UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer |
(Address of Principal Executive Offices and zip code) |
|
|
|
( |
|
(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 |
|
|
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.
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).
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.
|
☒ |
|
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, 2024, the registrant had
Table of Contents
|
|
Page |
PART I. |
2 |
|
Item 1. |
2 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
7 |
|
|
8 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
31 |
|
Item 4. |
32 |
|
PART II. |
33 |
|
Item 1. |
33 |
|
Item 1A. |
33 |
|
Item 2. |
33 |
|
Item 3. |
33 |
|
Item 4. |
33 |
|
Item 5. |
33 |
|
Item 6. |
34 |
|
35 |
||
i
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, 2023. 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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 1
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total other expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Calculation of net loss per share attributable to common stockholders of Corsair Gaming, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Change in redemption value of redeemable noncontrolling interest |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net income (loss) attributable to common stockholders of Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 2
Corsair Gaming, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustments, net of tax benefit of $ |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unrealized foreign exchange gain (loss) from long-term intercompany loan, net of tax benefit (expense) of |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive loss attributable to Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 3
Corsair Gaming, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share amounts)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Restricted cash, noncurrent |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Debt maturing within one year, net |
|
$ |
|
|
$ |
|
||
Accounts payable |
|
|
|
|
|
|
||
Other liabilities and accrued expenses |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt, net |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Other liabilities, noncurrent |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Temporary equity |
|
|
|
|
|
|
||
Redeemable noncontrolling interest |
|
|
|
|
|
|
||
Permanent equity |
|
|
|
|
|
|
||
Corsair Gaming, Inc. stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
(Accumulated deficit) retained earnings |
|
|
( |
) |
|
|
|
|
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total Corsair Gaming, Inc. stockholders’ equity |
|
|
|
|
|
|
||
Nonredeemable noncontrolling interest |
|
|
|
|
|
|
||
Total permanent equity |
|
|
|
|
|
|
||
Total liabilities, temporary equity and permanent equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 4
Corsair Gaming, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)
|
|
Three Months Ended June 30, 2024 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained Earnings |
|
|
Accumulated Other |
|
|
Total Corsair Gaming, Inc. |
|
|
Nonredeemable |
|
|
Total |
|
|||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit) |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of March 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in redemption value of redeemable noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of common stock in connection with employee equity incentive plans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Shares withheld related to net share settlement |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Three Months Ended June 30, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated Other |
|
|
Total Corsair Gaming, Inc. |
|
|
Nonredeemable |
|
|
Total |
|
|||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Change in redemption value of redeemable noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of common stock in connection with employee equity incentive plans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Shares withheld related to net share settlement |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 5
|
|
Six Months Ended June 30, 2024 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained Earnings |
|
|
Accumulated Other |
|
|
Total Corsair Gaming, Inc. |
|
|
Nonredeemable |
|
|
Total |
|
|||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit) |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in redemption value of redeemable noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Dividend paid to nonredeemable noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of common stock in connection with employee equity incentive plans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Shares withheld related to net share settlement |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Six Months Ended June 30, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated Other |
|
|
Total Corsair Gaming, Inc. |
|
|
Nonredeemable |
|
|
Total |
|
|||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Change in redemption value of redeemable noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Issuance of common stock in connection with employee equity incentive plans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Shares withheld related to net share settlement |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 6
Corsair Gaming, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
Six Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Other liabilities and accrued expenses |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchase of intangible asset |
|
|
( |
) |
|
|
— |
|
Purchase price adjustment related to business acquisition |
|
|
|
|
|
— |
|
|
Bridge Loan receivable |
|
|
( |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repayment of debt |
|
|
( |
) |
|
|
( |
) |
Payment of deferred and contingent consideration |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of shares through employee equity incentive plans |
|
|
|
|
|
|
||
Payment of taxes related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
Dividend paid to noncontrolling interest |
|
|
( |
) |
|
|
— |
|
Payment of other offering costs |
|
|
— |
|
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash |
|
|
( |
) |
|
|
|
|
Net (decrease) increase in cash and restricted cash |
|
|
( |
) |
|
|
|
|
Cash and restricted cash at the beginning of the period |
|
|
|
|
|
|
||
Cash and restricted cash at the end of the period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes, net |
|
|
|
|
|
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Equipment purchased and unpaid at period end |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for operating lease liabilities |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 7
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 products for gamers and digital creators, many of which build their own PCs using our components.
Corsair is organized into
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, 2023 which was filed with the SEC on February 27, 2024.
The condensed consolidated balance sheet as of December 31, 2023, 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, 2023, 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, 2024 and our results of operations for the three and six months ended June 30, 2024 and 2023. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Corsair and its subsidiaries, after the elimination of intercompany accounts and transactions. We consolidate subsidiaries in which we have a controlling interest. For the consolidated subsidiaries in which we own less than 100% of the equity, our consolidated net comprehensive income (loss) is reduced by the portion attributable to the noncontrolling interest. The ownership interest of other investors is recorded as noncontrolling interest in the condensed consolidated balance sheets.
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.
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
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 8
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 events in the current economic and geopolitical environment. We adjust such estimates and assumptions when facts and circumstances dictate. The extent to which the current macroeconomic conditions and the development of the geopolitical unrest 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
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvement to Reportable Segment Disclosure. This ASU updates the reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment's profit or loss in assessing segment performance and deciding how to allocate resources. The ASU will be effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. This ASU will result in additional required disclosures in our consolidated financial statements, when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ended December 31, 2024.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as additional information on income tax paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU will result in additional required disclosures in our consolidated financial statements, when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ended December 31, 2025.
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, and other liabilities and accrued expenses approximate fair value due to their short-term maturities.
Our financial assets and liabilities that were measured at fair value on a recurring basis consisted of foreign currency forward contracts and the fair values of these contracts, which were classified as Level 2 of the fair value hierarchy, were based on similar exchange traded derivatives and the related asset or liability. The balances of our financial assets and liabilities as of June 30, 2024 and December 31, 2023 were not material.
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. 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
The foreign currency forward contracts generally mature within to
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 9
respectively. The net fair value gains (losses) recognized in , net in relation to these derivative instruments was $(
5. Business Combinations
Drop Acquisition
On July 14, 2023 (the “Acquisition Date”), we completed the acquisition of the assets and business of Massdrop Inc. (“Drop”), including the assumption of trade payables and certain accrued liabilities (the “Drop Acquisition”) for a cash purchase consideration of approximately $
Drop, a community-based e-commerce company was headquartered in San Francisco, California, and specialized in customized DIY keyboards and keycaps. We expect this acquisition to give Corsair a leading presence in the personalized keyboards market which is one of the fastest growing trends in the gaming peripherals space as well as allow us to offer specialized Corsair and Elgato products to the enthusiast community that Drop is engaged with. Drop’s results of operations are included in our condensed consolidated statements of operations with effect from July 14, 2023.
The Drop Acquisition was accounted for as a business combination under the acquisition method of accounting. The final allocation of the Drop Acquisition purchase consideration to the estimated fair value of the assets acquired and liabilities assumed, inclusive of immaterial measurement period adjustments, was as follows (in thousands):
|
|
Amounts |
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
Inventories |
|
|
|
|
Prepaid and other assets |
|
|
|
|
Property and equipment |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Goodwill |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued liabilities |
|
|
( |
) |
Purchase consideration, net of cash acquired |
|
$ |
|
|
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 Acquisition Date. 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 on the Acquisition Date was $
The goodwill of $
The $
The acquisition-related costs incurred in the six months ended June 30, 2024 and 2023 were not material.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 10
6. Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of goodwill by reportable segment (in thousands):
|
|
Gaming |
|
|
Gamer and |
|
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance as of December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Measurement period adjustments |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Effect of foreign currency exchange rates |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Intangible assets, net
The following table is a summary of intangible assets, net (in thousands):
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Developed technology |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patent portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Supplier relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total finite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Indefinite life trade name |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Other |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total intangible assets |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
In the year when an identified intangible asset becomes fully amortized, the fully amortized balances from the gross asset and accumulated amortization amounts are removed from the table above.
The estimated future amortization expense of intangible assets as of June 30, 2024 is as follows (in thousands):
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
7. Balance Sheet Components
The following tables present the components of certain balance sheet amounts (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Restricted cash—short term |
|
|
|
|
|
|
||
Restricted cash—noncurrent |
|
|
|
|
|
|
||
Total cash and restricted cash |
|
$ |
|
|
$ |
|
||
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 11
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Bridge Loan receivable (1) |
|
|
|
|
|
— |
|
|
Due from Factor |
|
|
— |
|
|
|
|
|
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net (2) |
|
$ |
|
|
$ |
|
||
Endor owns the Fanatec brand, and is a leading manufacturer of sim racing hardware. The Bridge Loan Agreement was entered into in connection with a Letter of Intent (the “LOI”) executed on the same day with Endor for a potential acquisition of Endor. As of the date of this filing, the LOI has expired and on July 30, 2024, Endor announced it has filed for the German insolvency proceedings (the “Insolvency Proceedings”) and has commenced work on the various steps involved in the Insolvency Proceedings. Per terms of the Bridge Loan Agreement, CCL has no obligation to disburse any more funds under the Bridge Loan Agreement on the expiration of the LOI and Endor's insolvency filing. Once Endor’s Insolvency Plan is approved by the German Court, we expect the outstanding amount of the Bridge Loan receivable, including the accrued interest to be repaid to CCL. We expect the Insolvency Proceedings to be completed within six months from their commencement date.
The Bridge Loan receivable was carried at amortized costs of $
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Manufacturing equipment |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment, software and office equipment |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Total property and equipment |
|
$ |
|
|
$ |
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Deferred tax asset |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 12
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accrued reserves for customer incentive programs |
|
$ |
|
|
$ |
|
||
Accrued reserves for sales returns |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Accrued payroll and related expenses |
|
|
|
|
|
|
||
Accrued freight expenses |
|
|
|
|
|
|
||
Accrued legal expense |
|
|
|
|
|
|
||
Accrued warranty |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other liabilities and accrued expenses |
|
$ |
|
|
$ |
|
||
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
Other |
|
|
|
|
|
|
||
Other liabilities, noncurrent |
|
$ |
|
|
$ |
|
||
8. Debt
On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement with a new Credit Agreement (as amended, the “Credit Agreement”). The Credit Agreement provides for a $
The following table presents the carrying value of our Term Loan (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Term Loan (variable rate) due |
|
$ |
|
|
$ |
|
||
Debt discount and issuance cost, net of amortization |
|
|
( |
) |
|
|
( |
) |
Total debt |
|
|
|
|
|
|
||
Less: debt maturing within one year, net |
|
|
|
|
|
|
||
Long-term debt, net |
|
$ |
|
|
$ |
|
||
As of June 30, 2024, the estimated fair value of the Term Loan, which we have classified as a Level 2 financial instrument, was approximately $
As of June 30, 2024, and December 31, 2023, we had $
The Credit Agreement has a variable rate structure. According to the provisions in the Third Amendment to the Credit Agreement (“Third Amendment”), beginning 2024, the Term Loan and the Revolving Facility carry interest at our election at either (a) Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus a percentage spread (ranging from
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, including the maintenance of a maximum Consolidated Total Net Leverage Ratio (“CTNL Ratio”) and a minimum Consolidated Interest Coverage Ratio (“CIC Ratio”) (as defined in the Credit Agreement). According to the provisions in the Third Amendment, beginning 2024, we are required to maintain a maximum CTNL Ratio of
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 13
upon the occurrence of a Qualified Acquisition (as defined in, and subject to the requirements of the Credit Agreement). As of June 30, 2024, we were not in default under the Credit Agreement.
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.
The following table summarizes the interest expense recognized for all periods presented (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contractual interest expense for term loan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of debt discount and issuance cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The future principal payments under our total long-term debt as of June 30, 2024 are as follows (in thousands):
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
— |
|
2028 |
|
|
— |
|
Total debt |
|
$ |
|
|
9. Commitments and Contingencies
Product Warranties
Changes in our assurance-type warranty obligations were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning of the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Warranty provision related to products shipped |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deductions for warranty claims processed |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
End of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 applications used in R&D as well as for our enterprise resource planning (“ERP”) system and the related support services.
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total |
|
$ |
|
|
Our total non-cancelable long term purchase commitments outstanding as of December 31, 2023 was $
Letters of Credit
There were
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 14
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 that existing claims or proceedings are not 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
10. Stockholders’ Equity
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 $
As of June 30, 2024, $
11. Equity Incentive Plans and Stock-Based Compensation
As of June 30, 2024, we have two active equity incentive plans: the 2020 Equity Incentive Plan and the Employee Stock Purchase Plan (“ESPP”).
In February 2024, we granted performance stock units (“PSU”) to certain senior members of our management team under the 2020 Equity Incentive Plan. The vesting of PSUs is conditional upon the achievement of certain internal financial targets for the year ended December 31, 2024 and these will vest over a
We measure and recognize compensation for all stock-based compensation awards, including stock options, stock purchase rights, restricted stock units (“RSU”) and PSU, based upon the grant-date fair value of those awards. The grant-date fair value of our stock options and stock purchase rights is estimated using a Black-Scholes-Merton option-pricing model. The fair value of our RSUs and PSUs are calculated based on the market value of our stock at the grant date.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 15
The following table summarizes stock-based compensation expense by line item in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense, net of amounts capitalized (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Excess income tax benefits (deficiencies) related to stock-based compensation expense |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
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, 2024 |
||||
|
|
Unrecognized Expense |
|
|
Remaining weighted average period (In years) |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
|
|
||
RSUs |
|
|
|
|
||
PSUs (1) |
|
|
— |
|
|
- |
ESPP |
|
|
|
|
||
Total unrecognized stock-based compensation expense |
|
$ |
|
|
|
|
12. Net Loss Per Share
The following table summarizes the calculation of basic and diluted net loss per share (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to Corsair Gaming, Inc. |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in redemption value of redeemable noncontrolling interest |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net income (loss) attributable to common stockholders of Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive potential common shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 16
13. Income Taxes
The following table 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 |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effective tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
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, 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
Our effective tax rates were
Unrecognized tax benefits were $
On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (“OECD”) Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation, including United Kingdom which approved the legislation on July 11, 2023 with a full effective date of January 1, 2024. We have evaluated the potential impact from the OECD Pillar Two rules and determined that there is no impact to our financial position for the year of 2024.
14. Segment and Geographic Information
We have
The segments are defined as those operations our 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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 17
The following table summarizes the financial information for each reportable segment (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gamer and Creator Peripherals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gaming Components and Systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gamer and Creator Peripherals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gaming Components and Systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total gross profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues from sales to customers in the United States represented
The follow table sets forth the customers that individually comprised 10% or more of our total net revenue for the periods presented:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer A |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Customer B |
|
* |
|
|
* |
|
|
|
% |
|
* |
|
||||
* Customer represents less than
15. Redeemable Noncontrolling Interest ("RNCI")
On January 1, 2022, we acquired a
Under the Shareholders Agreement between Corsair and the iDisplay Seller a put option was provided to the iDisplay Seller to transfer to Corsair (i)
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 condensed 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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 18
The following table presents the changes in RNCI for the periods presented (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Share of net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share of other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Dividend paid |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Change in redemption value (1) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
16. Subsequent Event
On
In addition, the SPAA replaced the call option and put option in the original Shareholders Agreement with new options. Under the SPAA, a put option was provided to the iDisplay Seller to sell up to
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 19
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, 2023, as filed with the United States Securities and Exchange Commission (“SEC”) on February 27, 2024. 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, 2023.
Overview
We are a leading global provider and innovator of high-performance products for gamers and digital creators, such as streamers, Vloggers and broadcasters, many of which build their own PCs using our components. Our industry-leading gaming products help digital athletes, from casual gamers to committed professionals, perform at their peak across PC or console platforms, and our streaming products enable 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 products that address 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, coaching, Elgato's marketplace, customer care and extended warranty into our product offerings.
We group our products into two categories (operating segments):
On May 15, 2024, one of our fully consolidated subsidiaries, Corsair Components Ltd, or CCL, agreed to provide short-term financing to Endor AG, a German public company, or Endor, in the form of a bridge loan, pursuant to a bridge loan agreement between Endor and CCL, or the Bridge Loan Agreement. Endor owns Fanatec brand, and is a leading manufacturer of sim racing hardware. The Bridge Loan Agreement was entered into in connection with a Letter of Intent (the “LOI”) executed on the same day with Endor for a potential acquisition of Endor. As of the date of this filing, the LOI has expired, and on July 30, 2024, Endor announced it has filed for the German insolvency proceedings (the “Insolvency Proceedings”) and has commenced work on the various steps involved in the Insolvency Proceedings. Per terms of the Bridge Loan Agreement, CCL has no obligation to disburse any more funds on the expiration of the LOI and Endor's insolvency filing. Once Endor’s Insolvency Plan is approved by the German Court, we expect the outstanding amount of the Bridge Loan receivable, including the accrued interest to be repaid to CCL. We expect the Insolvency Proceedings to be completed within six months from their commencement date.
Summary of Financial Results
Our net revenue was $261.3 million and $325.4 million for the three months ended June 30, 2024,and 2023, respectively. Our gross margin was 24.1% and 25.5% for the three months ended June 30, 2024 and 2023, respectively. We had a net loss of $23.5 million and $4.1 million for the three months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024, we had cash and restricted cash, in the aggregate of $94.6 million and the principal balance outstanding on our Term Loan was $180.9 million. Cash used in operations was $44.8 million for the six months ended June 30, 2024, and cash provided by operations was $44.0 million for the six months ended June 30, 2023.
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, 2023 and those described below.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 20
Impact of Macroeconomic Conditions
Our business and financial performance depend significantly on worldwide economic conditions. We continue to face global macroeconomic challenges including the ongoing effects of geopolitical conflicts, such as the ongoing war between Russia and Ukraine, the ongoing conflict in Gaza, including the heightened tensions in the Red Sea, and any potential conflicts between China and Taiwan, supply chain constraints, uncertainty in key financial markets and the risk of a recession, inflationary trends, volatility in exchange rates and evolving dynamics in the global trade environment. We also experience seasonality in the sale of our products, which may be affected by general economic conditions. The extent of the impact of macroeconomic conditions and geopolitical tensions 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.
We are exposed to fluctuations in foreign currency exchange rates. As a result of our foreign sales and operations, we have revenue, payroll and other operating expenses denominated in foreign currencies, in particular the Chinese Yuan, Euro and British Pound. Unfavorable movement in the exchange rate between the U.S. dollar and the currencies we conduct sales or operate in may negatively impact our financial results. While the foreign currency fluctuations did not have a material impact to our operating results for the six months ending June 30, 2024, there can be no assurance that future foreign currency fluctuations will not have a material impact to our operating results.
Impact of Industry Trends
Our results of operations and financial condition are impacted by industry trends in the gaming market, including:
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 29.7% and 28.0% of our net revenue for the six months ended June 30, 2024 and 2023, respectively, and sales to our ten largest customers accounting for approximately 52.6% and 54.8% of our net revenue for the six months ended June 30, 2024 and 2023, respectively. Our customers, including Amazon, typically do not enter into long-term agreements to purchase our products 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
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 21
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 costs, for example utilizing expensive shipping options such as air freight for smaller packages and more urgent deliveries and more cost-efficient options, such as ground or ocean freight, 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. In the last few years, we have entered into several new markets, for example the cameras market for content creators and the gaming monitors market for both gamers and content creators. We launched 108 and 39 new products in 2023 and in the six months ended June 30, 2024, respectively. 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 products 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. Historical seasonal patterns may not continue in the future and may be further impacted in the future, by macroeconomic factors, increasing supply constraints, GPU shortages, and shifts in customer behavior.
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 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 e-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, excess and obsolete 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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 22
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
Interest expense 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
Interest income consists of interest earned on interest-bearing bank deposits and interest-bearing Bridge Loan, net of amortization of Bridge Loan origination costs.
Other Expense, Net
Other expense, 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 Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest represents the share of the net income of subsidiaries in which we own less than 100% of the equity attributable to the ownership interest that we did not acquire.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 23
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
261,300 |
|
|
$ |
325,432 |
|
|
$ |
598,557 |
|
|
$ |
679,396 |
|
Cost of revenue |
|
|
198,215 |
|
|
|
242,600 |
|
|
|
448,833 |
|
|
|
511,160 |
|
Gross profit |
|
|
63,085 |
|
|
|
82,832 |
|
|
|
149,724 |
|
|
|
168,236 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, general and administrative |
|
|
70,388 |
|
|
|
69,953 |
|
|
|
150,605 |
|
|
|
137,482 |
|
Product development |
|
|
17,411 |
|
|
|
15,593 |
|
|
|
34,052 |
|
|
|
32,431 |
|
Total operating expenses |
|
|
87,799 |
|
|
|
85,546 |
|
|
|
184,657 |
|
|
|
169,913 |
|
Operating loss |
|
|
(24,714 |
) |
|
|
(2,714 |
) |
|
|
(34,933 |
) |
|
|
(1,677 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
(3,436 |
) |
|
|
(4,496 |
) |
|
|
(7,127 |
) |
|
|
(8,798 |
) |
Interest income |
|
|
1,158 |
|
|
|
1,978 |
|
|
|
2,723 |
|
|
|
3,452 |
|
Other expense, net |
|
|
(516 |
) |
|
|
(1,134 |
) |
|
|
(977 |
) |
|
|
(1,630 |
) |
Total other expense, net |
|
|
(2,794 |
) |
|
|
(3,652 |
) |
|
|
(5,381 |
) |
|
|
(6,976 |
) |
Loss before income taxes |
|
|
(27,508 |
) |
|
|
(6,366 |
) |
|
|
(40,314 |
) |
|
|
(8,653 |
) |
Income tax benefit |
|
|
4,001 |
|
|
|
2,287 |
|
|
|
5,778 |
|
|
|
2,926 |
|
Net loss |
|
|
(23,507 |
) |
|
|
(4,079 |
) |
|
|
(34,536 |
) |
|
|
(5,727 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
687 |
|
|
|
401 |
|
|
|
1,223 |
|
|
|
765 |
|
Net loss attributable to Corsair Gaming, Inc. |
|
$ |
(24,194 |
) |
|
$ |
(4,480 |
) |
|
$ |
(35,759 |
) |
|
$ |
(6,492 |
) |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
75.9 |
|
|
|
74.5 |
|
|
|
75.0 |
|
|
|
75.2 |
|
Gross profit |
|
|
24.1 |
|
|
|
25.5 |
|
|
|
25.0 |
|
|
|
24.8 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, general and administrative |
|
|
26.9 |
|
|
|
21.5 |
|
|
|
25.2 |
|
|
|
20.2 |
|
Product development |
|
|
6.7 |
|
|
|
4.8 |
|
|
|
5.7 |
|
|
|
4.8 |
|
Total operating expenses |
|
|
33.6 |
|
|
|
26.3 |
|
|
|
30.9 |
|
|
|
25.0 |
|
Operating loss |
|
|
(9.5 |
) |
|
|
(0.8 |
) |
|
|
(5.9 |
) |
|
|
(0.2 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
(1.3 |
) |
|
|
(1.4 |
) |
|
|
(1.2 |
) |
|
|
(1.3 |
) |
Interest income |
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Other expense, net |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Total other expense, net |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
(0.9 |
) |
|
|
(1.0 |
) |
Loss before income taxes |
|
|
(10.6 |
) |
|
|
(1.9 |
) |
|
|
(6.8 |
) |
|
|
(1.3 |
) |
Income tax benefit |
|
|
1.5 |
|
|
|
0.7 |
|
|
|
1.0 |
|
|
|
0.4 |
|
Net loss |
|
|
(9.1 |
) |
|
|
(1.2 |
) |
|
|
(5.8 |
) |
|
|
(0.9 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
Net loss attributable to Corsair Gaming, Inc. |
|
|
(9.4 |
)% |
|
|
(1.3 |
)% |
|
|
(6.0 |
)% |
|
|
(1.0 |
)% |
Components of Results of Operations
Net Revenue
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Net revenue |
|
$ |
261,300 |
|
|
$ |
325,432 |
|
|
$ |
598,557 |
|
|
$ |
679,396 |
|
Net revenue decreased by 19.7% and 11.9% for the three and six months ended June 30, 2024, respectively, as compared to the same periods last year.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 24
The decrease in net revenue in the three-month period was due to a 32.3% decrease in sales for our Gaming Components and Systems segment, which was partially offset by a 19.6% increase in sales for our Gamer and Creator Peripherals segment.
The decrease in net revenue in the six-month period was due to a 22.3% decrease in sales for our Gaming Components and Systems segment, which was partially offset by a 20.0% increase in sales for our Gamer and Creator Peripherals segment.
For further discussions specific to our Gaming Components and Systems and Gamer and Creator Peripherals segments, refer to “Segment Results” section below.
Gross Profit and Gross Margin
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands, except percentages) |
|
|||||||||||||
Gross profit |
|
$ |
63,085 |
|
|
$ |
82,832 |
|
|
$ |
149,724 |
|
|
$ |
168,236 |
|
Gross margin |
|
|
24.1 |
% |
|
|
25.5 |
% |
|
|
25.0 |
% |
|
|
24.8 |
% |
Gross margin decreased by 1.4% for the three months ended June 30, 2024, as compared to the same period last year. Higher spending on promotional activities as a proportion of net revenue of our Gaming Components and Systems segment accounted for 1.8% of the decrease, while higher product costs from suppliers and factory underutilization accounted for 0.9% of the decrease. The decrease was partially offset by 1.6% from an improved product mix shift with more sales in the Gamer and Creator Peripherals segment.
Gross margin increased by 0.2% for the six months ended June 30, 2024, as compared to the same period last year. 1.4% of the increase was primarily attributable to an improved product mix shift with more sales in the Gamer and Creator Peripherals segment, which was partially offset by a 1.0% from higher spending on promotional activities as a proportion of net revenue of our Gaming Components and Systems segment for the six months ended June 30, 2024.
For further discussions specific to our Gaming Components and Systems and Gamer and Creator Peripherals segments, refer to the “Segment Results” section below.
Sales, General and Administrative (SG&A)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Sales, general and administrative |
|
$ |
70,388 |
|
|
$ |
69,953 |
|
|
$ |
150,605 |
|
|
$ |
137,482 |
|
SG&A expenses increased by $0.4 million, or 0.6%, for the three months ended June 30, 2024 as compared to the same period last year primarily due to a $1.1 million increase in professional service costs and a $0.6 million increase in marketing and advertising costs, which were partially offset by a $1.7 million decrease in personnel-related costs.
SG&A expenses increased by $13.1 million, or 9.5%, for the six months ended June 30, 2024 as compared to the same period last year primarily due to a $7.9 million increase in legal expense mainly attributable to a one-time settlement, a $2.2 million increase in distribution costs, largely attributable to rationalization costs for distribution hubs as well as increased freight costs, and a $1.2 million increase in marketing and advertising costs.
Product Development
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product development |
|
$ |
17,411 |
|
|
$ |
15,593 |
|
|
$ |
34,052 |
|
|
$ |
32,431 |
|
Product development expenses increased by $1.8 million, or 11.7%, for the three months ended June 30, 2024 as compared to the same period last year primarily due to a $0.7 million increase in personnel-related costs and a $0.6 million increase in consulting and contractor costs.
Product development expenses increased by $1.6 million, or 5.0%, for the six months ended June 30, 2024 as compared to the same period last year primarily due to a $1.6 million increase in personnel-related costs from increase in headcount.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 25
Interest Expense, Interest Income and Other Expense, Net
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
(In thousands) |
|
|||||||||||||
Interest expense |
|
$ |
(3,436 |
) |
|
$ |
(4,496 |
) |
|
$ |
(7,127 |
) |
|
$ |
(8,798 |
) |
Interest income |
|
|
1,158 |
|
|
|
1,978 |
|
|
|
2,723 |
|
|
|
3,452 |
|
Other expense, net |
|
|
(516 |
) |
|
|
(1,134 |
) |
|
|
(977 |
) |
|
|
(1,630 |
) |
Interest expense decreased by 23.6% and 19.0% for the three and six months ended June 30, 2024, respectively, as compared to the same periods last year primarily due to lower principal balance on our Term Loan, which was partially offset by higher interest rates on our Term Loan in the three and six months ended June 30, 2024.
Interest income decreased by 41.5% and 21.1% for the three and six months ended June 30, 2024 and 2023, respectively, as compared to the same periods last year primarily due to lower cash balance in our interest-bearing account.
Other expense, 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 |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands, except percentages) |
|
|||||||||||||
Loss before income taxes |
|
$ |
(27,508 |
) |
|
$ |
(6,366 |
) |
|
$ |
(40,314 |
) |
|
$ |
(8,653 |
) |
Income tax benefit |
|
|
4,001 |
|
|
|
2,287 |
|
|
|
5,778 |
|
|
|
2,926 |
|
Effective tax rate |
|
|
14.5 |
% |
|
|
35.9 |
% |
|
|
14.3 |
% |
|
|
33.8 |
% |
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, 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 14.5% and 35.9% for the three months ended June 30, 2024 and 2023, respectively. The decrease in our effective rate in the three-month period was primarily due to a change in the mix of income and losses in the various tax jurisdictions in which we operate, and an increase in shortfall tax deficiencies from stock-based compensation.
Our effective tax rates were 14.3% and 33.8% for the six months ended June 30, 2024 and 2023, respectively. The decrease in our effective rate in the six-month period was primarily due to a change in the mix of income and losses in the various tax jurisdictions in which we operate, and an increase in shortfall tax deficiencies from stock-based compensation.
On December 15, 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (“OECD”) Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation, including United Kingdom which approved the legislation on July 11, 2023 with a full effective date of January 1, 2024. We have evaluated the potential impact from the OECD Pillar Two rules and determined that there is no impact to our financial position for the year of 2024.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 26
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, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gamer and Creator Peripherals Segment |
|
$ |
94,229 |
|
|
|
36.1 |
% |
|
$ |
78,755 |
|
|
|
24.2 |
% |
|
$ |
201,202 |
|
|
|
33.6 |
% |
|
$ |
167,697 |
|
|
|
24.7 |
% |
Gaming Components and Systems Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Memory Products |
|
|
81,758 |
|
|
|
31.3 |
|
|
|
108,881 |
|
|
|
33.5 |
|
|
|
206,661 |
|
|
|
34.5 |
|
|
|
240,218 |
|
|
|
35.3 |
|
Other Component Products |
|
|
85,313 |
|
|
|
32.6 |
|
|
|
137,796 |
|
|
|
42.3 |
|
|
|
190,694 |
|
|
|
31.9 |
|
|
|
271,481 |
|
|
|
40.0 |
|
|
|
|
167,071 |
|
|
|
63.9 |
|
|
|
246,677 |
|
|
|
75.8 |
|
|
|
397,355 |
|
|
|
66.4 |
|
|
|
511,699 |
|
|
|
75.3 |
|
Total Net Revenue |
|
$ |
261,300 |
|
|
|
100.0 |
% |
|
$ |
325,432 |
|
|
|
100.0 |
% |
|
$ |
598,557 |
|
|
|
100.0 |
% |
|
$ |
679,396 |
|
|
|
100.0 |
% |
Gamer and Creator Peripherals Segment
Net revenue of the Gamer and Creator Peripherals segment increased by 19.6% and 20.0% for the three and six months ended June 30, 2024, respectively, as compared to the same periods last year. The increase was driven by the success of recent new product launches, increased demand for our gaming controllers and Elgato products as well as the inclusion of post-acquisition revenues from our July 2023 acquisition of Drop, a community-based e-commerce company.
Gaming Components and Systems Segment
Net revenue of the Gaming Components and Systems segment decreased 32.3% and 22.3% for three and six months ended June 30, 2024, respectively, as compared to the same periods last year. The demand for our products in this segment is largely driven by the activity in the self-built PC market, which is heavily influenced by the launch of new, reasonably priced GPUs and CPUs, as well as the release of new game titles. However, in 2024, we are mid-cycle for new GPU platforms, resulting in a relatively flat-to-low market trajectory for the self-built PC market since the beginning of the year. This has led to a greater than anticipated decrease in demand for our products in this segment during both the three- and six-month periods. Additionally, we experienced a downward adjustment in inventory levels at our channel partners during the three- and six-month periods compared to an increase in channel inventory levels during the same periods last year, contributing to the lower net revenues for those periods.
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, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gamer and Creator Peripherals Segment |
|
$ |
35,699 |
|
|
|
37.9 |
% |
|
$ |
25,509 |
|
|
|
32.4 |
% |
|
$ |
79,342 |
|
|
|
39.4 |
% |
|
$ |
52,157 |
|
|
|
31.1 |
% |
Gaming Components and Systems Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Memory Products |
|
|
9,424 |
|
|
|
11.5 |
|
|
|
15,900 |
|
|
|
14.6 |
|
|
|
27,480 |
|
|
|
13.3 |
|
|
|
36,706 |
|
|
|
15.3 |
|
Other Component Products |
|
|
17,962 |
|
|
|
21.1 |
|
|
|
41,423 |
|
|
|
30.1 |
|
|
|
42,902 |
|
|
|
22.5 |
|
|
|
79,373 |
|
|
|
29.2 |
|
|
|
|
27,386 |
|
|
|
16.4 |
|
|
|
57,323 |
|
|
|
23.2 |
|
|
|
70,382 |
|
|
|
17.7 |
|
|
|
116,079 |
|
|
|
22.7 |
|
Total Gross Profit |
|
$ |
63,085 |
|
|
|
24.1 |
% |
|
$ |
82,832 |
|
|
|
25.5 |
% |
|
$ |
149,724 |
|
|
|
25.0 |
% |
|
$ |
168,236 |
|
|
|
24.8 |
% |
Gamer and Creator Peripherals Segment
The gross margin of the Gamer and Creator Peripherals segment increased by 5.5% for the three months ended June 30, 2024 as compared to the same period last year. The increase was primarily attributable to a 4.3% from a more favorable product mix within this segment, lower product costs from suppliers and successful launches of new products with higher average margins, and a 1.8% from lower inventory reserves, partially offset by a 0.9% from higher air freight costs.
The gross margin of the Gamer and Creator Peripherals segment increased by 8.3% for the six months ended June 30, 2024 as compared to the same period last year. The increase was primarily attributable to a 4.9% from a more favorable product mix within this segment, lower product costs from suppliers and successful launches of new products with higher average margins, and a 3.3% from lower inventory reserve, partially offset by a 1.0% from higher air freight costs.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 27
Gaming Components and Systems Segment
The gross margin of the Gaming Components and Systems segment decreased by 6.8% for the three months ended June 30, 2024 as compared to the same period last year. The decrease was primarily attributable to a 3.0% from an unfavorable product mix within this segment and higher product costs from suppliers, a 2.7% from increased promotional activities as a proportion of net revenue, and a 1.5% from factory underutilization and higher inventory reserves.
The gross margin of the Gaming Components and Systems segment decreased by 5.0% for the six months ended June 30, 2024 as compared to the same period last year. The decrease was primarily attributable to a 2.6% from an unfavorable product mix within this segment and higher product costs from suppliers, a 1.7% from increased promotional activities as a proportion of net revenue, and a 1.1% from factory underutilization and higher inventory reserves.
Liquidity and Capital Resources
Overview
We have financed our operations and acquisitions through cash from operations, and when applicable, through debt facilities and issuance of equity securities. As of June 30, 2024, our principal sources of liquidity were cash and restricted cash, in aggregate of $94.6 million, and our borrowing capacity under the Revolving Facility (as defined below) of $100.0 million.
We have a shelf-registration statement on Form S-3 on file with the SEC, which allows us to offer securities, including common stock, preferred stock and warrants, through August 1, 2025. As of June 30, 2024, $216.7 million remained available for issuance under the shelf-registration statement.
Our principal uses of cash generally 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 (including our short-term Bridge Loan financing to Endor).
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, 2024, supplemented with the borrowing capacity under our Revolving Facility, if and as needed, 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. 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, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(44,779 |
) |
|
$ |
43,972 |
|
Investing activities |
|
|
(16,398 |
) |
|
|
(7,457 |
) |
Financing activities |
|
|
(22,142 |
) |
|
|
(7,105 |
) |
Cash Flows from Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 was $44.8 million and consisted of a net loss of $34.5 million and a net cash outflow of $37.3 million from changes in our net operating assets and liabilities, offset partially by non-cash adjustments of $27.0 million. The net cash outflow from changes in our net operating assets and liabilities was primarily related to a decrease in accounts payable due to timing of payments and a decrease in other liabilities and accrued expenses mainly due to a reduction in the accruals needed for sales returns and customer incentives with lower revenues, as well as an increase in inventories, attributable in part to the buildup of safety stock to accommodate supply lead times in our peripherals products and in part due to lower demand for our components products in the first half of 2024. These net cash outflows were partially offset by a decrease in accounts receivable from lower revenue and a decrease in prepaid and other assets. The non-cash adjustments primarily consisted of amortization of intangibles, depreciation and stock-based compensation expense, which were partially offset by changes in deferred income taxes.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 28
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.
Cash Flows from Investing Activities
Cash used in investing activities was $16.4 million for the six months ended June 30, 2024 and primarily consisted of $12.3 million disbursement of Bridge Loan (refer to Note 7, “Balance Sheet Component - Accounts Receivable, net” for more information on the Bridge Loan), $5.0 million of capital expenditure, partially offset by $1.0 million cash received from escrow for the purchase price adjustment related to a business acquisition.
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 Flows from Financing Activities
Cash used in financing activities was $22.1 million for the six months ended June 30, 2024 and primarily consisted of $18.1 million repayment of debt, $4.9 million settlement of deferred consideration related to a prior business acquisition in 2019, $2.0 million payment of dividends to noncontrolling interest, and $0.4 million payment of taxes related to net share settlement of equity awards, partially offset by $3.3 million proceeds received from the issuance of shares through the employee equity incentive plans.
Cash used in financing activities was $7.1 million for the six months ended June 30, 2023 and primarily consisted of $11.3 million repayment of debt, $1.0 million payment of deferred purchase consideration related to a prior business acquisition in 2019, and $0.8 million payment of taxes related to net share settlement of equity awards, partially offset by $6.4 million proceeds received from the issuance of shares through employee equity incentive plans.
Capital Resources
On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement with a new Credit Agreement (as amended, the “Credit Agreement”). The Credit Agreement provides for a total commitment of $350.0 million, consisting of a $100.0 million revolving credit facility (the “Revolving Facility”) and a $250.0 million term loan facility (the “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 $11.9 million and $34.1 million of the Term Loan principal in the six months ended June 30, 2024 and in the year ended December 31, 2023, respectively. As of June 30, 2024, the total principal outstanding of the Term Loan was $180.9 million and the available and uncommitted capacity under the Revolving Facility was $100 million.
The Credit Agreement has a variable rate structure. According to the provisions in the Third Amendment to the Credit Agreement (“Third Amendment”), beginning 2024, the Term Loan and the Revolving Facility carry interest at our election at either (a) Bloomberg Short-Term Bank Yield Index rate (“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. Additionally, the commitment fees on the unused portion of the Revolving Facility ranges from 0.2% to 0.4% based on our total 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, including the maintenance of a maximum Consolidated Total Net Leverage Ratio (“CTNL Ratio”) and a minimum Consolidated Interest Coverage Ratio (“CIC Ratio”) (as defined in the Credit Agreement). According to the provisions in the Third Amendment, beginning 2024, we are required to maintain a maximum CTNL Ratio of 3.00 to 1.00 and a minimum CIC ratio of 3.00 to 1.00, with the provision that the maximum CTNL Ratio can be temporarily increased to 3.50 to 1.00 upon the occurrence of a Qualified Acquisition (as defined in, and subject to the requirements of the Credit Agreement). As of June 30, 2024, we were not in default under the Credit Agreement.
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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 29
Contractual Cash and Other Obligations
The following table summarizes our contractual cash and other obligations as of June 30, 2024 (in thousands):
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
Total |
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt principal and interest payments (1) |
|
$ |
201,937 |
|
|
$ |
23,472 |
|
|
$ |
178,465 |
|
|
$ |
— |
|
|
$ |
— |
|
Inventory-related purchase obligations (2) |
|
|
83,330 |
|
|
|
83,330 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Operating lease obligations (3) |
|
|
80,267 |
|
|
|
16,327 |
|
|
|
23,625 |
|
|
|
15,788 |
|
|
|
24,527 |
|
Other purchase obligations (4) |
|
|
12,915 |
|
|
|
12,709 |
|
|
|
206 |
|
|
|
— |
|
|
|
— |
|
Payment for additional investment in iDisplay (5) |
|
|
19,750 |
|
|
|
19,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
398,199 |
|
|
$ |
155,588 |
|
|
$ |
202,296 |
|
|
$ |
15,788 |
|
|
$ |
24,527 |
|
As of June 30, 2024, we had $4.5 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 condensed 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, 2024 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, 2023 filed with the SEC on February 27, 2024.
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.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 30
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, 2024, we had cash and restricted cash of $94.6 million, which consisted primarily of bank deposits. Our cash is held for working capital purposes.
As of June 30, 2024, under the Credit Agreement, we had $180.9 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, 2024, a hypothetical 100 basis point change in interest rates would result in a change to annual interest expense by approximately $1.8 million.
Foreign Currency Risk
Approximately 19.4% of our net revenue for the six months ended June 30, 2024 was denominated in foreign currencies, primarily Euro, and to a lesser extent, the British Pound. 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 $22.0 million and $44.3 million as of June 30, 2024 and December 31, 2023, 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, net was $(1.0) million and $(1.8) million for the six months ended June 30, 2024 and 2023, 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 $1.6 million in our condensed consolidated financial statements for the six months ended June 30, 2024.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 31
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, 2024, 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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 32
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
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, 2023 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, 2023 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.
(a) On July 31, 2024 (the “Effective Date”), we entered into an indemnity and reimbursement arrangement (the “Indemnity Letter”) with our largest stockholder Corsair Group (Cayman), LP (“Corsair LP”), an affiliate of EagleTree Capital, LP (“EagleTree”). From time to time, affiliates of Corsair LP including EagleTree have provided us, and may in the future provide us, with advisory services relating to certain strategic transactions including some of our prior acquisitions (“Transaction Services”). Pursuant to the terms of the Indemnity Letter and subject to certain limitations, we have agreed to indemnify Corsair LP, its affiliates (including EagleTree) and its and their respective direct and indirect partners, members, equityholders, officers, managers, directors, employees, agents and representatives for all losses, claims, damages, liabilities, costs and expenses arising out of or related to the Transaction Services. The foregoing description of the Indemnity Letter is not complete and is qualified in its entirety by reference to the full text of the Indemnity Letter, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
(b) None.
(c)
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 33
Item 6. Exhibits.
|
|
|
|
Incorporated by Reference |
|
|
||||||
Exhibit Number |
|
Description |
|
Form |
|
Exhibit |
|
Date Filed |
|
Filed Herewith |
||
|
|
|
|
|
|
|
|
|
|
|
||
3.1 |
|
|
8‑K |
|
3.1 |
|
09/25/2020 |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
||
3.2 |
|
|
8‑K |
|
3.2 |
|
09/25/2020 |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
||
4.1 |
|
|
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 |
|
|
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 |
|
Indemnification Letter, by and between Corsair Gaming, Inc. and Corsair Group (Cayman), LP. |
|
|
|
|
|
|
|
X |
||
|
|
|
|
|
|
|
|
|
|
|
||
31.1 |
|
|
|
|
|
|
|
|
X |
|||
|
|
|
|
|
|
|
|
|
|
|
||
31.2 |
|
|
|
|
|
|
|
|
X |
|||
|
|
|
|
|
|
|
|
|
|
|
||
32.1* |
|
|
|
|
|
|
|
|
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 With Embedded Linkbase Documents |
|
|
|
|
|
|
|
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. |
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 34
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 1, 2024 |
|
By: |
/s/ Michael G. Potter |
|
|
|
Michael G. Potter |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
Corsair Gaming, Inc. | Q2 2024 Form 10-Q | 35
Exhibit 10.1
Corsair Gaming, Inc.
47100 Bayside Parkway
Fremont, California 94538
July 31, 2024
Corsair Group (Cayman), LP
1185 Avenue of the Americas, 39th Floor
New York, New York 10036
Re: Certain Indemnity and Reimbursement Arrangements
Ladies and Gentlemen:
Since Corsair Gaming, Inc.’s (the “Company”) initial public offering, affiliates of Corsair Group (Cayman), LP (“Corsair LP”), including EagleTree Capital, LP (“EagleTree”), have provided and may in the future provide the Company with advisory and other services relating to (i) mergers and acquisitions transactions not involving EagleTee or an EagleTree affiliate (for the avoidance of doubt, other than the Company and its subsidiaries) and (ii) certain other transactions as agreed to by a majority of the Company’s directors not affiliated with EagleTree or otherwise requested by the Company with the knowledge of a majority of the Company’s directors not affiliated with EagleTree (the transactions contemplated by the foregoing clauses (i) and (ii) collectively, “Transactions,” and such services, “Transaction Services”).
In connection with and in consideration for the provision of such Transaction Services in the past and the expected provision of such Transaction Services in the future, the Company agrees that, to the fullest extent permitted by applicable law, it will indemnify, defend and hold harmless Corsair LP, its affiliates (including EagleTree) and its and their respective direct and indirect partners, members, equityholders, officers, managers, directors, employees, agents and representatives (“Indemnitees”) for all losses, claims, damages, liabilities, costs and expenses (including reasonable and documented (which documentation will, solely to the extent requested by the Company’s auditors if reasonably needed as part of their audit and or review of the Company’s financials or as may be required by applicable law, regulation, or legal process, include backup time entries in a form reasonably sufficient to detail the type of work done) attorneys’ fees and expenses) (“Losses”) arising out of or related to any such Transactions and/or Transaction Services, or any other involvement by Indemnitees in any Transaction, including any reasonable and documented Losses incurred by Indemnitees in connection with responding to, investigating, preparing, defending or assisting in the defense of, any claim, proceeding, subpoena or investigation related to Transactions or Transaction Services, in each case, whether incurred or arising prior to, on or following the date of this letter; provided that the Company shall not be responsible for any Excluded Losses. “Excluded Losses” shall mean Losses that arise out of or are based on any action of or failure to act by any Indemnitee to the extent such Losses are determined by a final, non-appealable judgment by a court to have resulted solely from such Indemnitee’s gross negligence, bad faith or willful misconduct (other than an action or failure to act undertaken at the request or with the consent of the Company).
Without limiting any provision of the Investor Rights Agreement, dated September 22, 2020, between the Company and Corsair LP, or the Registration Rights Agreement, dated September 22, 2020, between the Company and Corsair LP, if any third-party action, claim (including any cause of action, whether in contract or tort or otherwise), suit, investigation, inquiry, proceeding, controversy or dispute related to a Loss (collectively, any “Action”) is commenced, as to which an Indemnitee
proposes to demand indemnification, such Indemnitee shall notify the Company with reasonable promptness following the Indemnitee’s being notified of such Action, if the Company is not a party to such Action; provided, however, that any failure or delay by such Indemnitee to notify the Company shall not relieve the Company from its obligations hereunder (except to the extent (but only to the extent) that the Company shall not have otherwise learned of such Action and it is finally judicially determined by a court of competent jurisdiction (which determination is not subject to appeal) that the Company has been actually and materially prejudiced (through the forfeiture of substantive rights and defenses) by such failure to promptly notify). The Company shall be entitled to assume the defense of any such Action (other than any such Action that (i) is brought by the Company, (ii) seeks an injunction or equitable relief against the Indemnitee, (iii) relates to or arises in connection with any actual or potential criminal conduct, (iv) would reasonably be expected to have a material adverse effect on the Indemnitee’s business, (v) the Company has failed or is failing to defend in good faith, or (vi) is one in which the Indemnitee has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnitee and the Company or that there are legal defenses available to the Indemnitee that are different from or in addition to those available to the Company), exercisable by giving written notice to such Indemnitee in which the Company confirms its responsibility to indemnify the Indemnitee in respect of such Action within ten business days after receipt of written notice from the Indemnitee of such assertion or commencement, including the employment of counsel reasonably satisfactory to the Indemnitee, except as provided below.
The Indemnitee shall have the right to employ separate counsel of its own choice to represent it in any Action the defense of which has been assumed by the Company and to participate in the defense thereof, but the fees and expenses of any such separate counsel (other than reasonable costs of investigation incurred prior to the Company’s assumption of the defense of such Action) shall be at the expense of the Indemnitee unless (i) the Company has failed to promptly assume the defense and employ counsel reasonably satisfactory to the Indemnitee in accordance with the preceding sentence; (ii) the use of counsel chosen by the Company to represent the Indemnitee would present such counsel with a conflict of interest, (iii) the Indemnitee shall have been advised by counsel that the representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, or (iv) the Company authorizes the Indemnitee to employ separate counsel at the Company’s expense (in each such case the Company will pay the fees and disbursements of such counsel, as incurred). The Company shall not, in connection with any Action described in clauses (i) through (iv) of the preceding sentence, be liable for the fees and expenses of more than one separate counsel (in addition to any local counsel) for all Indemnitees.
Consistent with the indemnity described above, the Company agrees to reimburse EagleTree for $94,207.15 in Losses incurred EagleTree prior to the date of this letter, as further detailed in the invoice that EagleTree will provide to the Company. The Company agrees to make this reimbursement payment promptly following receipt of such invoice by wire transfer of immediately available funds to the account set forth on the invoice, or to such other account as Corsair LP or EagleTree may designate in writing.
Please confirm your agreement with the foregoing arrangements by countersigning this letter and returning a copy to us.
[Signature Page Follows]
Sincerely,
CORSAIR GAMING, INC
By: /s/ Michael G. Potter
Name: Michael G. Potter
Title: Chief Financial Officer
ACCEPTED AND AGREED:
CORSAIR GROUP (CAYMAN), LP
By: EagleTree-Carbide (GP), LLC,
its General Partner
By: EagleTree Partners IV (GP), LP,
its Sole Member
By: EagleTree Partners IV Ultimate GP, LLC,
its General Partner
By: /s/ George L. Majoros, Jr.
Name: George L. Majoros, Jr.
Title: Co-Managing Member
By: /s/ Anup Bagaria
Name: Anup Bagaria
Title: Co-Managing Member
[Signature Page to Corsair Indemnity and Reimbursement Letter]
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew J. Paul, certify that:
Date: August 1, 2024 |
|
By: |
/s/ Andrew J. Paul |
|
|
|
Andrew J. Paul |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
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:
Date: August 1, 2024 |
|
By: |
/s/ Michael G. Potter |
|
|
|
Michael G. Potter |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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, 2024 (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:
Date: August 1, 2024 |
|
By: |
/s/ Andrew J. Paul |
|
|
|
Andrew J. Paul |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
Date: August 1, 2024 |
|
By: |
/s/ Michael G. Potter |
|
|
|
Michael G. Potter |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |