount and debt issuance costs was approximately 7.67% and 2.13% for the three months ended June 30, 2023 and 2022, respectively, and was approximately 7.36% and 1.81% for the six months ended June 30, 2023 and 2022, respectively.

The following table summarizes the interest expense, net recognized for all periods presented (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest expense for Term Loan

 

$

4,257

 

 

$

1,370

 

 

$

8,322

 

 

$

2,235

 

Contractual interest expense for Revolving Facility

 

 

 

 

 

201

 

 

 

 

 

 

475

 

Amortization of debt discount and issuance cost

 

 

132

 

 

 

86

 

 

 

266

 

 

 

172

 

Interest income

 

 

(1,978

)

 

 

 

 

 

(3,452

)

 

 

 

Other interest expense

 

 

107

 

 

 

19

 

 

 

210

 

 

 

73

 

Total interest expense, net

 

$

2,518

 

 

$

1,676

 

 

$

5,346

 

 

$

2,955

 

 

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The estimated future principal payments under our total long-term debt as of June 30, 2023 are as follows (in thousands):

 

 

Amounts

 

 

 

 

 

Remainder of 2023

 

$

4,375

 

2024

 

 

12,500

 

2025

 

 

12,500

 

2026

 

 

199,375

 

2027

 

 

 

Thereafter

 

 

 

Total future principal payments

 

$

228,750

 

 

9. Commitments and Contingencies

Product Warranties

Changes in our warranty obligations were as follows (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of the period

 

$

3,467

 

 

$

5,392

 

 

$

3,685

 

 

$

5,655

 

Warranty provision related to products shipped

 

 

2,642

 

 

 

1,167

 

 

 

4,020

 

 

 

2,465

 

Deductions for warranty claims processed

 

 

(1,366

)

 

 

(1,794

)

 

 

(2,962

)

 

 

(3,355

)

End of period

 

$

4,743

 

 

$

4,765

 

 

$

4,743

 

 

$

4,765

 

Unconditional Purchase Obligations

In the normal course of business, we enter into various purchase commitments for goods or services. Our long-term non-cancelable purchase commitments consist primarily of multi-year contractual arrangements relating to subscriptions for cloud computing hosting arrangements for our enterprise resource planning (ERP) system and the related support services as well as marketing sponsorships. Long-term non-cancelable purchase commitments as of June 30, 2023 were as follows (in thousands):

 

 

Amounts

 

 

 

 

 

Remainder of 2023

 

$

862

 

2024

 

 

1,876

 

2025

 

 

316

 

2026

 

 

 

2027

 

 

 

Thereafter

 

 

 

Total

 

$

3,054

 

Our total long term non-cancelable purchase commitments outstanding as of December 31, 2022 were $3.8 million.

Letters of Credit

There were no letters of credit outstanding, as of June 30, 2023 and December 31, 2022. No amounts have been drawn upon letters of credit for all periods presented.

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Legal Proceedings

We may from time to time be involved in various claims and legal proceedings of a character normally incident to the ordinary course of business. Litigation can be expensive and disruptive to normal business operations, and the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred and we record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information, we believe there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position, or the outcome of these matters is currently not determinable. An unfavorable outcome to any legal matter, if material, could have an adverse effect on our operations or financial position, liquidity of results of operations.

Indemnification

In the ordinary course of business, we may provide indemnifications of varying scope and terms with respect to certain transactions. We have entered into indemnification agreements with directors and certain officers and employees that will require Corsair, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon Corsair to provide indemnification under such agreements, and thus, there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, statements of operations, or statements of cash flows. We currently have directors’ and officers’ insurance.

10. Stockholders’ Equity

On September 25, 2020, in connection with the closing of the IPO, we filed an Amended and Restated Certificate of Incorporation which increased the authorized shares of common stock for issuance to 300,000,000 and authorized 5,000,000 shares of preferred stock, with a par value of $0.0001 per share, for issuance. There were no shares of preferred stock outstanding as of June 30, 2023 and December 31, 2022.

Shelf-Registration Statement

On July 22, 2022, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective August 1, 2022 (the “2022 Shelf Registration Statement”). The 2022 Shelf Registration Statement registered securities to be offered by us, in an amount up to $300.0 million, including common stock, preferred stock and warrants. In addition, the 2022 Shelf Registration Statement registered 54,179,559 shares of common stock held by the selling securityholders named in the 2022 Shelf Registration Statement. We did not receive any of the proceeds from the sale of the shares registered by the selling securityholders.

In November 2022, we sold 4,545,455 shares of common stock at a price of $16.50 per share in a registered underwritten public offering pursuant to the 2022 Shelf Registration Statement. Following the partial exercise in December 2022 by the underwriters of their option to purchase additional shares, we sold an additional 500,000 shares. The total proceeds from the underwritten public offering, net of underwriting discounts, commission and offering expenses, were approximately $81.0 million.

11. Equity Incentive Plans and Stock-Based Compensation

As of June 30, 2023, we have two active equity incentive plans: the 2020 Equity Incentive Plan and the Employee Stock Purchase Plan (“ESPP”).

The following table summarizes stock-based compensation expense by line item in the condensed consolidated statements of operations (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

567

 

 

$

380

 

 

$

1,007

 

 

$

665

 

Sales, general and administrative

 

 

6,607

 

 

 

4,861

 

 

 

12,478

 

 

 

9,013

 

Product development

 

 

1,024

 

 

 

850

 

 

 

1,959

 

 

 

1,560

 

    Stock-based compensation expense, net of amounts capitalized (1)

 

$

8,198

 

 

$

6,091

 

 

$

15,444

 

 

$

11,238

 

    Income tax benefits related to stock-based compensation expense

 

$

1,224

 

 

$

59

 

 

$

2,578

 

 

$

370

 

 

(1)
Total stock-based compensation expense capitalized in inventory, internally developed software, and cloud computing arrangement implementation costs were not material for each of the periods presented.

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The following table summarizes by type of grant, the total unrecognized stock-based compensation expense and the remaining period over which such expense is expected to be recognized (in thousands, except number of years):

 

 

June 30, 2023

 

 

Unrecognized Expense

 

 

Remaining weighted average period (In years)

 

 

 

 

 

 

Stock Options

 

$

32,136

 

 

2.6

Restricted Stock Units

 

 

38,370

 

 

2.8

    Total unrecognized stock-based compensation expense

 

$

70,506

 

 

 

The total intrinsic value of options exercised was $5.5 million and $2.4 million for the three months ended June 30, 2023 and 2022, respectively, and was $9.9 million and $49.3 million for the six months ended June 30, 2023 and 2022, respectively. The total fair value of restricted stock units vested was $3.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and was $8.2 million and $2.9 million for the six months ended June 30, 2023 and 2022, respectively.

12. Net Income (Loss) Per Share

The following table summarizes the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,079

)

 

$

(51,839

)

 

$

(5,727

)

 

$

(55,119

)

Less: Net income (loss) attributable to noncontrolling interest

 

 

401

 

 

 

174

 

 

 

765

 

 

 

(233

)

Net loss attributable to Corsair Gaming, Inc.

 

 

(4,480

)

 

 

(52,013

)

 

 

(6,492

)

 

 

(54,886

)

Change in redemption value of redeemable noncontrolling interest

 

 

5,577

 

 

 

(7,379

)

 

 

6,535

 

 

 

(9,640

)

Net income (loss) attributable to common stockholders of Corsair Gaming, Inc.

 

$

1,097

 

 

$

(59,392

)

 

$

43

 

 

$

(64,526

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

102,304

 

 

 

95,467

 

 

 

101,996

 

 

 

95,372

 

Effect of dilutive securities (1)

 

 

4,198

 

 

 

 

 

 

4,173

 

 

 

 

Total diluted weighted-average shares outstanding

 

 

106,502

 

 

 

95,467

 

 

 

106,169

 

 

 

95,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

(0.62

)

 

$

0.00

 

 

$

(0.68

)

Diluted

 

$

0.01

 

 

$

(0.62

)

 

$

0.00

 

 

$

(0.68

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive potential common shares (1)

 

 

5,004

 

 

 

11,198

 

 

 

4,858

 

 

 

10,791

 

 

(1)
Potential common share equivalents were not included in the calculation of diluted net loss per share as the effect would have been anti-dilutive.

13. Income Taxes

The table below presents our loss before income taxes, income tax benefit and effective income tax rates for all periods presented (in thousands, except percentages):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Loss before income taxes

 

$

(6,366

)

 

$

(56,003

)

 

$

(8,653

)

 

$

(60,266

)

Income tax benefit

 

 

2,287

 

 

 

4,164

 

 

 

2,926

 

 

 

5,147

 

Effective tax rate

 

 

35.9

%

 

 

7.4

%

 

 

33.8

%

 

 

8.5

%

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of net operating loss and tax credit carry forwards, changes in geographic mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.

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Our effective tax rates were 35.9% and 7.4% for the three months ended June 30, 2023 and 2022, respectively, and 33.8% and 8.5% for the six months ended June 30, 2023 and 2022, respectively. The increase in our effective tax rate in the three- and six-month periods was primarily due to the change in the mix of income and losses in the various tax jurisdictions in which we operate and an increase in non-deductible stock-based compensation expense. These impacts were partially offset by an increase in windfall tax benefit from stock-based compensation expense.

Unrecognized tax benefits were $3.8 million as of June 30, 2023 and $3.6 million as of December 31, 2022, respectively, and if recognized, would favorably affect the effective income tax rate in future periods.

14. Segment and Geographic Information

We have two reportable segments:

Gamer and Creator Peripherals. Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, among others.
Gaming Components and Systems. Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others.

The segments are defined as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. Our CODM is determined to be Corsair’s Chief Executive Officer. The results of the reportable segments are derived directly from our reporting system and are based on the methods of internal reporting which are not necessarily in conformity with GAAP. Management measures net revenue and gross profit to evaluate the performance of, and allocate resources to, each of the segments.

The table below summarizes the financial information for each reportable segment (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

Gamer and Creator Peripherals

 

$

78,755

 

 

$

88,989

 

 

$

167,697

 

 

$

223,137

 

Gaming Components and Systems

 

 

246,677

 

 

 

194,919

 

 

 

511,699

 

 

 

441,462

 

Total net revenue

 

$

325,432

 

 

$

283,908

 

 

$

679,396

 

 

$

664,599

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Gamer and Creator Peripherals

 

$

25,509

 

 

$

10,558

 

 

$

52,157

 

 

$

53,615

 

Gaming Components and Systems

 

 

57,323

 

 

 

25,901

 

 

 

116,079

 

 

 

73,600

 

Total gross profit

 

$

82,832

 

 

$

36,459

 

 

$

168,236

 

 

$

127,215

 

The CODM manages assets on a total company basis, not by operating segments; therefore, asset information and capital expenditures by operating segments are not presented.

Geographic Information

The following table summarizes our net revenue by geographic region based on the location of the customer (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

169,027

 

 

$

149,633

 

 

$

354,925

 

 

$

342,457

 

Europe and Middle East

 

 

105,130

 

 

 

71,231

 

 

 

218,571

 

 

 

193,429

 

Asia Pacific

 

 

51,275

 

 

 

63,044

 

 

 

105,900

 

 

 

128,713

 

Total net revenue

 

$

325,432

 

 

$

283,908

 

 

$

679,396

 

 

$

664,599

 

Revenues from sales to customers in the United States represented 46.1% and 45.0% for the three months ended June 30, 2023 and 2022, respectively, and represented 46.1% and 44.2% for the six months ended June 30, 2023 and 2022, respectively. No other countries besides the United States represented 10% or more of total net revenue for each of the periods presented.

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One customer represented 30.4% and 23.5% of our total net revenue for the three months ended June 30, 2023 and 2022, respectively, and 28.0% and 27.5% of our total net revenue for the six months ended June 30, 2023 and 2022, respectively. No other customer represented 10% or more of our total net revenue for each of the periods presented.

15. Redeemable Noncontrolling Interest

Under the Shareholders Agreement between Corsair and the iDisplay Seller a put option was provided to the iDisplay Seller to transfer to Corsair (i) 14% of their ownership interest in iDisplay upon the first anniversary of the Closing Date of the iDisplay Acquisition, and (ii) an additional 15% of their ownership interest in iDisplay upon the second anniversary of the Closing Date. The put option will expire after January 1, 2025. The exercise price of the put option is based on multiples of iDisplay’s historical TTM EBITDA less any debt. The put option makes this portion of the noncontrolling interest redeemable and therefore, the RNCI is classified as temporary equity on our consolidated balance sheets and carried at the greater of the initial carrying amount, increased or decreased, for the RNCI share of comprehensive income (loss), contributions and distributions, or the redemption value. The change in redemption value is recognized through retained earnings.

The following table presents the changes in RNCI for the periods presented (in thousands):

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

20,646

 

 

$

19,424

 

 

$

21,367

 

 

$

 

Initial carrying amount estimated at iDisplay's Closing Date

 

 

 

 

 

 

 

 

 

 

 

17,522

 

Share of net income (loss)

 

 

237

 

 

 

103

 

 

 

452

 

 

 

(138

)

Share of other comprehensive loss

 

 

(75

)

 

 

(157

)

 

 

(53

)

 

 

(275

)

Change in redemption value (1)

 

 

(5,577

)

 

 

7,379

 

 

 

(6,535

)

 

 

9,640

 

Balance at end of period

 

$

15,231

 

 

$

26,749

 

 

$

15,231

 

 

$

26,749

 

(1)
These amounts represent increases or (decreases) in redemption value over the carrying value for the respective periods. These amounts were recorded as an offset to retained earnings impacting the net income (loss) used in the calculation of net income (loss) per share attributable for these periods.

16. Subsequent Event

On July 14, 2023, we completed the acquisition of certain assets of Drop, a leading privately held peripheral developer best known for its customizable mechanical keyboards and switches, and its millions-member strong enthusiast community. This acquisition was not significant to our condensed consolidated financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q as well as in conjunction with the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States Securities and Exchange Commission (“SEC”) on February 27, 2023. The following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.


Overview

We are a leading global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components. Our industry-leading gaming gear helps digital athletes, from casual gamers to committed professionals, perform at their peak across PC or console platforms, and our streaming gear enables streamers and content creators to produce studio-quality content to share with friends or to broadcast to millions of fans. Our PC components products offer our customers multiple options to build their customized gaming and workstation desktop PCs. Our solution is the most complete suite of gear among our major competitors and addresses the most critical components for both game performance and streaming. Our product offering is enhanced by our two proprietary software platforms: iCUE for gamers and the Elgato streaming suite for content creators, including our Stream Deck control software, which provide unified, intuitive performance, and aesthetic control and customization across their respective product families. We also offer digital services to enhance the customer experience by integrating esports, stream deck marketplace, customer care and extended warranty into our product offerings.

We group our products into two categories (operating segments):

Gamer and creator peripherals. Includes our high-performance gaming keyboards, mice, headsets, controllers, and streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories, and EpocCam software, among others.
Gaming components and systems. Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, and DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others.

We are committed to continuing to grow in our current markets as well as new markets through the development of innovative technologies and by entering into new categories through organic growth or acquisition. In 2022 and 2021, we entered into four new markets, namely the microphones and cameras markets for content creators, the gaming monitors market and prebuilt gaming laptops market for both gamers and content creators. We continue to expand our product portfolio, launching 125 new products in the year of 2022. During the six months ended June 30, 2023, we started to ship various new innovative products including our new FLEX OLED bendable monitor, engineered in partnership with LG, and we expanded our Stream Deck product family, which further enhances the speed and workflows in streaming and content creation. In addition, with lower priced GPUs coming to market and new game titles being released this year, we believe that the gaming market will continue to grow.

In July 2023, we completed the acquisition of certain assets of Drop, a community-based e-commerce company specializing in customized DIY keyboards and keycaps and many other enthusiast and audiophile products. We expect some synergies with this acquisition, both by offering custom versions of our products on the Drop site, as well as introducing some of their popular products into our worldwide channel.

Summary of Financial Results

Our net revenue for the three and six months ended June 30, 2023 increased by 14.6% and 2.2%, respectively, as compared to the same periods last year, primarily driven by an increase in sales in our gaming components and systems segment, but partially offset by a decrease in sales in our gamer and peripherals segment.

Our gross margin increased from 12.8% to 25.5% for the three months ended June 30, 2023, as compared to the same period last year, and increased from 19.1% to 24.8% for the six months ended June 30, 2023, as compared to the same period last year.

As of June 30, 2023, we had cash and restricted cash, in the aggregate of $184.0 million and the principal balance outstanding of the Term Loan was $228.8 million. Cash provided by operations was $44.0 million and $10.1 million in the six months ended June 30, 2023 and 2022, respectively.

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Key Factors Affecting Our Business

Our results of operations and financial condition are affected by numerous factors, including those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and those described below.

Impact of Macroeconomic Conditions

Our business and financial performance are significantly impacted by worldwide economic conditions. Global macroeconomic challenges, such as the effects of the ongoing war between Russia and Ukraine, supply chain constraints, market uncertainty, and the risk of a recession, volatility in exchange rates, inflationary trends, lingering impacts from the COVID-19 pandemic and evolving dynamics in the global trade environment, have impacted our business and financial performance. Throughout 2022, these conditions adversely impacted our net revenue and resulted in higher cost of sales due to increased shipping and production costs. Such conditions also resulted in excess inventory in our distribution channels that led to our recognizing higher inventory impairment related charges in 2022 in order to rationalize our inventory levels to align with the reduced revenue in the period. These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics in our markets and have had significant impacts on our financial results.

The extent of the impact of macroeconomic conditions, geopolitical tensions and the lingering effects from the COVID-19 pandemic on our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are not within our control and are highly uncertain and cannot be predicted. We will continue to evaluate these risks and uncertainties and further our mitigation plans.

Impact of fluctuations in Currency Exchange Rate

We are exposed to fluctuations in foreign currency exchange rates. Some of our international sales are denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries may negatively impact our revenue. For example, our net revenue for the year ended December 31, 2022 was in part negatively impacted by the strengthening of the U.S. dollar against the Euro and the British Pound. In addition, we generally pay our employees located outside the United States in the local currency, with a significant portion of those payments being made in Taiwan dollars and Euros. As a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies, in particular the Euro, British Pound, Chinese Yuan and New Taiwan Dollar.

Impact of Industry Trends

Our results of operations and financial condition are impacted by industry trends in the gaming market, including:

Increasing gaming engagement. We believe that gaming’s increasing time share of global entertainment consumption will drive continued growth in spending on both games and gaming gear. Gaming continues to become increasingly social, as streaming viewership becomes more widely adopted with increasing numbers of content creators. This trend, which has accelerated in the past few years experienced a setback in 2022 primarily due to challenging macroeconomic conditions and the ongoing war between Russia and Ukraine. Nonetheless, we have seen some recovery starting from the fourth quarter of 2022. Accordingly, we believe that the acceleration trend will resume in the remainder of 2023 and that we are well-positioned to serve the streaming market with best-in-class tools for content creation.
Introduction of new high-performance computing hardware and sophisticated games. We believe that the introduction of more powerful CPUs and GPUs that place increased demands on other system components, such as memory, power supply or cooling, has a significant effect on increasing the demand for our gear. The shortage of reasonably priced GPUs since the second half of 2021 had a negative impact on our gaming component revenue, but starting from the third quarter of 2022, we saw the availability of reasonably priced GPUs began to normalize which brought along some positive effects to the self-built PC market. In addition, we believe that our business success depends in part on the introduction and success of games with sophisticated graphics that place increasing demands on system processing speed and capacity and therefore require more powerful CPUs or GPUs, which in turn drives demand for our high-performance gaming components and systems, such as PSUs and cooling solutions, and our gaming PC memory. As a result, our operating results may be materially affected by the timing of, and the rate at which computer hardware companies introduce, new and enhanced CPUs and GPUs, the timing of, and rate at which computer game companies and developers introduce, sophisticated new and improved games that require increasingly high levels of system and graphics processing power, and whether these new products and games are widely accepted by gamers.

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Impact of Product Mix

Our gamer and creator peripherals segment has a higher gross margin than our gaming components and systems segment. As a result, our overall gross margin is affected by changes in product mix. External factors can have an impact on our product mix, such as popular game releases that can increase sales of peripherals and availability of new CPUs and GPUs that can impact component sales. In addition, within our gamer and creator peripherals and gaming components and systems segments, gross margin varies between products, and significant shifts in product mix within either segment may also significantly impact our overall gross margin.

Impact of Customer Concentration

We operate a global sales network that consists primarily of retailers (including e-retailers), as well as distributors we use to access certain retailers. Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with e-retailer Amazon accounting for 28.0% and 27.5% of our net revenue for the six months ended June 30, 2023 and 2022, respectively, and sales to our ten largest customers accounting for approximately 54.8% and 52.0% of our net revenue for the six months ended June 30, 2023 and 2022, respectively. Our customers, including Amazon, typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us. As a result of this concentration and the lack of long-term agreements with our customers, a primary driver of our net revenue and operating performance is maintaining good relationships with these retailers and distributors. To help maintain good relationships, we implement initiatives such as our updated packaging design which helps e-retailers such as Amazon process our packages more efficiently. Further, given our global operations, a significant percentage of our expenses relate to shipping costs. Our ability to effectively optimize these shipping expenses, for example utilizing expensive shipping options such as air freight for smaller packages and more urgent deliveries and more cost-efficient options, such as train or boat, for other shipments, has an impact on our expenses and results of operations.

Impact of New Product Introductions

Gamers demand new technology and product features, and we expect our ability to accurately anticipate and meet these demands will be one of the main drivers for any future sales growth and market share expansion. While we intend to continue to develop and release new products, there can be no assurance that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over those of our competitors.

Impact of Seasonal Sales Trends

We have experienced and expect to continue to experience seasonal fluctuations in sales due to the buying patterns of our customers and spending patterns of gamers. Our net revenue has generally been lower in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, GPUs, and other computer hardware products, which usually take place in the second calendar quarter, and which tend to drive sales in the following two quarters. Further, our net revenue tends to be higher in the third and fourth calendar quarters due to seasonal sales such as “Black Friday” and “Cyber Monday”, as well as “Singles Day” in China, as retailers tend to make purchases in advance of these sales. Our sales also tend to be higher in the fourth quarter due to the introduction of new consoles and high-profile games in connection with the holiday season. As a consequence of seasonality, our net revenue for the second calendar quarter is generally the lowest of the year followed by the first calendar quarter.

Impact of Fluctuations in Integrated Circuits Pricing

Integrated circuits, or ICs, account for most of the cost of producing our high-performance memory products. IC prices are subject to pricing fluctuations which can affect the average sales prices of memory modules, and thus impact our net revenue, and can have an effect on gross margins. The impact on net revenues can be significant as our high-performance memory products, included within our gaming components and systems segment, represent a significant portion of our net revenue.

Components of our Operating Results

Net Revenue

We generate materially all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers, including online retailers, gamers and distributors worldwide. Our revenue is recognized net of allowances for returns, discounts, sales incentives and any taxes collected from customers.

Cost of Revenue

Cost of revenue consists of product costs, including costs of contract manufacturers, inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments, cost of materials and overhead, duties and tariffs, warranty replacement cost to process and rework returned items, depreciation of tooling equipment, warehousing costs, inventory write-downs and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.

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Operating Expenses

Operating expenses consist of sales, general and administrative expenses and product development expenses.

Sales, general and administrative. Sales, general and administrative, or SG&A, expenses represent the largest component of our operating expenses and consist of distribution costs, sales, marketing and other general and administrative costs. Distribution costs include outbound freight and the costs to operate our distribution hubs. Sales and marketing costs relate to the costs to operate our global sales force that works in conjunction with our channel partners, gaming team and event sponsorships, advertising and marketing promotions of our products and services, costs of maintaining our web store and credit card processing fees related to sales on our webstore, personnel-related cost and allocated overhead costs. General and administrative costs consist primarily of personnel-related expenses for our finance, legal, human resources, IT and administrative personnel, as well as the costs of professional services related to these functions and allocated overhead costs.

Product development. Product development costs are generally expensed as incurred. Product development costs consist primarily of the costs associated with the design and testing of new products and improvements to existing products. These costs relate primarily to compensation of personnel and consultants involved with product design, definition, compatibility testing and qualification, as well as depreciation costs of equipment used, prototype material costs and allocated overhead costs.

Interest Expense, Net

Interest expense, net consists of interest associated with our debt financing arrangements, including our revolving line of credit, and amortization of debt issuance costs and debt discounts. Interest income earned on our cash and cash equivalents balance is included within interest expense, net as an offset to interest expense.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in foreign currencies, and net fair value gains and losses from our foreign currency forward contracts.

Income Tax Benefit

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of foreign tax credits and changes in tax laws. Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the tax and financial reporting bases of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled.

Net Income (Loss) Attributable to Noncontrolling Interest

Net income (loss) attributable to noncontrolling interest represents the share of the net income (loss) of iDisplay attributable to the 49% ownership interest of iDisplay we did not acquire.

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Results of Operations

The following tables set forth the components of our condensed consolidated statements of operations, in dollars (thousands) and as a percentage of total net revenue, for each of the periods presented.

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

325,432

 

 

$

283,908

 

 

$

679,396

 

 

$

664,599

 

Cost of revenue

 

 

242,600

 

 

 

247,449

 

 

 

511,160

 

 

 

537,384

 

Gross profit

 

 

82,832

 

 

 

36,459

 

 

 

168,236

 

 

 

127,215

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

69,953

 

 

 

73,393

 

 

 

137,482

 

 

 

149,524

 

Product development

 

 

15,593

 

 

 

18,026

 

 

 

32,431

 

 

 

35,136

 

Total operating expenses

 

 

85,546

 

 

 

91,419

 

 

 

169,913

 

 

 

184,660

 

Operating loss

 

 

(2,714

)

 

 

(54,960

)

 

 

(1,677

)

 

 

(57,445

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,518

)

 

 

(1,676

)

 

 

(5,346

)

 

 

(2,955

)

Other (expense) income, net

 

 

(1,134

)

 

 

633

 

 

 

(1,630

)

 

 

134

 

Total other expense, net

 

 

(3,652

)

 

 

(1,043

)

 

 

(6,976

)

 

 

(2,821

)

Loss before income taxes

 

 

(6,366

)

 

 

(56,003

)

 

 

(8,653

)

 

 

(60,266

)

Income tax benefit

 

 

2,287

 

 

 

4,164

 

 

 

2,926

 

 

 

5,147

 

Net loss

 

 

(4,079

)

 

 

(51,839

)

 

 

(5,727

)

 

 

(55,119

)

Less: Net income (loss) attributable to noncontrolling interest

 

 

401

 

 

 

174

 

 

 

765

 

 

 

(233

)

Net loss attributable to Corsair Gaming, Inc.

 

$

(4,480

)

 

$

(52,013

)

 

$

(6,492

)

 

$

(54,886

)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of revenue

 

 

74.5

 

 

 

87.2

 

 

 

75.2

 

 

 

80.9

 

Gross profit

 

 

25.5

 

 

 

12.8

 

 

 

24.8

 

 

 

19.1

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

21.5

 

 

 

25.9

 

 

 

20.2

 

 

 

22.5

 

Product development

 

 

4.8

 

 

 

6.3

 

 

 

4.8

 

 

 

5.3

 

Total operating expenses

 

 

26.3

 

 

 

32.2

 

 

 

25.0

 

 

 

27.8

 

Operating loss

 

 

(0.8

)

 

 

(19.4

)

 

 

(0.2

)

 

 

(8.6

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(0.8

)

 

 

(0.6

)

 

 

(0.8

)

 

 

(0.4

)

Other (expense) income, net

 

 

(0.3

)

 

 

0.2

 

 

 

(0.2

)

 

 

0.0

 

Total other expense, net

 

 

(1.1

)

 

 

(0.4

)

 

 

(1.0

)

 

 

(0.4

)

Loss before income taxes

 

 

(1.9

)

 

 

(19.8

)

 

 

(1.3

)

 

 

(9.1

)

Income tax benefit

 

 

0.7

 

 

 

1.5

 

 

 

0.4

 

 

 

0.8

 

Net loss

 

 

(1.2

)

 

 

(18.3

)

 

 

(0.9

)

 

 

(8.3

)

Less: Net income (loss) attributable to noncontrolling interest

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

 

 

(0.0

)

Net loss attributable to Corsair Gaming, Inc.

 

 

(1.3

)%

 

 

(18.4

)%

 

 

(1.0

)%

 

 

(8.3

)%

Components of Results of Operations

Net Revenue

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Net revenue

 

$

325,432

 

 

$

283,908

 

 

$

679,396

 

 

$

664,599

 

 

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Net revenue increased by 14.6% for the three months ended June 30, 2023 as compared to the same period last year. The increase was due to a 26.6% increase in sales for our gaming components and systems segment, which was partially offset by a 11.5% decrease in sales for our gamer and creator peripherals segment.

Net revenue increased by 2.2% for the six months ended June 30, 2023 as compared to the same period last year. The increase was due to a 15.9% increase in sales for our gaming components and systems segment, which was partially offset by a 24.8% decrease in sales for our gamer and creator peripherals segment.

Overall, the demand was higher for most of our components and systems products in both the three- and six- month periods ended June 30, 2023, as compared to the same periods last year, primarily driven by the self-built PC market expansion due to the increase in availability of new and reasonably priced GPUs and CPUs as well as the release of new game titles. The increase in demand for our components and systems products was partially offset by a decrease in demand in both the three- and six- month periods for our peripherals products primarily due to the challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine as well as inflationary trends.

Gross Profit and Gross Margin

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except percentages)

 

Gross profit

 

$

82,832

 

 

$

36,459

 

 

$

168,236

 

 

$

127,215

 

Gross margin

 

 

25.5

%

 

 

12.8

%

 

 

24.8

%

 

 

19.1

%

Gross margin increased by 12.7% and 5.7% for the three and six months ended June 30, 2023 as compared to the same periods last year primarily due to lower inventory impairment and related charges in 2023 as compared to 2022. In the second quarter of 2022 we implemented an inventory rationalization plan to align the inventory balance with reduced 2022 demand post-pandemic, The increase in gross margin for the three- and six-month periods was also due to an improvement in product costs from suppliers, new products introduced at a higher margin, and lower tariff and freight costs as the elevated freight rates caused by the COVID-19 pandemic have normalized to close to pre-pandemic levels.

Sales, General and Administrative (SG&A)

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Sales, general and administrative

 

$

69,953

 

 

$

73,393

 

 

$

137,482

 

 

$

149,524

 

SG&A expenses decreased 4.7% for the three months ended June 30, 2023 as compared to the same period last year due to lower amortization of capitalized cloud computing implementation costs and lower freight costs due to a reduction in freight rates, which were partially offset by higher stock-based compensation expenses and bonus expenses.

SG&A expenses decreased 8.1% for the six months ended June 30, 2023 as compared to the same period last year. The majority of the decrease in SG&A expense was due to lower freight costs driven by lower freight rates. The remaining decrease in SG&A expense was primarily due to lower marketing and advertising expenses and lower amortization of capitalized cloud computing implementation costs, which were partially offset by higher stock-based compensation expenses and bonus expenses.

Product Development

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Product development

 

$

15,593

 

 

$

18,026

 

 

$

32,431

 

 

$

35,136

 

Product development expenses decreased 13.5% for the three months ended June 30, 2023 as compared to the same period last year primarily due to lower personnel-related costs and consulting and contractor costs as well as lower allocation of corporate IT-related and facility-related costs.

Product development expenses decreased 7.7% for the six months ended June 30, 2023 as compared to the same period last year primarily due to lower personnel-related costs and lower allocation of corporate IT-related and facility-related costs.

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Interest Expense, Net and Other (Expense) Income, Net

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Interest expense, net

 

$

(2,518

)

 

$

(1,676

)

 

$

(5,346

)

 

$

(2,955

)

Other (expense) income, net

 

 

(1,134

)

 

 

633

 

 

 

(1,630

)

 

 

134

 

Interest expense, net increased 50.2%, for the three months ended June 30, 2023 as compared to the same period last year. Interest expense, net increased 80.9%, for the six months ended June 30, 2023 as compared to the same period last year. The increase in interest expense, net for the three- and six-month periods was primarily due to a higher interest rate on our Term Loan compared to the same periods last year, which was partially offset by $2.0 million and $3.5 million interest income earned in the three and six months ended June 30, 2023, respectively. There was no interest income earned in the three and six months ended June 30, 2022.

Other (expense) income, net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies of our subsidiaries. Our foreign currency exposure is primarily driven by fluctuations in the foreign currency exchanges rates of the Euro, British Pound and the Chinese Yuan.

Income Tax Benefit

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Loss before income taxes

 

$

(6,366

)

 

$

(56,003

)

 

$

(8,653

)

 

$

(60,266

)

Income tax benefit

 

 

2,287

 

 

 

4,164

 

 

 

2,926

 

 

 

5,147

 

Effective tax rate

 

 

35.9

%

 

 

7.4

%

 

 

33.8

%

 

 

8.5

%

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of net operating loss and tax credit carry forwards, changes in geographic mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.

Our effective tax rates were 35.9% and 7.4% for the three months ended June 30, 2023 and 2022, respectively, and 33.8% and 8.5% for the six months ended June 30, 2023 and 2022, respectively. The increase in our effective tax rate in the three- and six-month periods was primarily due to the change in the mix of income and losses in the various tax jurisdictions in which we operate and an increase in non-deductible stock-based compensation expense. These impacts were partially offset by an increase in windfall tax benefit from stock-based compensation expense.

Segment Results

Segment Net Revenue

The following table sets forth our net revenue by segment expressed both in dollars (thousands) and as a percentage of net revenue:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gamer and Creator Peripherals Segment

 

$

78,755

 

 

 

24.2

%

 

$

88,989

 

 

 

31.3

%

 

$

167,697

 

 

 

24.7

%

 

$

223,137

 

 

 

33.6

%

Gaming Components and Systems Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Memory Products

 

 

108,881

 

 

 

33.5

 

 

 

99,120

 

 

 

34.9

 

 

 

240,218

 

 

 

35.3

 

 

 

231,274

 

 

 

34.8

 

       Other Component Products

 

 

137,796

 

 

 

42.3

 

 

 

95,799

 

 

 

33.8

 

 

 

271,481

 

 

 

40.0

 

 

 

210,188

 

 

 

31.6

 

 

 

246,677

 

 

 

75.8

 

 

 

194,919

 

 

 

68.7

 

 

 

511,699

 

 

 

75.3

 

 

 

441,462

 

 

 

66.4

 

       Total Net Revenue

 

$

325,432

 

 

 

100.0

%

 

$

283,908

 

 

 

100.0

%

 

$

679,396

 

 

 

100.0

%

 

$

664,599

 

 

 

100.0

%

 

Gamer and Creator Peripherals Segment

Net revenue of the gamer and creator peripherals segment decreased 11.5% for the three months ended June 30, 2023 as compared to the same period last year primarily due to demand softness for most of our products in this segment, driven mainly by a challenging macroeconomic environment, but was partially offset by increase in sales for our Elgato products.

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Net revenue of the gamer and creator peripherals segment decreased 24.8% for the six months ended June 30, 2023 as compared to the same period last year primarily due to demand softness across all products in this segment driven mainly by a challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine and inflationary pressure on consumer spending.

Gaming Components and Systems Segment

Net revenue of the gaming components and systems segment increased 26.6% and 15.9% for the three and six months ended June 30, 2023, respectively, as compared to the same periods last year due to increases in sales in nearly all product categories. The increase in the three- and six-month periods was primarily driven by the strong self-built PC market activity triggered by the release of new games titles and launch of new, reasonably priced graphics cards that were readily available.

Segment Gross Profit and Gross Margin

The following table sets forth our gross profit expressed in dollars (thousands) and gross margin (which we define as gross profit as a percentage of net revenue) by segment:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gamer and Creator Peripherals Segment

 

$

25,509

 

 

 

32.4

%

 

$

10,558

 

 

 

11.9

%

 

$

52,157

 

 

 

31.1

%

 

$

53,615

 

 

 

24.0

%

Gaming Components and Systems Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Memory Products

 

 

15,900

 

 

 

14.6

 

 

 

8,885

 

 

 

9.0

 

 

 

36,706

 

 

 

15.3

 

 

 

29,950

 

 

 

13.0

 

       Other Component Products

 

 

41,423

 

 

 

30.1

 

 

 

17,016

 

 

 

17.8

 

 

 

79,373

 

 

 

29.2

 

 

 

43,650

 

 

 

20.8

 

 

 

57,323

 

 

 

23.2

 

 

 

25,901

 

 

 

13.3

 

 

 

116,079

 

 

 

22.7

 

 

 

73,600

 

 

 

16.7

 

       Total Gross Profit

 

$

82,832

 

 

 

25.5

%

 

$

36,459

 

 

 

12.8

%

 

$

168,236

 

 

 

24.8

%

 

$

127,215

 

 

 

19.1

%

 

Gamer and Creator Peripherals Segment

The gross margin of the gamer and creator peripherals segment increased by 20.5% and 7.1% for the three and six months ended June 30, 2023, respectively, as compared to the same periods last year. The increase in the three- and six-month periods was primarily attributable to lower inventory impairment and related charges in 2023 as compared to 2022. In the second quarter of 2022 we implemented an inventory rationalization plan to align the inventory balance with reduced 2022 demand post-pandemic. The increase in gross margin was also due to improvements in product cost from suppliers, newer products that carry a higher margin, and lower freight costs as the elevated freight rates caused by the COVID-19 pandemic have normalized to close to pre-pandemic levels.

Gaming Components and Systems Segment

The gross margin of the gaming components and systems segment increased by 9.9% and 6.0% for the three and six months ended June 30, 2023, respectively, as compared to the same periods last year. The increase in the three- and six-month periods was primarily attributable to lower product cost from suppliers, new products introduced at a higher margin, improvements in tariff and freight costs, and lower inventory impairment and related charges in 2023 as compared to 2022.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity have been the payments received from customers purchasing our products, the borrowings under our Credit Agreement (defined below) and the net proceeds we received from our underwritten public offerings.

On September 29, 2022, one of our subsidiaries entered into an accounts receivable Factoring Agreement with a third-party financial institution, or the Factor. Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. Our obligations to the Factor, related to advances from the Factor, are secured by certain assets of our subsidiary. The cost of factoring is not expected to have a material effect to our overall liquidity, financial condition or results of operations. There was no advance taken from the Factor during the three and six months ended June 30, 2023.

Our principal uses of cash generally will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our products, capital expenditure, repayments of debt and related interest, income tax payments, future investments in business and technology, and selective mergers and acquisitions.

As of June 30, 2023, we had cash and restricted cash, in aggregate of $184.0 million. We believe that the anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash balances at June 30, 2023, supplemented with the borrowings under our Revolving Credit Facility will be sufficient to fund our principal uses of cash for at least the next twelve months. In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on the demand for our products.

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We may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financial covenants that would restrict our operations. There can be no assurance that any such equity or debt financing will be available on favorable terms, or at all.

Liquidity

The following table summarizes our cash flows for the periods presented (in thousands):

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Net cash provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

43,972

 

 

$

10,051

 

Investing activities

 

 

(7,457

)

 

 

(32,550

)

Financing activities

 

 

(7,105

)

 

 

(677

)

Cash Flows from Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2023 was $44.0 million and consisted of a net cash inflow of $12.3 million from changes in our net operating assets and liabilities and non-cash adjustments of $37.4 million, offset partially by a net loss of $5.7 million. The net cash inflow from changes in our net operating assets and liabilities was primarily related to an increase in accounts payable from an increase in inventory purchases and a decrease in accounts receivable. These net cash inflows were partially offset by an increase in inventories and an increase in prepaid and other assets. The non-cash adjustments consisted primarily of amortization of intangibles, depreciation and stock-based compensation expense, which were partially offset by changes in deferred income taxes.

Net cash provided by operating activities for the six months ended June 30, 2022 was $10.1 million and consisted of $32.9 million net cash inflow from changes in our net operating assets and liabilities, offset partially by our net loss of $55.1 million, which included non-cash adjustments of $32.2 million. The net cash inflow from changes in our net operating assets and liabilities was primarily related to a decrease in accounts receivable due to decrease in revenue and a decrease in inventories mainly from an increase in inventory impairment charges due to our inventory rationalization plan to align our inventory balance with the reduced 2022 demand post-pandemic as well as our planned introduction of new replacement products. These net cash inflows were partially offset by an increase in prepaid and other assets, as well as a decrease in accounts payable due to timing of payments and a decrease in other liabilities and accrued expenses mainly due to lower accrual for sales returns and customer incentives and bonus expense. The non-cash adjustments consisted primarily of amortization, depreciation, stock-based compensation expense, and changes in deferred tax assets.

Cash Flows from Investing Activities

Cash used in investing activities was $7.5 million for the six months ended June 30, 2023 and consisted of purchases of equipment and software.

Cash used in investing activities was $32.6 million for the six months ended June 30, 2022 and primarily consisted of cash used for the iDisplay acquisition and capital expenditure, including renovation and furnishing of our new headquarters in Milpitas, California.

Cash Flows from Financing Activities

Cash used in financing activities was $7.1 million for the six months ended June 30, 2023 and primarily consisted of cash used for repayment of debt, partially offset by proceeds received from the issuance of shares through employee equity incentive plans. We did not borrow from our revolving credit facility for the six months ended June 30, 2023.

Cash used in financing activities was $0.7 million for the six months ended June 30, 2022 and primarily consisted of cash used for repayment of debt and payment of taxes related to net share settlement of equity awards, partially offset by proceeds received from the issuance of shares through the employee equity incentive plans. During the six months ended June 30, 2022, we also borrowed $403.0 million from our revolving credit facility to fund our operations and the full amount was repaid within the same period.

Capital Resources

Credit Agreement (Term Loan and Revolving Credit Facility)

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On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement with a new Credit Agreement (as amended, the “Credit Agreement”). The new Credit Agreement provides for a total commitment of $350.0 million, consisting of a $100.0 million revolving credit facility (“Revolving Credit Facility”) and a $250.0 million term loan facility (“Term Loan”).

The Credit Agreement is available for a period of five years, maturing September 2026, and provides for additional incremental facilities up to a maximum aggregate principal amount of $250.0 million, subject to the satisfaction of certain conditions. We may prepay the Term Loan and the Revolving Facility at any time without premium or penalty. We prepaid $3.75 million and $8.75 million of the Term Loan principal in the year ended December 31, 2022 and in the six months ended June 30, 2023, respectively.

The Term Loan and Revolving Credit Facility under the Credit Agreement will each bear interest at our election, either (a) LIBOR plus a percentage spread (ranging from 1.25% to 2.0%) based on our total net leverage ratio, or (b) the base rate (described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.0%) based on our total net leverage ratio.

Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.

On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”) which, among other changes, resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR. Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at our election at either (a) BSBY plus a percentage spread (ranging from 1.25% to 2.25%) based on our total net leverage ratio, or (b) the base rate (as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month BSBY plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.25%) based on our total net leverage ratio. In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) was also amended to increase to 3.50 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.00 to 1.00 from the quarter ended June 30, 2023 and each quarter thereafter; provided, that upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.50 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met.

On September 29, 2022, we entered into an accounts receivable Factoring Agreement with the Factor. In connection with the Factoring Agreement, we also entered into (i) a Second Amendment (“Second Amendment”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral.

On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement which provides for, among other things: (i) a decrease in the required minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to 2.50 to 1.00 for the quarters ending on and after March 31, 2023 through and including December 31, 2023; (ii) an increase in the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to 3.75 to 1.00 for the quarters ending December 31, 2022 and March 31, 2023, stepping down to 3.50 to 1.00 for the quarter ending June 30, 2023, and 3.25 to 1.00 for the quarters ending September 30, 2023 and December 31, 2023; and (iii) a modified pricing grid providing for an increased margin (ranging from (x) 1.50% per annum to 3.25% per annum for loans bearing interest at the BSBY rate, and (y) 0.50% per annum to 2.25% per annum for loans bearing interest at the base rate, in each case depending on our Consolidated Total Net Leverage Ratio) for the period of December 31, 2022 through December 31, 2023.

As of June 30, 2023, we were not in default under the Credit Agreement. As of June 30, 2023, the total principal outstanding of the Term Loan was $228.8 million and the available and uncommitted capacity under the Revolving Credit Facility was $100 million.

Contractual Cash and Other Obligations

The following table summarizes our contractual cash and other obligations as of June 30, 2023 (in thousands):

 

 

Payments Due by Period

 

 

 

Total

 

 

Less than
1 Year

 

 

1-3
Years

 

 

3-5
Years

 

 

More than
5 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt principal and interest payments (1)

 

$

272,833

 

 

$

27,572

 

 

$

50,231

 

 

$

195,030

 

 

$

 

Inventory-related purchase obligations (2)

 

 

98,982

 

 

 

98,982

 

 

 

 

 

 

 

 

 

 

Operating lease obligations (3)

 

 

63,920

 

 

 

12,833

 

 

 

17,162

 

 

 

12,795

 

 

 

21,130

 

Other purchase obligations (4)

 

 

16,200

 

 

 

14,899

 

 

 

1,301

 

 

 

 

 

 

 

Total

 

$

451,935

 

 

$

154,286

 

 

$

68,694

 

 

$

207,825

 

 

$

21,130

 

 

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(1)
Amounts represent the principal cash payments as of June 30, 2023 of our Term Loan based on the repayment schedule according to the Credit Agreement and the expected interest payments associated with the Term Loan. See Note 8, “Debt” to our condensed consolidated financial statements for more information.
(2)
Amounts represent an estimate of purchase obligations related to inventory.
(3)
Amounts represent contractual obligations from our operating leases for offices and warehouse spaces.
(4)
Amounts represent non-cancelable obligations related to capital expenditures, software licenses, marketing and other activities.

As of June 30, 2023, we had $2.3 million in non-current income tax payable, including interest and penalties, related to our income tax liability for uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the contractual cash obligation table above.

Critical Accounting Polices and Estimates

A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results may differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2023 as compared to the critical accounting policies and estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 27, 2023.

Recent Accounting Pronouncements

Refer to Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted and to be adopted.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Risk

As of June 30, 2023, we had cash and restricted cash of $184.0 million, which consisted primarily of bank deposits. Our cash is held for working capital purposes.

As of June 30, 2023, under the Credit Agreement, we had $228.8 million Term Loan outstanding (face value), and the Term Loan bears variable market rates, primarily BSBY. See Note 8, “Debt - Credit Agreement” to our condensed consolidated financial statements for additional information on the Credit Agreement. A significant change in these market rates may adversely affect our operating results. As of June 30, 2023, a hypothetical 100 basis point change in interest rates would result in a change to annual interest expense by approximately $2.3 million.

Foreign Currency Risk

Approximately 16.5% of our net revenue for the six months ended June 30, 2023 was denominated in foreign currencies, primarily Euro. Any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our net revenue and gross margins as we may have to adjust local currency product pricing due to competitive pressures if there is significant volatility in foreign currency exchange rates. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, China and Taiwan. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

We enter into forward currency contracts to reduce the short-term effects of currency fluctuations on Euro, British Pound, and Chinese Yuan denominated cash, accounts receivable, and intercompany receivable and payable balances. These forward contracts generally mature within two to four months, and we do not enter into foreign currency forward contracts for trading purposes. The outstanding notional principal amount was $24.4 million and $23.4 million as of June 30, 2023 and December 31, 2022, respectively. The gains or losses on these contracts are recognized in earnings based on the changes in fair value of the foreign currency forward contracts.

The impact of changes in foreign currency rates, including the gains or (losses) on the forward currency contracts, recognized in other (expense) income, net was $(1.8) million and $(0.1) million for the six months ended June 30, 2023 and 2022, respectively. A hypothetical ten percent change in exchange rates between foreign currencies and the U.S. dollar would increase or decrease our gains or losses on foreign currency exchange of approximately $0.3 million in our condensed consolidated financial statements for the six months ended June 30, 2023.

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Table of Contents

 

 

Item 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but there can be no assurance that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

We may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. Although the outcome of any pending matters, and the amount, if any, of our ultimate liability and any other forms of remedies with respect to these matters, cannot be determined or predicted with certainty, we do not believe that the ultimate outcome of these matters will have a material adverse effect on our business, results of operations or financial condition.

Item 1A. Risk Factors.

We have disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. The risks that we describe in our public filings are not the only risks we may face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely effect on our business, financial condition and/or future operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On June 16, 2023, Michael Potter, our Chief Financial Officer, adopted a trading plan intended to satisfy the conditions under Rule 10b5-1(c) of the Exchange Act (the “Trading Plan”). The Trading Plan is for the sale of up to 280,000 shares of our common stock subject to options granted pursuant to our equity incentive plan, as well as shares of common stock subject to restricted stock units (“RSUs”) also granted pursuant to our equity incentive plan, in amounts and prices determined in accordance with formulae set forth in the plan and terminates on the earlier of the date all the shares under the plan are sold and December 31, 2024.

The number of shares of common stock subject to RSUs previously granted to Mr. Potter (the “RSU Shares”) to be sold pursuant to the Trading Plan vest at various dates between December 1, 2023 and August 15, 2024. As a result, the aggregate number of RSU Shares that will be sold under the Trading Plan is not yet determinable, because each of the planned sale amounts is equal to a certain percentage of the shares underlying the RSU award, that have vested pursuant to the RSU award terms, net of shares sold to satisfy tax withholding obligations that arise in connection with the vesting and settlement of such RSU awards.

34


Table of Contents

 

 

Item 6. Exhibits.

 

 

 

 

 

Incorporated by

Reference

 

 

Exhibit

Number

 

Description

 

Form

 

Exhibit

Date Filed

 

Filed

Herewith

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Second Amended and Restated Certificate of Incorporation.

 

8‑K

 

3.1

 

09/25/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated Bylaws.

 

8‑K

 

3.2

 

09/25/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Form of common stock certificate of Registrant.

 

S-1/A

 

4.2

 

09/18/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

4.2

 

Investor Rights Agreement, by and between Corsair Gaming, Inc. and Corsair Group (Cayman), LP.

 

10-Q

 

4.2

 

11/10/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

4.3

 

Description of Corsair’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

 

10-K

 

4.3

 

03/11/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

4.4

 

Registration Rights Agreement, by and between Corsair Gaming, Inc. and Corsair Group (Cayman), LP.

 

S-1/A

 

4.4

 

09/14/2020

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1#

 

Non-Employee Director Compensation Policy.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer under Securities Exchange Act Rule 13a‑14(a) and 15d‑14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Principal Financial Officer under Securities Exchange Act Rule 13a‑14(a) and 15d‑14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.1*

 

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 and Securities Exchange Act Rule 13a‑14(b).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

 

 

X

 

*

The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Corsair Gaming, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

#

Indicates management contract or compensatory plan.

 

35


Table of Contents

 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Corsair Gaming, Inc.

 

Date: August 3, 2023

By:

/s/ Michael G. Potter

Michael G. Potter

Chief Financial Officer

(Authorized Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

 

36


EX-10.1 2 crsr-ex10_1.htm EX-10.1 EX-10.1

Exhibit 10.1

CORSAIR GAMING, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

 

Non-employee members of the board of directors (the “Board”) of Corsair Gaming, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Non- Employee Director Compensation Policy (this “Policy”). The cash and equity compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board, other than any individual who is (1) an employee of the Company or any parent or subsidiary of the Company or (2) serving on the Board as a stockholder representative (each, a “Non-Employee Director”), unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company. This Policy became effective after the effectiveness of the Company’s initial public offering (the “IPO”) and shall remain in effect until it is revised or rescinded by further action of the Board. It was subsequently amended on April 25, 2023.

 

This Policy may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this Policy shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between the Company and any of its Non-Employee Directors and between any subsidiary of the Company and any of its non-employee directors.

 

1.
Cash Compensation.

 

(a)
Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $65,000 for service on the Board.

 

(b)
Additional Annual Retainers. In addition, a Non-Employee Director shall receive the following annual retainers:

 

(i)
Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall receive an additional annual retainer of $30,000 for such service. A Non-Employee Director serving as a member of the Audit Committee (other than the Chairperson) shall receive an additional annual retainer of $15,000 for such service.

 

(ii)
Compensation Committee. A Non-Employee Director serving as Chairperson of the Compensation Committee shall receive an additional annual retainer of $20,000 for such service. A Non-Employee Director serving as a member of the Compensation Committee (other than the Chairperson) shall receive an additional annual retainer of $10,000 for such service.

 

(iii)
Nominating and Corporate Governance Committee. A Non- Employee Director serving as Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $12,500 for such service. A Non- Employee Director serving as a member of the Nominating and Corporate Governance Committee (other than the Chairperson) shall receive an additional annual retainer of $7,500 for such service.

 

 


 

(iv)
Financing Committee. A Non-Employee Director who served as a member of the Financing Committee during the fiscal year ended December 31, 2022 shall receive an additional annual retainer of $10,000 for such service, on a pro rata basis, for the amount of time such Non-Employee Director served on the Financing Committee.

 

(c)
Payment of Retainers. The annual retainers described in Sections 1 and 1(a) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than the fifteenth (15th) day following the end of each calendar quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described in Section 1(a), for an entire calendar quarter, such Non-Employee Director shall receive a prorated portion of the retainer(s) otherwise payable to such Non-Employee Director for such calendar quarter pursuant to Sections 1 and 1(a), with such prorated portion determined by multiplying such otherwise payable retainer(s) by a fraction, the numerator of which is the number of days during which the Non-Employee Director serves as a Non-Employee Director or in the applicable positions described in Section 1(a) during the applicable calendar quarter and the denominator of which is the number of days in the applicable calendar quarter.

 

2.
Reimbursement. The Company shall reimburse each Non-Employee Director for all reasonable, documented, out-of-pocket travel and other business expenses incurred by such Non-Employee Director in the performance of his or her duties to the Company in accordance with the Company’s applicable expense reimbursement policies and procedures as in effect from time to time.

 

3.
Equity Compensation. Non-Employee Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s 2020 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the “Equity Plan”) and shall be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms previously approved by the Board. All applicable terms of the Equity Plan apply to this Policy as if fully set forth herein, and all equity grants hereunder are subject in all respects to the terms of the Equity Plan. For the purposes of this Program, “Grant Date Value” shall mean the fair value of an option determined using the Black-Scholes pricing model with the volume weighted average trading price of a share of Company common stock on the stock exchange on which the Company’s common stock is then listed or traded for the thirty (30) consecutive trading days ending on the trading day prior to the date of grant and the volatility, risk-free rate and life expectancy assumptions in the Company’s most recent public filings disclosing those assumptions.

 

(a)
IPO Awards. Each Non-Employee Director who (i) serves on the Board as of the date the IPO price of the shares of the Company’s common stock is established in connection with the Company’s IPO (the “Pricing Date”) and (ii) will continue to serve as a Non-Employee Director immediately following the Pricing Date shall be automatically granted, on the Pricing Date, (A) an option to purchase a number of shares of common stock at a per-share exercise price equal to the IPO price per share of the Company’s common stock that have an aggregate Grant Date Value on the date of grant of $37,500 (subject to adjustment as provided in the Equity Plan) and (B) restricted stock units with an aggregate value on the date of grant of $37,500 (with the number of shares of common stock underlying each such award subject to adjustment as provided in the Equity Plan).

 

2

 


 

The awards described in this Section 2(a) shall be referred to herein as the “IPO Awards”).

 

(b)
Annual Awards. Each Non-Employee Director who (i) serves on the Board as of the date of any annual meeting of the Company’s stockholders (an “Annual Meeting”) after the Company consummates its initial public offering and (ii) will continue to serve as a Non- Employee Director immediately following such Annual Meeting shall be automatically granted, on the date of such Annual Meeting, (A) an option to purchase a number of shares of common stock at a per-share exercise price equal to the closing price per share of the Company’s common stock on the date of such Annual Meeting (or on the last preceding trading day if the date of the Annual Meeting is not a trading day) that have an aggregate Grant Date Value on the date of grant of $100,000 (subject to adjustment as provided in the Equity Plan) and (B) restricted stock units with an aggregate value on the date of grant of $100,000 (with the number of shares of common stock underlying each such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 3(b) shall be referred to as the “Annual Awards.” For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an Annual Meeting shall receive only an Annual Award in connection with such election, and shall not receive any Initial Award on the date of such Annual Meeting as well.

 

(c)
Initial Awards. Except as otherwise determined by the Board, each Non- Employee Director who is initially elected or appointed to the Board after the Pricing Date on any date other than the date of an Annual Meeting shall be automatically granted, on the date of such Non-Employee Director’s initial election or appointment (such Non-Employee Director’s “Start Date”), (A) an award of an option to purchase shares of the Company’s common stock (at a per- share exercise price equal to the closing price on the Company’s common stock on such Non- Employee Director’s Start Date (or on the last preceding trading day if the Start Date is not a trading day), that have an aggregate Grant Date Value on the date of grant of (i) $50,000 (subject to adjustment as provided in the Equity Plan), multiplied by (ii) a fraction, the numerator of which is the number of days from the Start Date through the date of the next Annual Meeting and the denominator of which is 365, and (B) restricted stock units with an aggregate value on the date of grant of (i) $50,000 (with the number of shares of common stock underlying each such award subject to adjustment as provided in the Equity Plan), multiplied by (ii) a fraction, the numerator of which is the number of days from the Start Date through the date of the next Annual Meeting and the denominator of which is 365. The awards described in this Section 2(c) shall be referred to as “Initial Awards.” Notwithstanding the foregoing, any Non-Employee Director who is appointed to the Board upon the IPO shall receive an IPO Award in lieu of an Initial Award. For the avoidance of doubt, no Non-Employee Director shall be granted more than one Initial Award or both an Initial Award and a IPO Award.

 

(d)
Termination of Employment of Employee Directors. Members of the Board who are employees of the Company or any parent or subsidiary of the Company who subsequently terminate their employment with the Company and any parent or subsidiary of the Company and remain on the Board will not receive an Initial Award pursuant to Section 2(c) above, but to the extent that they are otherwise eligible, will be eligible to receive, after termination from employment with the Company and any parent or subsidiary of the Company, Annual Awards as described in Section 3(b) above.

 

 

3

 


 

(e)
Vesting of Awards Granted to Non-Employee Directors. Each IPO Award and Initial Award shall vest and become exercisable on the first anniversary of the date of grant, subject to the Non-Employee Director continuing in service on the Board through the applicable vesting date. Each Annual Award shall vest and become exercisable on the earlier of (i) the day immediately preceding the date of the first Annual Meeting following the date of grant and (ii) the first anniversary of the date of grant, subject to the Non-Employee Director continuing in service on the Board through the applicable vesting date. No portion of an IPO Award, Annual Award or Initial Award that is unvested or unexercisable at the time of a Non-Employee Director’s termination of service on the Board shall become vested and exercisable thereafter. All of a Non- Employee Director’s IPO Awards, Annual Awards and Initial Awards shall vest in full immediately prior to the occurrence of a Change in Control (as defined in the Equity Plan), to the extent outstanding at such time.

 

* * * * * I, Andrew J. Paul, certify that:

 

4

 


EX-31.1 3 crsr-ex31_1.htm EX-31.1 EX-31.1

 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

1.
I have reviewed this quarterly report on Form 10-Q of Corsair Gaming, Inc.
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 3, 2023

By:

/s/ Andrew J. Paul

Andrew J. Paul

Chief Executive Officer

(Principal Executive Officer)

 

 


EX-31.2 4 crsr-ex31_2.htm EX-31.2 EX-31.2

 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael G. Potter, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Corsair Gaming, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 3, 2023

By:

/s/ Michael G. Potter

Michael G. Potter

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

 

 


EX-32.1 5 crsr-ex32_1.htm EX-32.1 EX-32.1

 

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the quarterly report of Corsair Gaming, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 (the “Report”), Andrew J. Paul, Chief Executive Officer of the Company, and Michael G. Potter, Chief Financial Officer of the Company, each certify, to the best of his knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: August 3, 2023

By:

/s/ Andrew J. Paul

Andrew J. Paul

Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: August 3, 2023

By:

/s/ Michael G. Potter

Michael G. Potter

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)