UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices and zip code) |
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(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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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, 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.
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Emerging growth company |
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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
As of April 28, 2022, the registrant had
Table of Contents
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Page |
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PART I. |
2 |
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Item 1. |
2 |
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2 |
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3 |
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Condensed Consolidated Balance Sheets - As of March 31, 2022 and December 31, 2021 |
4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
34 |
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Item 4. |
35 |
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PART II. |
36 |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
67 |
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Item 3. |
67 |
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Item 4. |
67 |
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Item 5. |
67 |
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Item 6. |
68 |
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69 |
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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, 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, the COVID-19 pandemic. We believe that these factors include but are not limited to those described under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Corsair Gaming, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales, general and administrative |
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Product development |
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Total operating expenses |
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Operating income (loss) |
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( |
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Other (expense) income: |
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Interest expense |
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( |
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Other expense, net |
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( |
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( |
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Total other expense, net |
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( |
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( |
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Income (loss) before income taxes |
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( |
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Income tax benefit (expense) |
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( |
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Net income (loss) |
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( |
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Less: Net loss attributable to noncontrolling interests |
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( |
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— |
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Net income (loss) attributable to Corsair Gaming, Inc. |
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$ |
( |
) |
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$ |
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Calculation of net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: |
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Net income (loss) attributable to Corsair Gaming, Inc. |
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$ |
( |
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$ |
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Change in redemption value of redeemable noncontrolling interests |
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( |
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— |
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Net income (loss) attributable to common stockholders of Corsair Gaming, Inc. |
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$ |
( |
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$ |
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Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
( |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements
2
Corsair Gaming, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net income (loss) |
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$ |
( |
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$ |
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Other comprehensive gain (loss): |
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Foreign currency translation adjustments, net of tax benefit of $ three months ended March 31, 2022 and 2021, respectively |
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Unrealized foreign exchange loss from long-term intercompany loans, net of tax benefit of $ |
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( |
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( |
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Comprehensive income (loss) |
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( |
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Less: Comprehensive loss attributable to noncontrolling interests |
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( |
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— |
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Comprehensive income (loss) attributable to Corsair Gaming, Inc. |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements
3
Corsair Gaming, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share amounts)
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash, noncurrent |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Current liabilities: |
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Debt maturing within one year |
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$ |
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$ |
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Accounts payable |
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Other liabilities and accrued expenses |
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Total current liabilities |
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Long-term debt |
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Deferred tax liabilities |
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Other liabilities, noncurrent |
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Total liabilities |
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Commitments and Contingencies (Note 9) |
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Temporary equity |
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Redeemable noncontrolling interests |
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— |
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Permanent equity |
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Corsair Gaming, Inc. stockholders’ equity: |
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Preferred stock, $ and outstanding as of March 31, 2022 and December 31, 2021, respectively |
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Common stock, $ shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Total Corsair Gaming, Inc. stockholders’ equity |
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Nonredeemable noncontrolling interests |
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— |
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Total permanent equity |
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Total liabilities, temporary equity and permanent equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements
4
Corsair Gaming, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)
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Three Months Ended March 31, 2022 |
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Common Stock |
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Additional Paid-in |
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Retained |
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Accumulated Other Comprehensive |
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Total Corsair Gaming, Inc. Stockholders’ |
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Nonredeemable Noncontrolling |
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Total Permanent |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Equity |
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Interests |
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Equity |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
— |
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$ |
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Issuance of common stock in relation to business acquisition |
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— |
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— |
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— |
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Noncontrolling interests from business combination |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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( |
) |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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( |
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Change in redemption value of redeemable NCI |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
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Issuance of common stock in connection with employee equity incentive plans |
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— |
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— |
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— |
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— |
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Shares withheld related to net share settlement |
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( |
) |
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— |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2021 |
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Common Stock |
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Additional Paid-in |
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Retained Earnings (Accumulated |
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Accumulated Other Comprehensive |
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Total Corsair Gaming, Inc. Stockholders’ |
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Nonredeemable Noncontrolling |
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Total Permanent |
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Shares |
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Amount |
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Capital |
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Deficit) |
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Income (Loss) |
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Equity |
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Interests |
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Equity |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
— |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
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Issuance of common stock in connection with employee equity incentive plans |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements
5
Corsair Gaming, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Stock-based compensation |
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Depreciation |
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Amortization of intangible assets |
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Debt issuance costs amortization |
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Loss on debt extinguishment |
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— |
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Deferred income taxes |
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( |
) |
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( |
) |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
) |
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Inventories |
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( |
) |
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( |
) |
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Prepaid expenses and other assets |
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( |
) |
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( |
) |
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Accounts payable |
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( |
) |
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( |
) |
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Other liabilities and accrued expenses |
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( |
) |
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Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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|
|
|
Acquisition of business, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
|
Payment of deferred contingent consideration |
|
|
— |
|
|
|
( |
) |
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Repayment of debt |
|
|
( |
) |
|
|
( |
) |
|
Borrowing from line of credit |
|
|
|
|
|
|
— |
|
|
Repayment of line of credit |
|
|
( |
) |
|
|
— |
|
|
Payment of contingent consideration |
|
|
( |
) |
|
|
— |
|
|
Proceeds from issuance of shares through employee equity incentive plans |
|
|
|
|
|
|
|
|
|
Payment of taxes related to net share settlement of equity awards |
|
|
( |
) |
|
|
— |
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash |
|
|
( |
) |
|
|
|
|
|
Net decrease 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 |
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
Deferred and contingent purchase consideration related to business acquisitions |
|
|
— |
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6
Corsair Gaming, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Description of Business
Corsair Gaming, Inc., a Delaware corporation, together with its subsidiaries (collectively, “Corsair” the “Company”, “we”, “us”, or “our”), is a global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components.
Corsair is organized into
|
|
• |
Gamer and creator peripherals. Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, as well as coaching and training services, among others. |
|
|
• |
Gaming components and systems. Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs, and gaming monitor, among others. |
2. Summary of Significant Accounting Policies
Basis of Presentation
Our interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accounting policies we follow are set forth in Part II, Item 8, Note 2, Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10K for the year ended December 31, 2021 which was filed with the SEC on March 1, 2022.
The condensed consolidated balance sheet as of December 31, 2021, 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, 2021, 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 March 31, 2022 and our results of operations for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Corsair and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For consolidated entities where we own less than 100% of the equity, our consolidated net comprehensive income (loss) is reduced by the portion attributable to the noncontrolling interests.
In determining whether an entity is considered a controlled entity, we apply the VIE (Variable Interest Entity) and VOE (voting interest entity) models. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, we consolidate the entity if we determine that we have a controlling financial interest in the entity through our ownership of greater than 50% of the outstanding voting shares of the entity and that other equity holders do not have substantive voting, participating or liquidation rights.
On January 1, 2022 (the “Closing” or “Closing Date”), we completed the acquisition of a
7
interest in iDisplay under the VOE model and therefore, iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022. As a result, we recorded a net loss of $
Noncontrolling Interests
We have included both redeemable noncontrolling interests and noncontrolling interests in our condensed consolidated balance sheet in connection with our consolidation of the
Redeemable noncontrolling interests that are redeemable and not solely within our control are classified within temporary equity in the condensed consolidated balance sheets. Redeemable noncontrolling interests are measured at the greater of the redemption value (calculated based on the formula stipulated in the Shareholders Agreement between the iDisplay seller and Corsair and, including the amounts for dividends not currently declared or paid, for which the payment is not solely within our control), or the carrying value before giving effect to the redemption feature. The redeemable noncontrolling interests are recorded at their maximum redemption value at each reporting date. The redemption value is remeasured each quarter and changes in the value are recognized immediately. Any resulting change in the value of the redeemable noncontrolling interests is recognized through retained earnings and this adjustment also impacts the net income or loss attributable to common stockholders of Corsair Gaming, Inc used in the net income (loss) per share calculation. (See Note 16 for more information regarding the redeemable noncontrolling interests).
In addition, we have noncontrolling interests recorded at carrying value which do not have redemption features and are classified within permanent equity in our condensed consolidated balance sheet.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the valuation of intangible assets, accounts receivable, sales return reserves, reserves for customer incentives, warranty reserves, inventory, derivative instruments, stock-based compensation, and deferred income tax. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19.
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 an increase in demand for our gear as more people were under shelter-in-place restrictions, which we believe have limited people’s access to alternative forms of entertainment and social interaction, and thus have increased the demand for home entertainment and connecting with others through content creation. In contrast, as the COVID-19 pandemic subsides, it has resulted in shelter-in-place and other similar restrictions being eased. Such easing of restrictions has resulted in consumers returning to other alternative forms of entertainment and interaction. This in turn has resulted in a decline in demand for our products since the second half of 2021. The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the severity, duration and spread of the outbreak, how quickly and to what extent normal economic and operating conditions can resume, and the actions to contain the virus and prevent any reoccurrence. For example, China's zero-COVID policy has negative implications for global supply chains generally; factory shutdowns and transport backlogs may result in inventory shortfalls for our products, which could negatively impact our sales. 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 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 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 consolidated financial statements.
8
Recently Adopted Accounting Pronouncements
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. We adopted this standard effective
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acq