Table of Contents
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) |
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(Registrant’s Telephone Number, Including Area Code) |
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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 |
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Trading Symbol(s) |
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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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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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 ☐ No
As of October 25, 2023, the registrant had
Table of Contents
Table of Contents
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PART I. |
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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 September 30, 2023 and December 31, 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
33 |
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Item 4. |
34 |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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37 |
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i
Table of Contents
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) that reflect our current views with respect to, among other things, our operations and financial performance. These forward-looking statements are included throughout this Quarterly Report and relate to matters such as our industry and the markets we operate in, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “foreseeable,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “will” and similar terms and phrases to identify the forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on management’s current expectations and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, including, for example, general economic conditions and supply chain issues. We believe that these factors include but are not limited to those described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.
1
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Corsair Gaming, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Net revenue |
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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 loss |
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Other (expense) income: |
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Interest expense, net |
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Other (expense) income, net |
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Total other expense, net |
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Loss before income taxes |
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( |
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( |
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( |
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Income tax benefit |
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Net loss |
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( |
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( |
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( |
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Less: Net income attributable to noncontrolling interest |
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Net loss attributable to Corsair Gaming, Inc. |
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( |
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$ |
( |
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$ |
( |
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$ |
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Calculation of net loss per share attributable to common stockholders of Corsair Gaming, Inc.: |
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Net loss attributable to Corsair Gaming, Inc. |
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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 noncontrolling interest |
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— |
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( |
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( |
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Net loss attributable to common stockholders of Corsair Gaming, Inc. |
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$ |
( |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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Net 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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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
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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
Table of Contents
Corsair Gaming, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
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Three Months Ended |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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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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Other comprehensive gain (loss): |
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Foreign currency translation adjustments, net of tax benefit of $ |
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( |
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( |
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( |
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Unrealized foreign exchange loss from long-term intercompany loans, net of tax (expense) benefit of and $ |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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( |
) |
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( |
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( |
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( |
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Less: Comprehensive income (loss) attributable to noncontrolling interest |
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( |
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( |
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( |
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Comprehensive loss attributable to Corsair Gaming, Inc. |
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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
3
Table of Contents
Corsair Gaming, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share amounts)
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September 30, |
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December 31, |
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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, net |
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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, net |
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Deferred tax liabilities |
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Other liabilities, noncurrent |
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Total liabilities |
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Temporary equity |
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Redeemable noncontrolling interest |
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Permanent equity |
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Corsair Gaming, Inc. stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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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 interest |
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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
Table of Contents
Corsair Gaming, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)
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Three Months Ended September 30, 2023 |
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Common Stock |
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Additional |
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Retained |
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Accumulated Other |
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Total Corsair Gaming, Inc. |
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Nonredeemable |
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Total |
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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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Interest |
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Equity |
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Balance as of June 30, 2023 |
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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 (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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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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Dividend paid to nonredeemable noncontrolling interest |
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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 September 30, 2023 |
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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 September 30, 2022 |
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Common Stock |
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Additional |
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Retained |
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Accumulated Other |
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Total Corsair Gaming, Inc. |
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Nonredeemable |
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Total |
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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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Interest |
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Equity |
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||||||||
Balance as of June 30, 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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Net income (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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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 noncontrolling interest |
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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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( |
) |
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 September 30, 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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5
Table of Contents
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Nine Months Ended September 30, 2023 |
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Common Stock |
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Additional |
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Retained |
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Accumulated Other |
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Total Corsair Gaming, Inc. |
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Nonredeemable |
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Total |
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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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Interest |
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Equity |
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Balance as of December 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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|||||||
Net income (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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Other comprehensive income (loss) |
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— |
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— |
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— |
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|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
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 September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||||||
|
|
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, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||||
Issuance of common stock in relation to business acquisition |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Noncontrolling interest from business combination |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
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 September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
6
Table of Contents
Corsair Gaming, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash 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 provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Acquisition of business, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Payment of deferred consideration |
|
|
— |
|
|
|
( |
) |
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Investment in available-for-sale convertible note |
|
|
— |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repayment of debt and debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Borrowing from line of credit |
|
|
— |
|
|
|
|
|
Repayment of line of credit |
|
|
— |
|
|
|
( |
) |
Payment of other offering costs |
|
|
( |
) |
|
|
— |
|
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 |
|
|
( |
) |
|
|
( |
) |
Dividends paid to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
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, 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 |
|
|
|
|
|
|
||
Issuance of common stock relating to business acquisition |
|
|
— |
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
7
Table of Contents
Corsair Gaming, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Corsair Gaming, Inc., a Delaware corporation, together with its subsidiaries (collectively, “Corsair” the “Company”, “we”, “us”, or “our”), is a global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components.
Corsair is organized into
2. Summary of Significant Accounting Policies
Basis of Presentation
Our interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accounting policies we follow are set forth in Part II, Item 8, Note 2, “Significant Accounting Policies”, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10K for the year ended December 31, 2022 which was filed with the SEC on February 27, 2023.
The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed, combined or omitted pursuant to such rules and regulations. Therefore, these interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K.
The interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of our condensed consolidated balance sheet as of September 30, 2023 and our results of operations for the three and nine months ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the current fiscal year or any other future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Corsair and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For consolidated entities where we own less than 100% of the equity, our consolidated net comprehensive income (loss) is reduced by the portion attributable to the noncontrolling interest.
In determining whether an entity is considered a controlled entity, we apply the VIE (Variable Interest Entity) and VOE (voting interest entity) models. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, we consolidate the entity if we determine that we have a controlling financial interest in the entity through our ownership of greater than 50% of the outstanding voting shares of the entity and that other equity holders do not have substantive voting, participating or liquidation rights.
On January 1, 2022 (the “Closing” or “Closing Date”), we completed the acquisition of a
8
Table of Contents
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the valuation of intangible assets, accounts receivable, sales return reserves, reserves for customer incentives, warranty reserves, inventory, derivative instruments, stock-based compensation, and deferred income tax. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the potential impacts from the events in the current economic environment as well as the potential impacts from geopolitical events. We adjust such estimates and assumptions when facts and circumstances dictate. The extent to which the current macroeconomic factors 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
None.
3. Fair Value Measurement
U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into the following three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the measurement date.
Level 2—Pricing inputs are other than quoted prices in active market, which are either directly or indirectly observable as of the report date. The nature of these securities includes investments for which quoted prices are available but traded less frequently and investments that are fair valued using other securities, the parameters of which can be directly observed.
Level 3—Securities that have little to no pricing observability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation.
Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed at fair value in our condensed consolidated financial statements on a recurring basis. Our financial instruments, including cash, restricted cash, accounts receivable, accounts payable, borrowings from credit lines and other liabilities and accrued expenses approximate fair value due to their short-term maturities.
|
|
September 30, 2023 |
|
|||||||||||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts(1) |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts(1) |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
December 31, 2022 (3) |
|
|||||||||||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred cash consideration in connection with a business acquisition—SCUF(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Foreign currency forward contracts(1) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
9
Table of Contents
4. Derivative Financial Instruments
From time to time, we enter into derivative instruments such as foreign currency forward contracts, to minimize the short-term impact of foreign currency exchange rate fluctuations on certain foreign currency denominated assets and liabilities, and interest rate cap contracts, to minimize our exposure to interest rate movements on our variable rate debts. The derivative instruments are recorded at fair value in prepaid expenses and other current assets or other liabilities and accrued expenses on the condensed consolidated balance sheets. We do not designate such instruments as hedges for accounting purposes; accordingly, changes in the value of these contracts are recognized in each reporting period in other (expense) income, net in the condensed consolidated statements of operations. We do
The foreign currency forward contracts generally mature within to
5. Business Combinations
iDisplay Acquisition
On January 1, 2022, we completed the acquisition of a
The fair value consideration for iDisplay was $
The acquisition-related costs are included in sales, general and administrative expenses in our condensed consolidated statements of operations and the amounts incurred in the three and nine months ended September 30, 2022 were
The seller of iDisplay (the “iDisplay Seller”) has retained a
The fair value of the
10
Table of Contents
Subsequent to the iDisplay Acquisition Closing Date, we recorded measurement period adjustments which increased goodwill by $
|
|
Amounts |
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaid and other assets |
|
|
|
|
Operating lease right-of-use asset |
|
|
|
|
Property and equipment |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Goodwill |
|
|
|
|
Total assets acquired |
|
|
|
|
Accounts payable |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
Accrued liabilities |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
Total liabilities assumed |
|
|
( |
) |
Net assets acquired |
|
|
|
|
Noncontrolling interest |
|
|
( |
) |
Fair value of consideration transferred |
|
$ |
|
|
|
|
|
|
|
Purchase consideration: |
|
|
|
|
Cash |
|
$ |
|
|
Corsair common stock |
|
|
|
|
Fair value of consideration transferred |
|
$ |
|
|
The fair value of certain working capital related items, including accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, as well as the fair value of property and equipment approximated their book values at the date of the iDisplay Acquisition. The fair value of the inventories was estimated by major category, at net realizable value, which we believe approximates the price a market participant could achieve in a current sale. The difference between the fair value of the inventories and the book value recorded by iDisplay on the acquisition date was
The goodwill recognized for the iDisplay Acquisition, which is the excess of the purchase consideration over the fair value of the identifiable intangible assets and the net tangible assets and liabilities acquired, has been estimated to be $
A portion of the identifiable intangible assets are not deductible for tax purposes for which a $
Valuation of identified intangible assets
The following table summarizes the valuation of the identifiable intangible assets acquired in the iDisplay Acquisition and the estimate of their respective useful lives as of the Closing Date, including subsequent measurement period adjustments:
|
|
Valuation |
|
|
Useful |
|
||
|
|
(In thousands) |
|
|
(In years) |
|
||
|
|
|
|
|
|
|
||
Patent portfolio |
|
$ |
|
|
|
|
||
Supplier relationships |
|
|
|
|
|
|
||
Developed technology |
|
|
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
||
The fair value of patent portfolio was estimated using the relief from royalty approach and the economic useful life was determined based on the average product life cycle of the products manufactured by iDisplay. The supplier relationships intangible asset represents the value assigned to the relationship iDisplay had established over the years with a broad network of suppliers and
11
Table of Contents
OEMs that have been crucial to the quality and magnitude of iDisplay manufacturing capability. The fair value of supplier relationships was estimated using the multi-period excess earnings approach and the economic useful life was determined to be aligned with the estimated useful life of the developed technology acquired from iDisplay. The developed technology intangible asset represents unpatented propriety technologies, such as hardware designs and architectures and process technologies used in the on-going research and design of the products manufactured by iDisplay. The fair value of developed technology was estimated using the income approach and the economic useful life was based on the technology cycle of the products manufactured, as well as the cash flows anticipated over the forecasted periods. The valuations of the intangible assets were calculated with the assistance of a third-party valuation firm. The fair values of these intangibles were valued based on long-term cash flow projections, which we consider to be Level 3 inputs.
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 $
The Drop Acquisition was accounted for as a business combination under the acquisition method of accounting. The fair values assigned to assets acquired and liabilities assumed are based on management's best estimates and assumptions. Our purchase accounting is preliminary as of the date of this Quarterly Report on Form 10-Q, pending finalization of the purchase consideration which is subject to working capital settlement expected to be finalized in the fourth quarter of 2023, and the related completeness of certain assumed liabilities. We expect to finalize the purchase accounting as soon as practicable, but not later than one year from the acquisition date, and do not expect material purchase accounting adjustments in future periods. Drop’s results of operations are included in our condensed consolidated statements of operations with effect from July 14, 2023.
The following table summarizes the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed at the Acquisition Date (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 Drop inventories and the book value recorded on the Acquisition Date was $
The goodwill of $
The $
12
Table of Contents
Unaudited Pro Forma Financial Information
Pro forma financial information is not included because the effects of the Drop Acquisition were not material to our condensed consolidated statements of operations for the periods presented.
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, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Addition from business acquisition |
|
|
— |
|
|
|
|
|
|
|
||
Effect of foreign currency exchange rates |
|
|
( |
) |
|
|
|
|
|
|
||
Balance as of September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Intangible assets, net
The following table is a summary of intangible assets, net (in thousands):
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Developed technology |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patent portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Supplier relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total finite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Indefinite life trade name |
|
|
35,430 |
|
|
|
— |
|
|
|
|
|
|
35,430 |
|
|
|
— |
|
|
|
|
||
Other |
|
|
16 |
|
|
|
— |
|
|
|
|
|
|
89 |
|
|
|
— |
|
|
|
|
||
Total intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
In the year after an identified intangible asset becomes fully amortized, we remove the fully amortized balances from the gross asset and accumulated amortization amounts from the table above.
The estimated future amortization expense of intangible assets as of September 30, 2023 is as follows (in thousands):
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
13
Table of Contents
7. Balance Sheet Components
The following tables present the components of certain balance sheet amounts (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Restricted cash—short term |
|
|
|
|
|
|
||
Restricted cash—noncurrent |
|
|
|
|
|
|
||
Total cash and restricted cash |
|
$ |
|
|
$ |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Due from Factor |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
On September 29, 2022, one of our fully consolidated subsidiaries entered into an accounts receivable factoring agreement (“Factoring Agreement”) with a third-party financial institution (“Factor”). Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. Proceeds from factoring the accounts receivable are due upon collection of payments from the customers, but upon our request, the Factor may, at their sole discretion, remit a portion of the proceeds to us prior to their collection of payments from the customers. Our obligations to the Factor arising from the Factoring Agreement are secured by certain assets of our subsidiary. In the three and nine months ended September 30, 2023, we sold receivables of $
Besides the Factor,
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
|
|
September 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 |
|
$ |
|
|
$ |
|
||
14
Table of Contents
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Deferred tax asset |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other assets |
|
$ |
|
|
$ |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accrued reserves for customer incentive programs |
|
$ |
|
|
$ |
|
||
Accrued reserves for sales return |
|
|
|
|
|
|
||
Accrued payroll and related expense |
|
|
|
|
|
|
||
Operating lease liabilities, current |
|
|
|
|
|
|
||
Income tax payable |
|
|
|
|
|
|
||
Sales tax and value added tax payable |
|
|
|
|
|
|
||
Accrued freight expenses |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Other liabilities and accrued expenses |
|
$ |
|
|
$ |
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Operating lease liabilities, noncurrent |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Other liabilities, noncurrent |
|
$ |
|
|
$ |
|
||
8. Debt
Our debt consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Term Loan (variable rate) due |
|
$ |
|
|
$ |
|
||
Debt discount and issuance cost, net of amortization |
|
|
( |
) |
|
|
( |
) |
Total debt, net |
|
|
|
|
|
|
||
Less: debt maturing within one year, net |
|
|
|
|
|
|
||
Long-term debt, net |
|
$ |
|
|
$ |
|
||
Credit Agreement
On September 3, 2021, we entered into a new Credit Agreement (as amended, the “Credit Agreement”) which provides for a $
The Term Loan and Revolving Facility under the Credit Agreement initially carried interest at the Company’s election at either (a) LIBOR plus a percentage spread (ranging from
The Credit Agreement contains covenants with which we must comply during the term of the agreement, which we believe are ordinary and standard for agreements of this nature. The financial covenants include the maintenance of a maximum Consolidated
15
Table of Contents
Total Net Leverage Ratio of
Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.
On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”), which among other changes resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR. Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at the Company’s election at either (a) BSBY plus a percentage spread (ranging from
On September 29, 2022, we entered into an accounts receivable Factoring Agreement with a Factor. See Note 7 “Balance Sheet Components – Accounts Receivable, Net” for additional information on the Factoring Agreement. In connection with the Factoring Agreement, we also entered into (i) a Second Amendment (“Second Amendment”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral.
On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement that provides for, among other things, (i) a decrease in the required minimum Consolidated Interest Coverage Ratio to
The First, Second and Third Amendment were accounted for as debt modifications.
As of September 30, 2023, we were not in default under the Credit Agreement.
As of September 30, 2023 and December 31, 2022, we had $
As of September 30, 2023 and December 31, 2022, the carrying value of our Term Loan was $
The effective interest rate inclusive of the debt discount and debt issuance costs was approximately
16
Table of Contents
The following table summarizes the interest expense, net recognized for all periods presented (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contractual interest expense for Term Loan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contractual interest expense for Revolving Facility |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Amortization of debt discount and issuance cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Total interest expense, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The estimated future principal payments under our total long-term debt as of September 30, 2023 are as follows (in thousands):
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total future principal payments |
|
$ |
|
|
9. Commitments and Contingencies
Product Warranties
Changes in our warranty obligations were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 our enterprise resource planning (ERP) system and the related support services as well as marketing sponsorships.
|
|
Amounts |
|
|
|
|
|
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
2027 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total |
|
$ |
|
|
Our total long term non-cancelable purchase commitments outstanding as of December 31, 2022 were $
Letters of Credit
There were
17
Table of Contents
Legal Proceedings
We may from time to time be involved in various claims and legal proceedings of a character normally incident to the ordinary course of business. Litigation can be expensive and disruptive to normal business operations, and the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred and we record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information, we believe there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position, or the outcome of these matters is currently not determinable. An unfavorable outcome to any legal matter, if material, could have an adverse effect on our operations or financial position, liquidity of results of operations.
Indemnification
In the ordinary course of business, we may provide indemnifications of varying scope and terms with respect to certain transactions. We have entered into indemnification agreements with directors and certain officers and employees that will require Corsair, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon Corsair to provide indemnification under such agreements, and thus, there are
10. Stockholders’ Equity
On September 25, 2020, in connection with the closing of the IPO, we filed an Amended and Restated Certificate of Incorporation which increased the authorized shares of common stock for issuance to
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 $
In November 2022, we sold
11. Equity Incentive Plans and Stock-Based Compensation
As of September 30, 2023, we have two active equity incentive plans: the 2020 Equity Incentive Plan and the Employee Stock Purchase Plan (“ESPP”).
The following table summarizes stock-based compensation expense by line item in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense, net of amounts capitalized (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Income tax benefits related to stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18
Table of Contents
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):
|
|
September 30, 2023 |
||||
|
|
Unrecognized Expense |
|
|
Remaining weighted average period (In years) |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
|
|
||
Restricted stock units |
|
|
|
|
||
ESPP |
|
|
|
|
||
Total unrecognized stock-based compensation expense |
|
$ |
|
|
|
|
The total intrinsic value of options exercised was $
12. Net Income (Loss) Per Share
The following table summarizes the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 loss attributable to common stockholders of Corsair Gaming, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders of Corsair Gaming, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive potential common shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
13. Income Taxes
The table below presents our loss before income taxes, income tax benefit and effective income tax rates for all periods presented (in thousands, except percentages):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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,
19
Table of Contents
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 $
14. Segment and Geographic Information
We have
The segments are defined as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. Our CODM is determined to be Corsair’s Chief Executive Officer. The results of the reportable segments are derived directly from our reporting system and are based on the methods of internal reporting which are not necessarily in conformity with GAAP. Management measures net revenue and gross profit to evaluate the performance of, and allocate resources to, each of the segments.
The table below summarizes the financial information for each reportable segment (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe and Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues from sales to customers in the United States represented
20
Table of Contents
15. Redeemable Noncontrolling Interest
Under the Shareholders Agreement between Corsair and the iDisplay Seller a put option was provided to the iDisplay Seller to transfer to Corsair (i)
The exercise price of the put option is based on multiples of iDisplay’s historical TTM EBITDA less any debt. The put option makes this portion of the noncontrolling interest redeemable and therefore, the RNCI is classified as temporary equity on our consolidated balance sheets and carried at the greater of the initial carrying amount, increased or decreased, for the RNCI share of comprehensive income (loss), contributions and distributions, or the redemption value. The change in redemption value is recognized through retained earnings.
The following table presents the changes in RNCI for the periods presented (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Initial carrying amount estimated at iDisplay's Closing Date |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Share of net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share of other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Dividend paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in redemption value (1) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Balance at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
21
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q as well as in conjunction with the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States Securities and Exchange Commission (“SEC”) on February 27, 2023. The following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
We are a leading global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components. Our industry-leading gaming gear helps digital athletes, from casual gamers to committed professionals, perform at their peak across PC or console platforms, and our streaming gear enables streamers and content creators to produce studio-quality content to share with friends or to broadcast to millions of fans. Our PC components products offer our customers multiple options to build their customized gaming and workstation desktop PCs. Our solution is the most complete suite of gear among our major competitors and addresses the most critical components for both game performance and streaming. Our product offering is enhanced by our two proprietary software platforms: iCUE for gamers and the Elgato streaming suite for content creators, including our Stream Deck control software, which provide unified, intuitive performance, and aesthetic control and customization across their respective product families. We also offer digital services to enhance the customer experience by integrating esports, stream deck marketplace, customer care and extended warranty into our product offerings.
We group our products into two categories (operating segments):
We are committed to continuing to grow in our current markets as well as new markets through the development of innovative technologies and by entering into new categories through organic growth or acquisition. In 2022 and 2021, we entered into four new markets, namely the microphones and cameras markets for content creators, the gaming monitors market and prebuilt gaming laptops market for both gamers and content creators. We continue to expand our product portfolio, launching 81 new products in the first nine months of 2023, including our new FLEX OLED bendable monitor, engineered in partnership with LG, and new products in our Stream Deck product family, which further enhances the speed and workflows in streaming and content creation. In addition, with lower priced GPUs coming to market and new game titles being released this year, we believe that the gaming market will continue to grow.
In July 2023, we completed the Drop Acquisition where we acquired Drop's assets and business, including the assumption of trade payables and certain accrued liabilities for a cash purchase consideration of approximately $14.2 million, net of $0.6 million of cash acquired. Drop, a community-based e-commerce company headquartered in San Francisco, California, specializes 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 peripheral space as well as allow us to offer specialized Corsair and Elgato products to the enthusiast community that Drop is engaged with. Drop's operating results are included in our gamer and creator peripherals segment with effect from July 14, 2023.
Summary of Financial Results
Our net revenue for the three and nine months ended September 30, 2023 increased by 16.5% and 6.8%, respectively, as compared to the same periods last year, primarily driven by an increase in sales in our gaming components and systems segment, but partially offset by a decrease in sales in our gamer and peripherals segment.
Our gross margin increased from 23.0% to 24.6% for the three months ended September 30, 2023, as compared to the same period last year, and increased from 20.4% to 24.7% for the nine months ended September 30, 2023, as compared to the same period last year.
22
Table of Contents
As of September 30, 2023, we had cash and restricted cash, in the aggregate of $147.8 million and the principal balance outstanding of the Term Loan was $223.8 million. Cash provided by operations was $32.1 million and $45.1 million in the nine months ended September 30, 2023 and 2022, respectively.
Key Factors Affecting Our Business
Our results of operations and financial condition are affected by numerous factors, including those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and those described below.
Impact of Macroeconomic Conditions
Our business and financial performance are significantly impacted by worldwide economic conditions. Global macroeconomic challenges, such as the effects of the ongoing war between Russia and Ukraine, supply chain constraints, market uncertainty, and the risk of a recession, volatility in exchange rates, inflationary trends, lingering impacts from the COVID-19 pandemic and evolving dynamics in the global trade environment, have impacted our business and financial performance. Throughout 2022, these conditions adversely impacted our net revenue and resulted in higher cost of sales due to increased shipping and production costs. Such conditions also resulted in excess inventory in our distribution channels that led to our recognizing higher inventory impairment related charges in 2022 in order to rationalize our inventory levels to align with the reduced revenue in the period. These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics in our markets and have had significant impacts on our financial results.
The extent of the impact of macroeconomic conditions, geopolitical tensions and the lingering effects from the COVID-19 pandemic on our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are not within our control and are highly uncertain and cannot be predicted. We will continue to evaluate these risks and uncertainties and further our mitigation plans.
Impact of fluctuations in Currency Exchange Rate
We are exposed to fluctuations in foreign currency exchange rates. Some of our international sales are denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries may negatively impact our revenue. For example, our net revenue for the year ended December 31, 2022 was in part negatively impacted by the strengthening of the U.S. dollar against the Euro and the British Pound. In addition, we generally pay our employees located outside the United States in the local currency, with a significant portion of those payments being made in Taiwan dollars and Euros. As a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies, in particular the Euro, British Pound, Chinese Yuan and New Taiwan Dollar.
Impact of Industry Trends
Our results of operations and financial condition are impacted by industry trends in the gaming market, including:
23
Table of Contents
Impact of Product Mix
Our gamer and creator peripherals segment has a higher gross margin than our gaming components and systems segment. As a result, our overall gross margin is affected by changes in product mix. External factors can have an impact on our product mix, such as popular game releases that can increase sales of peripherals and availability of new CPUs and GPUs that can impact component sales. In addition, within our gamer and creator peripherals and gaming components and systems segments, gross margin varies between products, and significant shifts in product mix within either segment may also significantly impact our overall gross margin.
Impact of Customer Concentration
We operate a global sales network that consists primarily of retailers (including e-retailers), as well as distributors we use to access certain retailers. Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with e-retailer Amazon accounting for 29.2% and 26.3% of our net revenue for the nine months ended September 30, 2023 and 2022, respectively, and sales to our ten largest customers accounting for approximately 54.9% and 52.0% of our net revenue for the nine months ended September 30, 2023 and 2022, respectively. Our customers, including Amazon, typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us. As a result of this concentration and the lack of long-term agreements with our customers, a primary driver of our net revenue and operating performance is maintaining good relationships with these retailers and distributors. To help maintain good relationships, we implement initiatives such as our updated packaging design which helps e-retailers such as Amazon process our packages more efficiently. Further, given our global operations, a significant percentage of our expenses relate to shipping costs. Our ability to effectively optimize these shipping expenses, for example utilizing expensive shipping options such as air freight for smaller packages and more urgent deliveries and more cost-efficient options, such as train or boat, for other shipments, has an impact on our expenses and results of operations.
Impact of New Product Introductions
Gamers demand new technology and product features, and we expect our ability to accurately anticipate and meet these demands will be one of the main drivers for any future sales growth and market share expansion. While we intend to continue to develop and release new products, there can be no assurance that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over those of our competitors.
Impact of Seasonal Sales Trends
We have experienced and expect to continue to experience seasonal fluctuations in sales due to the buying patterns of our customers and spending patterns of gamers. Our net revenue has generally been lower in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, GPUs, and other computer hardware products, which usually take place in the second calendar quarter, and which tend to drive sales in the following two quarters. Further, our net revenue tends to be higher in the third and fourth calendar quarters due to seasonal sales such as “Black Friday” and “Cyber Monday”, as well as “Singles Day” in China, as retailers tend to make purchases in advance of these sales. Our sales also tend to be higher in the fourth quarter due to the introduction of new consoles and high-profile games in connection with the holiday season. As a consequence of seasonality, our net revenue for the second calendar quarter is generally the lowest of the year followed by the first calendar quarter.
Impact of Fluctuations in Integrated Circuits Pricing
Integrated circuits, or ICs, account for most of the cost of producing our high-performance memory products. IC prices are subject to pricing fluctuations which can affect the average sales prices of memory modules, and thus impact our net revenue, and can have an effect on gross margins. The impact on net revenues can be significant as our high-performance memory products, included within our gaming components and systems segment, represent a significant portion of our net revenue.
Components of our Operating Results
Net Revenue
We generate materially all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers, including online retailers, gamers and distributors worldwide. Our revenue is recognized net of allowances for returns, discounts, sales incentives and any taxes collected from customers.
24
Table of Contents
Cost of Revenue
Cost of revenue consists of product costs, including costs of contract manufacturers, inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments, cost of materials and overhead, duties and tariffs, warranty replacement cost to process and rework returned items, depreciation of tooling equipment, warehousing costs, inventory write-downs and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.
Operating Expenses
Operating expenses consist of sales, general and administrative expenses and product development expenses.
Sales, general and administrative. Sales, general and administrative, or SG&A, expenses represent the largest component of our operating expenses and consist of distribution costs, sales, marketing and other general and administrative costs. Distribution costs include outbound freight and the costs to operate our distribution hubs. Sales and marketing costs relate to the costs to operate our global sales force that works in conjunction with our channel partners, gaming team and event sponsorships, advertising and marketing promotions of our products and services, costs of maintaining our web store and credit card processing fees related to sales on our webstore, personnel-related cost and allocated overhead costs. General and administrative costs consist primarily of personnel-related expenses for our finance, legal, human resources, IT and administrative personnel, as well as the costs of professional services related to these functions and allocated overhead costs.
Product development. Product development costs are generally expensed as incurred. Product development costs consist primarily of the costs associated with the design and testing of new products and improvements to existing products. These costs relate primarily to compensation of personnel and consultants involved with product design, definition, compatibility testing and qualification, as well as depreciation costs of equipment used, prototype material costs and allocated overhead costs.
Interest Expense, Net
Interest expense, net consists of interest associated with our debt financing arrangements, including our revolving line of credit, and amortization of debt issuance costs and debt discounts. Interest income earned on our cash and restricted cash balance is included within interest expense, net as an offset to interest expense.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in foreign currencies, and net fair value gains and losses from our foreign currency forward contracts.
Income Tax Benefit
We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of foreign tax credits and changes in tax laws. Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the tax and financial reporting bases of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest represents the share of the net income of iDisplay attributable to the 49% ownership interest of iDisplay we did not acquire.
25
Table of Contents
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
363,193 |
|
|
$ |
311,769 |
|
|
$ |
1,042,589 |
|
|
$ |
976,368 |
|
Cost of revenue |
|
|
273,840 |
|
|
|
240,209 |
|
|
|
785,000 |
|
|
|
777,593 |
|
Gross profit |
|
|
89,353 |
|
|
|
71,560 |
|
|
|
257,589 |
|
|
|
198,775 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, general and administrative |
|
|
74,000 |
|
|
|
66,932 |
|
|
|
211,482 |
|
|
|
216,456 |
|
Product development |
|
|
16,111 |
|
|
|
15,616 |
|
|
|
48,542 |
|
|
|
50,752 |
|
Total operating expenses |
|
|
90,111 |
|
|
|
82,548 |
|
|
|
260,024 |
|
|
|
267,208 |
|
Operating loss |
|
|
(758 |
) |
|
|
(10,988 |
) |
|
|
(2,435 |
) |
|
|
(68,433 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
(2,529 |
) |
|
|
(2,734 |
) |
|
|
(7,875 |
) |
|
|
(5,689 |
) |
Other (expense) income, net |
|
|
304 |
|
|
|
1,662 |
|
|
|
(1,326 |
) |
|
|
1,796 |
|
Total other expense, net |
|
|
(2,225 |
) |
|
|
(1,072 |
) |
|
|
(9,201 |
) |
|
|
(3,893 |
) |
Loss before income taxes |
|
|
(2,983 |
) |
|
|
(12,060 |
) |
|
|
(11,636 |
) |
|
|
(72,326 |
) |
Income tax benefit |
|
|
97 |
|
|
|
6,115 |
|
|
|
3,023 |
|
|
|
11,262 |
|
Net loss |
|
|
(2,886 |
) |
|
|
(5,945 |
) |
|
|
(8,613 |
) |
|
|
(61,064 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
193 |
|
|
|
266 |
|
|
|
958 |
|
|
|
33 |
|
Net loss attributable to Corsair Gaming, Inc. |
|
$ |
(3,079 |
) |
|
$ |
(6,211 |
) |
|
$ |
(9,571 |
) |
|
$ |
(61,097 |
) |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
75.4 |
|
|
|
77.0 |
|
|
|
75.3 |
|
|
|
79.6 |
|
Gross profit |
|
|
24.6 |
|
|
|
23.0 |
|
|
|
24.7 |
|
|
|
20.4 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, general and administrative |
|
|
20.4 |
|
|
|
21.5 |
|
|
|
20.3 |
|
|
|
22.2 |
|
Product development |
|
|
4.4 |
|
|
|
5.0 |
|
|
|
4.7 |
|
|
|
5.2 |
|
Total operating expenses |
|
|
24.8 |
|
|
|
26.5 |
|
|
|
24.9 |
|
|
|
27.4 |
|
Operating loss |
|
|
(0.2 |
) |
|
|
(3.5 |
) |
|
|
(0.2 |
) |
|
|
(7.0 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
(0.7 |
) |
|
|
(0.9 |
) |
|
|
(0.8 |
) |
|
|
(0.6 |
) |
Other (expense) income, net |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
Total other expense, net |
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
(0.9 |
) |
|
|
(0.4 |
) |
Loss before income taxes |
|
|
(0.8 |
) |
|
|
(3.9 |
) |
|
|
(1.1 |
) |
|
|
(7.4 |
) |
Income tax benefit |
|
|
— |
|
|
|
2.0 |
|
|
|
0.3 |
|
|
|
1.2 |
|
Net loss |
|
|
(0.8 |
) |
|
|
(1.9 |
) |
|
|
(0.8 |
) |
|
|
(6.2 |
) |
Less: Net income attributable to noncontrolling interest |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.0 |
|
Net loss attributable to Corsair Gaming, Inc. |
|
|
(0.9 |
)% |
|
|
(2.0 |
)% |
|
|
(0.9 |
)% |
|
|
(6.2 |
)% |
Components of Results of Operations
Net Revenue
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Net revenue |
|
$ |
363,193 |
|
|
$ |
311,769 |
|
|
$ |
1,042,589 |
|
|
$ |
976,368 |
|
Net revenue increased by 16.5% for the three months ended September 30, 2023 as compared to the same period last year. The increase was due to a 26.9% increase in sales for our gaming components and systems segment, which was partially offset by a 6.7% decrease in sales for our gamer and creator peripherals segment.
26
Table of Contents
Net revenue increased by 6.8% for the nine months ended September 30, 2023 as compared to the same period last year. The increase was due to a 19.5% increase in sales for our gaming components and systems segment, which was partially offset by a 19.4% decrease in sales for our gamer and creator peripherals segment.
Overall, the demand was higher for most of our components and systems products in both the three- and nine-month periods ended September 30, 2023, as compared to the same periods last year, primarily driven by the self-built PC market expansion due to the increase in availability of new and reasonably priced GPUs and CPUs as well as the release of new game titles. The increase in demand for our components and systems products was partially offset by a decrease in demand in both the three- and nine-month periods for our peripherals products primarily due to the challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine as well as inflationary trends.
Gross Profit and Gross Margin
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands, except percentages) |
|
|||||||||||||
Gross profit |
|
$ |
89,353 |
|
|
$ |
71,560 |
|
|
$ |
257,589 |
|
|
$ |
198,775 |
|
Gross margin |
|
|
24.6 |
% |
|
|
23.0 |
% |
|
|
24.7 |
% |
|
|
20.4 |
% |
Gross margin increased by 1.6% for the three months ended September 30, 2023 as compared to the same period last year primarily due to an improvement in product costs from suppliers, new products introduced at a higher margin, and lower freight costs as the elevated freight rates caused by the COVID-19 pandemic have normalized near to pre-pandemic levels.
Gross margin increased by 4.3% for the nine months ended September 30, 2023 as compared to the same period last year primarily due to lower inventory impairment and related charges in 2023 as compared to 2022 and the factors discussed above. In the second quarter of 2022 we implemented an inventory rationalization plan to align the inventory balance with reduced 2022 demand post-pandemic. The increase in gross margin for the nine-month period was also due to an improvement in product costs from suppliers, new products introduced at a higher margin, and lower freight costs.
Sales, General and Administrative (SG&A)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Sales, general and administrative |
|
$ |
74,000 |
|
|
$ |
66,932 |
|
|
$ |
211,482 |
|
|
$ |
216,456 |
|
SG&A expenses increased 10.6% for the three months ended September 30, 2023 as compared to the same period last year primarily due to higher personnel-related costs, the inclusion of Drop's post-acquisition SG&A expenses, and higher marketing and other expenses. These increases were partially offset by lower freight costs due to a reduction in freight rates.
SG&A expenses decreased 2.3% for the nine months ended September 30, 2023 as compared to the same period last year. The majority of the decrease in SG&A expense was due to lower freight costs driven by lower freight rates. The remaining decrease in SG&A expense was primarily due to lower marketing and advertising expenses and lower amortization of capitalized cloud computing implementation costs, which were partially offset by higher personnel-related costs.
Product Development
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Product development |
|
$ |
16,111 |
|
|
$ |
15,616 |
|
|
$ |
48,542 |
|
|
$ |
50,752 |
|
Product development expenses increased 3.2% for the three months ended September 30, 2023 as compared to the same period last year primarily due to higher personnel-related costs.
Product development expenses decreased 4.4% for the nine months ended September 30, 2023 as compared to the same period last year primarily due to lower personnel-related costs and lower allocation of corporate IT-related and facility-related costs.
27
Table of Contents
Interest Expense, Net and Other (Expense) Income, Net
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
(In thousands) |
|
|||||||||||||
Interest expense, net |
|
$ |
(2,529 |
) |
|
$ |
(2,734 |
) |
|
$ |
(7,875 |
) |
|
$ |
(5,689 |
) |
Other (expense) income, net |
|
|
304 |
|
|
|
1,662 |
|
|
|
(1,326 |
) |
|
|
1,796 |
|
Interest expense, net decreased 7.5%, for the three months ended September 30, 2023 as compared to the same period last year. The decrease in interest expense, net was primarily due to a $1.7 million interest income earned in the three months ended September 30, 2023 which offsets the increase in interest expense on our Term Loan from a higher interest rate. There was no interest income earned in the three months ended September 30, 2022.
Interest expense, net increased 38.4%, for the nine months ended September 30, 2023 as compared to the same period last year. The increase in interest expense, net was primarily due to a higher interest rate on our Term Loan compared to the same period last year, which was partially offset by $5.2 million interest income earned in the nine months ended September 30, 2023. There was no interest income earned in the nine months ended September 30, 2022.
Other (expense) income, net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies of our subsidiaries. Our foreign currency exposure is primarily driven by fluctuations in the foreign currency exchanges rates of the Euro, British Pound and the Chinese Yuan.
Income Tax Benefit
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands) |
|
|||||||||||||
Loss before income taxes |
|
$ |
(2,983 |
) |
|
$ |
(12,060 |
) |
|
$ |
(11,636 |
) |
|
$ |
(72,326 |
) |
Income tax benefit |
|
|
97 |
|
|
|
6,115 |
|
|
|
3,023 |
|
|
|
11,262 |
|
Effective tax rate |
|
|
3.3 |
% |
|
|
50.7 |
% |
|
|
26.0 |
% |
|
|
15.6 |
% |
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 3.3% and 50.7% for the three months ended September 30, 2023 and 2022, 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, partially offset by provision to return adjustments.
Our effective tax rates were 26.0% and 15.6% for the nine months ended September 30, 2023 and 2022, respectively. The increase in our effective rate in the nine-month period was primarily due to an increase in return to provision adjustments and an increase in windfall tax benefit from stock-based compensation.
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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gamer and Creator Peripherals Segment |
|
$ |
90,356 |
|
|
|
24.9 |
% |
|
$ |
96,848 |
|
|
|
31.1 |
% |
|
$ |
258,053 |
|
|
|
24.8 |
% |
|
$ |
319,985 |
|
|
|
32.8 |
% |
Gaming Components and Systems Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Memory Products |
|
|
131,713 |
|
|
|
36.3 |
|
|
|
115,194 |
|
|
|
36.9 |
|
|
|
371,931 |
|
|
|
35.7 |
|
|
|
346,468 |
|
|
|
35.5 |
|
Other Component Products |
|
|
141,124 |
|
|
|
38.9 |
|
|
|
99,727 |
|
|
|
32.0 |
|
|
|
412,605 |
|
|
|
39.6 |
|
|
|
309,915 |
|
|
|
31.7 |
|
|
|
|
272,837 |
|
|
|
75.1 |
|
|
|
214,921 |
|
|
|
68.9 |
|
|
|
784,536 |
|
|
|
75.2 |
|
|
|
656,383 |
|
|
|
67.2 |
|
Total Net Revenue |
|
$ |
363,193 |
|
|
|
100.0 |
% |
|
$ |
311,769 |
|
|
|
100.0 |
% |
|
$ |
1,042,589 |
|
|
|
100.0 |
% |
|
$ |
976,368 |
|
|
|
100.0 |
% |
28
Table of Contents
Gamer and Creator Peripherals Segment
Net revenue of the gamer and creator peripherals segment decreased 6.7% and 19.4% for the three and nine months ended September 30, 2023, respectively, as compared to the same periods last year primarily due to demand softness across all products in this segment driven mainly by a challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine and inflationary pressure on consumer spending.
Gaming Components and Systems Segment
Net revenue of the gaming components and systems segment increased 26.9% and 19.5% for the three and nine months ended September 30, 2023, respectively, as compared to the same periods last year due to increases in sales in nearly all product categories. The increase in the three- and nine-month periods was primarily driven by the strong self-built PC market activity triggered by the release of new game titles and launch of new, reasonably priced graphics cards that were readily available.
Segment Gross Profit and Gross Margin
The following table sets forth our gross profit expressed in dollars (thousands) and gross margin (which we define as gross profit as a percentage of net revenue) by segment:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gamer and Creator Peripherals Segment |
|
$ |
29,928 |
|
|
|
33.1 |
% |
|
$ |
31,790 |
|
|
|
32.8 |
% |
|
$ |
82,085 |
|
|
|
31.8 |
% |
|
$ |
85,405 |
|
|
|
26.7 |
% |
Gaming Components and Systems Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Memory Products |
|
|
21,074 |
|
|
|
16.0 |
|
|
|
16,595 |
|
|
|
14.4 |
|
|
|
57,780 |
|
|
|
15.5 |
|
|
|
46,545 |
|
|
|
13.4 |
|
Other Component Products |
|
|
38,351 |
|
|
|
27.2 |
|
|
|
23,175 |
|
|
|
23.2 |
|
|
|
117,724 |
|
|
|
28.5 |
|
|
|
66,825 |
|
|
|
21.6 |
|
|
|
|
59,425 |
|
|
|
21.8 |
|
|
|
39,770 |
|
|
|
18.5 |
|
|
|
175,504 |
|
|
|
22.4 |
|
|
|
113,370 |
|
|
|
17.3 |
|
Total Gross Profit |
|
$ |
89,353 |
|
|
|
24.6 |
% |
|
$ |
71,560 |
|
|
|
23.0 |
% |
|
$ |
257,589 |
|
|
|
24.7 |
% |
|
$ |
198,775 |
|
|
|
20.4 |
% |
Gamer and Creator Peripherals Segment
The gross margin of the gamer and creator peripherals segment remained relatively consistent for the three months ended September 30, 2023 and increased by 5.1% for the nine months ended September 30, 2023 as compared to the same periods last year. The increase in the nine-month period was primarily attributable to lower inventory impairment and related charges in 2023 as compared to 2022. The increase in gross margin was also due to improvements in product cost from suppliers, newer products that carry a higher margin, and lower freight costs.
Gaming Components and Systems Segment
The gross margin of the gaming components and systems segment increased by 3.3% and 5.1% for the three and nine months ended September 30, 2023, respectively, as compared to the same periods last year. The increase in the three- and nine-month periods was primarily attributable to lower product cost from suppliers, new products introduced at a higher margin, improvements in freight costs, and lower inventory impairment and related charges in 2023 as compared to 2022.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity have been the payments received from customers purchasing our products, the borrowings under our Credit Agreement (defined below) and the net proceeds we received from our underwritten public offerings.
On September 29, 2022, one of our subsidiaries entered into an accounts receivable Factoring Agreement with a third-party financial institution, or the Factor. Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. The Factoring Agreement was terminated on October 2, 2023 and we no longer sell our customers receivables to the Factor. The balance from the Factor as of September 30, 2023 will be collected before December 31, 2023.
Our principal uses of cash generally will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our products, capital expenditure, repayments of debt and related interest, income tax payments, future investments in business and technology, and selective mergers and acquisitions.
As of September 30, 2023, we had cash and restricted cash, in aggregate of $147.8 million. We believe that the anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash balances at September 30, 2023, supplemented with the borrowings under our Revolving Facility will be sufficient to fund our principal uses of cash for at least the next twelve months. In the longer term, liquidity will depend to a great extent on our future revenues and our ability to
29
Table of Contents
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):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
32,060 |
|
|
$ |
45,142 |
|
Investing activities |
|
|
(25,004 |
) |
|
|
(40,479 |
) |
Financing activities |
|
|
(13,205 |
) |
|
|
(3,927 |
) |
Cash Flows from Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2023 was $32.1 million and consisted of non-cash adjustments of $56.0 million, offset partially by a net loss of $8.6 million and a net cash outflow of $15.4 million from changes in our net operating assets and liabilities. The non-cash adjustments primarily consisted of amortization, depreciation and stock-based compensation expense, which were partially offset by changes in deferred income taxes. The net cash outflow from changes in our net operating assets and liabilities was primarily related to an increase in accounts receivable from timing of receipts and an increase in inventories due to higher purchases. These net cash outflows were partially offset by an increase in accounts payable.
Net cash provided by operating activities for the nine months ended September 30, 2022 was $45.1 million and consisted of $65.3 million net cash inflow from changes in our net operating assets and liabilities, partially offset by our net loss of $61.1 million, which included non-cash adjustments of $40.9 million. The net cash inflow from changes in our net operating assets and liabilities was primarily related to a decrease in accounts receivable mainly from the cash we received from the Factor during the period and a decrease in inventories mainly from lower purchases. These net cash inflows were partially offset by a decrease in accounts payable and other liabilities and accrued expenses. The non-cash adjustments primarily consisted of amortization, depreciation, stock-based compensation expense and changes in deferred income taxes.
Cash Flows from Investing Activities
Cash used in investing activities was $25.0 million for the nine months ended September 30, 2023 and consisted of cash used for the Drop Acquisition and capital expenditure primarily for equipment and software.
Cash used in investing activities was $40.5 million for the nine months ended September 30, 2022 and primarily consisted of cash used for the iDisplay Acquisition and capital expenditure, including renovation and furnishing of our new headquarters in Milpitas, California.
Cash Flows from Financing Activities
Cash used in financing activities was $13.2 million for the nine months ended September 30, 2023 and primarily consisted of cash used for repayment of debt and payment of taxes related to net share settlement of equity awards, as well as payment of dividends to noncontrolling interest, partially offset by proceeds received from the issuance of shares through the employee equity incentive plans. We did not borrow from our Revolving Facility for the nine months ended September 30, 2023.
Cash used in financing activities was $3.9 million for the nine months ended September 30, 2022 and primarily consisted of cash used for repayment of debt and payment of taxes related to net share settlement of equity awards, as well as payment of dividends to noncontrolling interest, partially offset by proceeds received from the issuance of shares through the employee equity incentive plans. During the nine months ended September 30, 2022, we also borrowed $626.0 million from our Revolving Facility to fund our operations and the full amount was repaid within the same period.
30
Table of Contents
Capital Resources
Credit Agreement (Term Loan and Revolving Facility)
On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement with a new Credit Agreement. The new Credit Agreement provides for a total commitment of $350.0 million, consisting of a $100.0 million revolving credit facility and a $250.0 million term loan facility.
The Credit Agreement is available for a period of five years, maturing September 2026, and provides for additional incremental facilities up to a maximum aggregate principal amount of $250.0 million, subject to the satisfaction of certain conditions. We may prepay the Term Loan and the Revolving Facility at any time without premium or penalty. We prepaid $3.75 million and $12.5 million of the Term Loan principal in the year ended December 31, 2022 and in the nine months ended September 30, 2023, respectively.
The Term Loan and Revolving Facility under the Credit Agreement will each bear interest at our election, either (a) LIBOR plus a percentage spread (ranging from 1.25% to 2.0%) based on our total net leverage ratio, or (b) the base rate (described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.0%) based on our total net leverage ratio. The Credit Agreement also requires the payment of a commitment fee on the daily unused portion of the Revolving Facility, which initially ranged from 0.2% to 0.35% based on our total net leverage ratio.
Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.
On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”) which, among other changes, resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR. Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at our election at either (a) BSBY plus a percentage spread (ranging from 1.25% to 2.25%) based on our total net leverage ratio, or (b) the base rate (as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month BSBY plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.25%) based on our total net leverage ratio. In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio was also amended to increase to 3.5 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.0 to 1.00 from the quarter ended June 30, 2023 and each quarter thereafter; provided, that upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.5 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met. Additionally, the commitment fee on the unused portion of the Revolving Facility was amended to range from 0.2% to 0.4% based on our total net leverage ratio.
On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement which provides for, among other things: (i) a decrease in the required minimum Consolidated Interest Coverage Ratio to 2.50 to 1.00 for the quarters ending on and after March 31, 2023 through and including December 31, 2023; (ii) an increase in the maximum permitted Consolidated Total Net Leverage Ratio to 3.75 to 1.00 for the quarters ending December 31, 2022 and March 31, 2023, stepping down to 3.50 to 1.00 for the quarter ending June 30, 2023, and 3.25 to 1.00 for the quarters ending September 30, 2023 and December 31, 2023; and (iii) a modified pricing grid providing for an increased margin (ranging from 1.50% per annum to 3.25% per annum for loans bearing interest at the BSBY rate, and 0.50% per annum to 2.25% per annum for loans bearing interest at the base rate, in each case depending on our total net leverage ratio) for the period of December 31, 2022 through December 31, 2023. Additionally, the commitment fee on the unused portion of the Revolving Facility was amended to range from 0.25% to 0.5% based on our total net leverage ratio, for the period of December 31, 2022 through December 31, 2023. According to the provision in the Third Amendment, with effect from January 1, 2024, the aforementioned amended terms will revert back to the terms as amended by the First Amendment, including the required minimum Consolidated Interest Coverage Ratio, the required maximum permitted Consolidated Total Net Leverage Ratio, the interest rate margin and the commitment fee on the unused portion of the Revolving Facility.
As of September 30, 2023, we were not in default under the Credit Agreement. As of September 30, 2023, the total principal outstanding of the Term Loan was $223.8 million and the available and uncommitted capacity under the Revolving Facility was $100 million.
31
Table of Contents
Contractual Cash and Other Obligations
The following table summarizes our contractual cash and other obligations as of September 30, 2023 (in thousands):
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
Total |
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt principal and interest payments (1) |
|
$ |
262,769 |
|
|
$ |
28,234 |
|
|
$ |
234,535 |
|
|
$ |
— |
|
|
$ |
— |
|
Inventory-related purchase obligations (2) |
|
|
74,290 |
|
|
|
74,290 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Operating lease obligations (3) |
|
|
59,369 |
|
|
|
11,104 |
|
|
|
16,137 |
|
|
|
12,623 |
|
|
|
19,505 |
|
Other purchase obligations (4) |
|
|
12,534 |
|
|
|
11,639 |
|
|
|
895 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
408,962 |
|
|
$ |
125,267 |
|
|
$ |
251,567 |
|
|
$ |
12,623 |
|
|
$ |
19,505 |
|
As of September 30, 2023, we had $2.4 million in non-current income tax payable, including interest and penalties, related to our income tax liability for uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the contractual cash obligation table above.
Critical Accounting Polices and Estimates
A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results may differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.
There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2023 as compared to the critical accounting policies and estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 27, 2023.
Recent Accounting Pronouncements
Refer to Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted and to be adopted.
32
Table of Contents
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 September 30, 2023, we had cash and restricted cash of $147.8 million, which consisted primarily of bank deposits. Our cash is held for working capital purposes.
As of September 30, 2023, under the Credit Agreement, we had $223.8 million Term Loan outstanding (face value), and the Term Loan bears variable market rates, primarily BSBY. See Note 8, “Debt - Credit Agreement” to our condensed consolidated financial statements for additional information on the Credit Agreement. A significant change in these market rates may adversely affect our operating results. As of September 30, 2023, a hypothetical 100 basis point change in interest rates would result in a change to annual interest expense by approximately $2.4 million.
Foreign Currency Risk
Approximately 16.4% of our net revenue for the nine months ended September 30, 2023 was denominated in foreign currencies, primarily Euro. Any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our net revenue and gross margins as we may have to adjust local currency product pricing due to competitive pressures if there is significant volatility in foreign currency exchange rates. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, China and Taiwan. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.
We enter into forward currency contracts to reduce the short-term effects of currency fluctuations on Euro, British Pound, and Chinese Yuan denominated cash, accounts receivable, and intercompany receivable and payable balances. These forward contracts generally mature within two to four months, and we do not enter into foreign currency forward contracts for trading purposes. The outstanding notional principal amount was $32.1 million and $23.4 million as of September 30, 2023 and December 31, 2022, respectively. The gains or losses on these contracts are recognized in earnings based on the changes in fair value of the foreign currency forward contracts.
The impact of changes in foreign currency rates, including the gains or (losses) on the forward currency contracts, recognized in other (expense) income, net was $(1.5) million and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively. A hypothetical ten percent change in exchange rates between foreign currencies and the U.S. dollar would increase or decrease our gains or losses on foreign currency exchange of approximately $2.0 million in our condensed consolidated financial statements for the nine months ended September 30, 2023.
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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 September 30, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
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, 2022 the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. The risks that we describe in our public filings are not the only risks we may face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely effect on our business, financial condition and/or future operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(a) None.
(b) None.
(c) During the three months ended September 30, 2023, no director or officer of Corsair
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Item 6. Exhibits.
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Incorporated by Reference |
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Exhibit Number |
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Description |
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Form |
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Exhibit |
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Date Filed |
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Filed Herewith |
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3.1 |
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8‑K |
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3.1 |
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09/25/2020 |
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3.2 |
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8‑K |
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3.2 |
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09/25/2020 |
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4.1 |
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S-1/A |
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4.2 |
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09/18/2020 |
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4.2 |
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Investor Rights Agreement, by and between Corsair Gaming, Inc. and Corsair Group (Cayman), LP. |
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10-Q |
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4.2 |
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11/10/2020 |
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4.3 |
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10-K |
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4.3 |
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03/11/2021 |
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4.4 |
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Registration Rights Agreement, by and between Corsair Gaming, Inc. and Corsair Group (Cayman), LP. |
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S-1/A |
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4.4 |
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09/14/2020 |
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31.1 |
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31.2 |
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32.1* |
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101.INS |
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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 |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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X |
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* |
The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Corsair Gaming, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
# |
Indicates management contract or compensatory plan. |
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Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Corsair Gaming, Inc.
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Date: November 7, 2023 |
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By: |
/s/ Michael G. Potter |
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Michael G. Potter |
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Chief Financial Officer (Authorized Officer, Principal Financial Officer and Principal Accounting Officer)
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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: November 7, 2023 |
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By: |
/s/ Andrew J. Paul |
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Andrew J. Paul |
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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: November 7, 2023 |
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By: |
/s/ Michael G. Potter |
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Michael G. Potter |
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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 September 30, 2023 (the “Report”), Andrew J. Paul, Chief Executive Officer of the Company, and Michael G. Potter, Chief Financial Officer of the Company, each certify, to the best of his knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: November 7, 2023 |
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By: |
/s/ Andrew J. Paul |
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Andrew J. Paul |
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Chief Executive Officer (Principal Executive Officer) |
Date: November 7, 2023 |
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By: |
/s/ Michael G. Potter |
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Michael G. Potter |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |