crsr-10q_20200930.htm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

 

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

For the transition period from _________ to _________

Commission File Number: 001-39533

 

Corsair Gaming, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-2335306

(State or other jurisdiction of

incorporation or organization)

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

 

47100 Bayside Pkwy

Fremont, CA 94538

(Address of principal executive offices and zip code)

 

(510) 657-8747

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

CRSR

 

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 3, 2020, the registrant had 91,924,189 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Combined Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2020 and 2019

2

 

Condensed Combined Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2020 and 2019

3

 

Condensed Combined Consolidated Balance Sheets - As of September 30, 2020 and December 31, 2019

4

 

Condensed Combined Consolidated Statements of Shareholder’s Equity - Three and Nine Months Ended September 30, 2020 and 2019

5

 

Condensed Combined Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2020 and 2019

7

 

Notes to Condensed Combined Consolidated Financial Statements

8

Item 2.

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

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

41

PART II.

OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

73

Signatures

74

 

 

 

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Table of Contents

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and market. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

 

 

 

 

  

1


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Corsair Gaming, Inc.

Condensed Combined Consolidated Statements of Operations

(Unaudited, in thousands, except per share amounts)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net revenue

 

$

457,103

 

 

$

284,372

 

 

$

1,146,028

 

 

$

770,619

 

Cost of revenue

 

 

329,159

 

 

 

224,145

 

 

 

834,398

 

 

 

616,785

 

Gross profit

 

 

127,944

 

 

 

60,227

 

 

 

311,630

 

 

 

153,834

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

65,321

 

 

 

39,811

 

 

 

175,877

 

 

 

115,992

 

Product development

 

 

12,902

 

 

 

9,454

 

 

 

36,285

 

 

 

28,353

 

Total operating expenses

 

 

78,223

 

 

 

49,265

 

 

 

212,162

 

 

 

144,345

 

Operating income

 

 

49,721

 

 

 

10,962

 

 

 

99,468

 

 

 

9,489

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(10,170

)

 

 

(9,119

)

 

 

(29,116

)

 

 

(27,063

)

Other (expense) income, net

 

 

23

 

 

 

(399

)

 

 

(29

)

 

 

(1,477

)

Total other expense, net

 

 

(10,147

)

 

 

(9,518

)

 

 

(29,145

)

 

 

(28,540

)

Income (loss) before income taxes

 

 

39,574

 

 

 

1,444

 

 

 

70,323

 

 

 

(19,051

)

Income tax (expense) benefit

 

 

(3,217

)

 

 

75

 

 

 

(10,149

)

 

 

4,645

 

Net income (loss)

 

$

36,357

 

 

$

1,519

 

 

$

60,174

 

 

$

(14,406

)

Net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.43

 

 

$

0.02

 

 

$

0.71

 

 

$

(0.19

)

Diluted

 

$

0.40

 

 

$

0.02

 

 

$

0.69

 

 

$

(0.19

)

Weighted-average shares used to compute net income

  (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

84,871

 

 

 

75,939

 

 

 

84,352

 

 

 

75,928

 

Diluted

 

 

90,084

 

 

 

77,884

 

 

 

87,499

 

 

 

75,928

 

 

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

2


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Combined Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in thousands)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

36,357

 

 

$

1,519

 

 

$

60,174

 

 

$

(14,406

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustments, net of zero tax

 

 

2,378

 

 

 

(54

)

 

 

(1,217

)

 

 

(52

)

   Unrealized foreign exchange gain (loss) from long-term intercompany loans, net of

      tax benefit (expense) of $(128) and $134 for the three months ended September 30,

      2020 and 2019, respectively and $(24) and $139 for the nine months ended

      September 30, 2020 and 2019, respectively

 

 

691

 

 

 

(682

)

 

 

580

 

 

 

(704

)

Comprehensive income (loss)

 

$

39,426

 

 

$

783

 

 

$

59,537

 

 

$

(15,162

)

 

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

 

3


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Combined Consolidated Balance Sheets

(Unaudited, in thousands, except per share amounts)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

116,185

 

 

$

48,165

 

Restricted cash

 

 

3,726

 

 

 

3,552

 

Accounts receivable, net

 

 

259,542

 

 

 

202,334

 

Inventories

 

 

210,151

 

 

 

151,063

 

Prepaid expenses and other current assets

 

 

38,014

 

 

 

24,696

 

Total current assets

 

 

627,618

 

 

 

429,810

 

Property and equipment, net

 

 

15,404

 

 

 

15,365

 

Goodwill

 

 

311,573

 

 

 

312,750

 

Intangible assets, net

 

 

265,446

 

 

 

291,027

 

Restricted cash, noncurrent

 

 

230

 

 

 

230

 

Other assets

 

 

35,449

 

 

 

10,536

 

TOTAL ASSETS

 

$

1,255,720

 

 

$

1,059,718

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

274,771

 

 

$

182,025

 

Current portion of debt, net

 

 

 

 

 

2,364

 

Other liabilities and accrued expenses

 

 

169,586

 

 

 

115,541

 

Total current liabilities

 

 

444,357

 

 

 

299,930

 

Debt, net including related party balance of nil and $5,779 as of September 30, 2020 and

  December 31, 2019, respectively

 

 

370,090

 

 

 

503,448

 

Deferred tax liabilities

 

 

30,655

 

 

 

33,820

 

Other liabilities, noncurrent

 

 

22,066

 

 

 

5,745

 

TOTAL LIABILITIES

 

 

867,168

 

 

 

842,943

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 5,000 shares authorized, nil and nil shares issued

   and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value: 300,000 shares authorized, 91,914 and 84,079

  shares issued and outstanding as of September 30, 2020 and December 31, 2019,

  respectively

 

 

9

 

 

 

8

 

Additional paid-in capital

 

 

437,207

 

 

 

324,968

 

Accumulated deficit

 

 

(45,856

)

 

 

(106,030

)

Accumulated other comprehensive loss

 

 

(2,808

)

 

 

(2,171

)

Total Stockholders’ Equity

 

 

388,552

 

 

 

216,775

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,255,720

 

 

$

1,059,718

 

 

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

 

4


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Combined Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands)

 

 

 

Three months ended September 30, 2020

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Retained

Earnings

(Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Loss

 

 

Equity

 

Balance as of June 30, 2020

 

 

84,349

 

 

$

8

 

 

$

328,588

 

 

$

(82,213

)

 

$

(5,877

)

 

$

240,506

 

Issuance of common stock for stock option exercises

 

 

56

 

 

 

 

 

 

259

 

 

 

 

 

 

 

 

 

259

 

Issuance of common stock upon vesting of restricted

   stock units

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon initial public

   offering, net of underwriting discounts and

   commissions and other offering costs

 

 

7,500

 

 

 

1

 

 

 

106,729

 

 

 

 

 

 

 

 

 

106,730

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,631

 

 

 

 

 

 

 

 

 

1,631

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,069

 

 

 

3,069

 

Net income

 

 

 

 

 

 

 

 

 

 

 

36,357

 

 

 

 

 

 

36,357

 

Balance as of September 30, 2020

 

 

91,914

 

 

$

9

 

 

$

437,207

 

 

$

(45,856

)

 

$

(2,808

)

 

$

388,552

 

 

 

 

Three months ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Retained

Earnings

(Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Loss

 

 

Equity

 

Balance as of June 30, 2019

 

 

75,815

 

 

$

8

 

 

$

258,954

 

 

$

(113,046

)

 

$

(2,403

)

 

$

143,513

 

Issuance of common stock in relation to acquisitions

 

 

267

 

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

2,000

 

Issuance of common stock for stock option exercises

 

 

7

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Stock-based compensation

 

 

 

 

 

 

 

 

867

 

 

 

 

 

 

 

 

 

867

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(736

)

 

 

(736

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,519

 

 

 

 

 

 

1,519

 

Balance as of September 30, 2019

 

 

76,089

 

 

$

8

 

 

$

261,874

 

 

$

(111,527

)

 

$

(3,139

)

 

$

147,216

 

 

 

 

Nine months ended September 30, 2020

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Retained

Earnings

(Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Loss

 

 

Equity

 

Balance as of December 31, 2019

 

 

84,079

 

 

$

8

 

 

$

324,968

 

 

$

(106,030

)

 

$

(2,171

)

 

$

216,775

 

Issuance of common stock to directors

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for stock option exercises

 

 

306

 

 

 

 

 

 

1,224

 

 

 

 

 

 

 

 

 

1,224

 

Issuance of common stock upon vesting of restricted

   stock units

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon initial public

   offering, net of underwriting discounts and

   commissions and other offering costs

 

 

7,500

 

 

 

1

 

 

 

106,729

 

 

 

 

 

 

 

 

 

106,730

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,286

 

 

 

 

 

 

 

 

 

4,286

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(637

)

 

 

(637

)

Net income

 

 

 

 

 

 

 

 

 

 

 

60,174

 

 

 

 

 

 

60,174

 

Balance as of September 30, 2020

 

 

91,914

 

 

$

9

 

 

$

437,207

 

 

$

(45,856

)

 

$

(2,808

)

 

$

388,552

 

 

5


Table of Contents

 

 

 

Nine months ended September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Retained

Earnings

(Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Loss

 

 

Equity

 

Balance as of December 31, 2018

 

 

75,896

 

 

$

8

 

 

$

258,238

 

 

$

(93,161

)

 

$

(2,383

)

 

$

162,702

 

Cumulative effect of adoption of new accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

(3,686

)

 

 

 

 

 

(3,686

)

Issuance of common stock in relation to acquisitions

 

 

267

 

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

2,000

 

Issuance of common stock for stock option exercises

 

 

14

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Repurchase of common stock (Note 11)

 

 

(88

)

 

 

 

 

 

(1,257

)

 

 

(274

)

 

 

 

 

 

(1,531

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,813

 

 

 

 

 

 

 

 

 

2,813

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(756

)

 

 

(756

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,406

)

 

 

 

 

 

(14,406

)

Balance as of September 30, 2019

 

 

76,089

 

 

$

8

 

 

$

261,874

 

 

$

(111,527

)

 

$

(3,139

)

 

$

147,216

 

 

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

6


Table of Contents

 

 

Corsair Gaming, Inc.

Condensed Combined Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

60,174

 

 

$

(14,406

)

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

   Stock-based compensation

 

 

4,286

 

 

 

2,813

 

   Depreciation

 

 

6,706

 

 

 

5,448

 

   Amortization of intangible assets

 

 

25,344

 

 

 

23,551

 

   Debt issuance costs amortization

 

 

1,990

 

 

 

2,281

 

   Loss on debt extinguishment

 

 

3,256

 

 

 

 

   Deferred income taxes

 

 

(6,892

)

 

 

(7,257

)

   Other

 

 

1,070

 

 

 

598

 

   Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

      Accounts receivable

 

 

(58,067

)

 

 

(10,573

)

      Inventories

 

 

(60,886

)

 

 

(13,021

)

      Prepaid expenses and other assets

 

 

(20,431

)

 

 

(3,312

)

      Accounts payable

 

 

92,772

 

 

 

2,065

 

      Other liabilities and accrued expenses

 

 

51,002

 

 

 

12,947

 

         Net cash provided by operating activities

 

 

100,324

 

 

 

1,134

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

   Acquisition of business, net of cash acquired

 

 

(836

)

 

 

(4,846

)

   Payment of deferred consideration

 

 

 

 

 

(10,300

)

   Purchase of property and equipment

 

 

(5,072

)

 

 

(7,003

)

         Net cash used in investing activities

 

 

(5,908

)

 

 

(22,149

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

   Repayment of debt

 

 

(140,394

)

 

 

(2,775

)

   Payment of debt issuance costs

 

 

(194

)

 

 

(150

)

   Repayment of line of credit, net

 

 

 

 

 

8,700

 

   Proceeds from initial public offering and private placement, net of

   underwriting discounts and commissions

 

 

118,575

 

 

 

 

   Payment of other offering costs

 

 

(5,582

)

 

 

(108

)

   Repurchase of common stock

 

 

 

 

 

(569

)

   Proceeds from exercise of stock options

 

 

1,224

 

 

 

80

 

         Net cash provided by (used in) financing activities

 

 

(26,371

)

 

 

5,178

 

Effect of exchange rate changes on cash

 

 

149

 

 

 

46

 

Net increase (decrease) in cash and restricted cash

 

 

68,194

 

 

 

(15,791

)

Cash and restricted cash at the beginning of the period

 

 

51,947

 

 

 

27,920

 

Cash and restricted cash at the end of the period

 

$

120,141

 

 

$

12,129

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

23,397

 

 

$

24,799

 

Cash paid for income taxes

 

 

7,276

 

 

 

372

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

   Equipment purchased and unpaid at period end

 

$

2,331

 

 

$

1,353

 

   Issuance of common stock relating to business acquisitions

 

 

 

 

 

2,000

 

   Deferred purchase consideration (Note 5)

 

 

145

 

 

 

6,003

 

   Measurement period adjustment relating to business acquisitions

 

 

1,834

 

 

 

 

   Forward contract on common stock repurchase

 

 

 

 

 

962

 

   Deferred offering costs included in accounts payable and accrued expenses

 

 

2,710

 

 

 

2,346

 

 

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

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Corsair Gaming, Inc.

Notes to Condensed Combined Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

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

Corsair is organized into two reportable segments:

 

Gamer and creator peripherals. Includes our high-performance gaming keyboards, mice, headsets and controllers, as well as our streaming gear including capture cards, studio accessories, and microphones, among others.

 

 

Gaming components and systems. Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, and DRAM modules, as well as high-end prebuilt and custom-built gaming PCs, among others.

Reorganization

On September 15, 2020, a corporate reorganization (the “Reorganization”) was consummated whereby we now own directly and indirectly all of the operating subsidiaries and assets that were formerly owned by Corsair Group (Cayman), LP (the “Parent”) and Corsair Group (US), LLC, a minority interest holder. The Parent is a limited partnership domiciled in the Cayman Islands. The Parent and Corsair Group (US), LLC are under common control of the affiliates of EagleTree Capital, LP, a private equity investment firm. Prior to the Reorganization, the North American and international operations of Corsair were conducted by certain operating subsidiaries held by separate entities, Corsair Gaming, Inc. and Corsair Holdings (Lux) S.à r.l. (or “Corsair Luxco”), respectively, each of which was substantially owned by and under common control of the Parent.

The Reorganization was comprised of a series of steps as set forth below:

 

The Parent acquired the minority interest held by Corsair Group (US), LLC in exchange for its own units.

 

Corsair Gaming, Inc. acquired all of the outstanding capital stock of Corsair Luxco from the Parent in exchange for its own stock.

 

In order for management and certain other partnership unit holders of the Parent to hold Corsair’s common stock directly, we entered into exchange agreements with such holders to exchange the Parent’s units for shares of Corsair’s common stock on a pro rata basis relative to their holdings in the Parent prior to the Reorganization.

 

The Parent’s 2017 Equity Incentive Program was assumed by Corsair and all of the outstanding options to acquire units under the Parent’s 2017 Equity Incentive Program were converted into options to purchase Corsair’s common stock on a pro rata basis with an adjusted exercise price to reflect the assumption.

 

We implemented a 1-for-28,693.596843964 stock split resulting in there being 84,405,366 shares of Corsair’s common stock outstanding and 10,029,388 options outstanding to purchase Corsair’s common stock as of the date of the Reorganization.

As all legal entities included in the Reorganization are under common control of the Parent, all steps of the Reorganization were accounted for as a combination of entities under common control.

Unless otherwise indicated, the accompanying condensed combined consolidated financial statements and related notes that reference Corsair’s capitalization, including other matters relating to equity, share, and per share information, have been retroactively revised to reflect the Reorganization for all periods presented. Accordingly, references in the footnotes related to transactions entered into by the Parent involving the Parent’s units or options to purchase the Parent’s units have been revised as common share equivalents of Corsair and options to purchase shares of Corsair’s common stock using the ratio of Corsair’s issued and outstanding shares immediately post-Reorganization to the Parent’s issued and outstanding units immediately post-Reorganization but prior to the unit exchanges described above.

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Initial Public Offering

 

On September 25, 2020, we completed our initial public offering (IPO). In connection with the IPO, we sold 7,500,000 shares of common stock at $17.00 per share, resulting in proceeds of $118.6 million, net of the underwriting discounts and commissions and before offering costs. In connection with the IPO, certain stockholders sold 6,500,000 shares of common stock at $17.00 per share. Subsequent to the IPO, certain stockholders further sold 1,135,375 shares pursuant to the underwriters’ exercise of their option to purchase additional shares. We did not receive any of the proceeds from the sale of shares by the selling stockholders.

Deferred offering costs consist primarily of accounting, legal, and other fees related to the IPO. Prior to the IPO, all deferred offering costs were capitalized in other assets in the condensed combined consolidated balance sheets. After the IPO, $11.8 million of deferred offering costs were reclassified into stockholders’ equity as a reduction of the IPO proceeds in the condensed combined consolidated balance sheets. The amount of deferred offering costs capitalized as of December 31, 2019 was $5.8 million.

 

Basis of Presentation

Our interim condensed combined 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 condensed combined consolidated balance sheet as of December 31, 2019, 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 combined consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the final prospectus dated and filed on September 24, 2020 (the “Prospectus”) with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the “Securities Act”).

The interim condensed combined 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 combined consolidated balance sheet as of September 30, 2020 and our  results of operations for the three and nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.

Except as described elsewhere to the condensed combined consolidated financial statements, there have been no material changes to our significant accounting policies as described in Note 2 “Summary of Significant Accounting Policies” in the Notes to the consolidated financial statements in our Prospectus.

 

Principles of Consolidation

The accompanying condensed combined consolidated financial statements include the accounts of Corsair and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed combined 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 combined 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, deferred income tax, and common stock (prior to the IPO completed in September 2020). 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 current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

 

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Risks and Uncertainties related to the COVID-19 Pandemic

Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. Since early 2020, we have experienced some business disruptions due to COVID-19 including the stoppage in our factories in early 2020, disruption in our supply chain and increased distribution costs, which led to increase in operating costs. This negative financial impact has been offset by strong revenue growth year-over-year partly due to an increase in demand for our gear as more people in more countries are under shelter-in-place restrictions. The increase in demand has continued into the third quarter of 2020 and we expect it to continue through the remainder of the year as the COVID-19 pandemic continues. However, as the global economic activity slows down, the demand for our gear could decline despite these trends. The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

As of the date of issuance of these condensed combined consolidated financial statements, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions due to COVID-19 to the carrying value of our assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed combined consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the condensed combined consolidated financial statements.

 

Advertising Costs

Advertising costs are expensed as incurred and are included as a component of sales, general and administrative expense in the condensed combined consolidated statements of operations. Advertising and promotion expenses were $4.1 million and $2.6 million for the three months ended September 30, 2020 and 2019, respectively, and $12.3 million and $7.4 million for nine months ended September 30, 2020 and 2019, respectively.

Nonmonetary Transactions

We have sales and repurchases of inventory with our manufacturers, which are accounted for as nonmonetary transactions. Upon sale of raw materials to the manufacturer, for the inventories on-hand with the manufacturer where there is an anticipated reciprocal purchase by Corsair, we will record prepaid inventories and accrued liabilities as a nonmonetary transaction. When the reciprocal purchase of inventory from the manufacturer is transacted, a payable to the manufacturer at the repurchase price will be recorded, which replaces the initial nonmonetary transaction and inventory will be reflected at carrying value, which includes the costs for the raw materials and the incremental costs charged by the manufacturer for additional work performed on the inventory. As of September 30, 2020, we recognized $2.1 million prepaid inventory and $2.4 million accrued liabilities in the condensed combined consolidated balance sheet for such nonmonetary transactions with our manufacturers.

Because the transactions are nonmonetary, they have not been included in the condensed combined consolidated statements of cash flows pursuant to ASC 230, Statement of Cash Flows.

 

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further updated and clarified by the FASB through issuance of additional related ASUs. ASU 2016-13 replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. We adopted this standard effective January 1, 2020 using a modified retrospective approach. The adoption of this new standard did not have a material impact on our condensed combined consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. The second step measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. We adopted this standard effective January 1, 2020. The adoption of this new standard did not have a material impact on our condensed combined consolidated financial statements.

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In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), to modify certain disclosure requirements on fair value measurements in Topic 820. We adopted this standard effective January 1, 2020. The adoption of this new standard did not have a material impact on our condensed combined consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), and subsequent updates (collectively, referred to as Accounting Standard Codification 842 or Topic 842). Topic 842 requires a lessee to recognize right of use (“ROU”) assets and lease liabilities for a lease with terms longer than 12 months on the consolidated balance sheets and to disclose key information related to the leasing arrangements.

On January 1, 2020, we adopted Topic 842 using the modified retrospective method, applying Topic 842 to all leases existing at the date of initial application. We elected to use the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. We elected the package of transitional practical expedients, which among other provisions, allows us to carry forward prior conclusions about lease identification and classification. In addition, for operating leases, we elected to account for lease and non-lease components as a single lease component. We also made an accounting policy election not to apply the recognition guidance of Topic 842 to record all leases that, at the lease commencement date, have a lease term of 12 months or less on the consolidated balance sheet.

The adoption of Topic 842 had a material impact to our condensed combined consolidated balance sheet but did not have an impact on our condensed combined consolidated statement of operations or cash flows. As a result of adopting Topic 842 as of January 1, 2020, we recognized lease liabilities of $17.9 million and corresponding ROU assets of $17.7 million. See Note 16, Leases, for additional information.

Accounting Pronouncements Issued but Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), to simplify various aspects related to the accounting for income taxes. The new guidance is effective for us beginning in year 2021. We are in the process of evaluating the effects of this new guidance on our condensed combined consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new guidance is effective, at our election, beginning March 12, 2020 through December 31, 2022. Our term loan and revolving line of credit have interest payments that are correlated to a reference rate, and we are currently evaluating the impact of adopting this guidance and the potential effects it could have on our condensed combined consolidated financial statements.

 

 

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.

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The following tables summarize our financial assets and liabilities that were measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

 

 

 

September 30, 2020

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap contract(4)

 

$

 

 

$

45

 

 

$

 

 

$

45

 

Foreign currency forward contracts(4)

 

 

 

 

 

88

 

 

 

 

 

 

88

 

Total assets

 

$

 

 

$

133

 

 

$

 

 

$

133

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration in connection with a

   business acquisition—Origin(1)