Q3 2021 Corsair Gaming Inc Earnings Call
[music].
Good morning, and welcome to a closer gaming third quarter 2021 earnings conference call.
As a reminder, today's call is being recorded and your participation implies consent to such recording.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference call. Please press star zero on your telephone keypad.
With that I'd now like turn the call over to Ronald Bandied close today, as a vice president of finance and Investor Relations. Thank.
Thank you Sir please begin.
Thank you.
Good morning, everyone and thank you for joining US. We appreciate his financial results conference call for the third quarter ending September 32021.
The call today, we of course, you are CEO Andy Cole.
CFO Michael power.
Before we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call May include forward looking statements related to expected future results of our company.
For forward looking statements.
Actual results may differ materially from our projections due to a number of risks and uncertainties.
The risks and uncertainties that forward looking statements are subject to are described in our earnings release and other SEC filings.
<unk> remarks will also include reference to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release.
I would also like to remind everyone until our 10 Qs on file in Q3 2021 numbers are preliminary.
This conference call will be available for replay via webcast.
Yes, we're serious investors relations website at IR for sure.
Andrew will begin with third quarter business highlights and a discussion on what we're seeing in the market and Michael will then take you through a review of the financials.
Before we proceed to Q&A.
With that I'll now.
Turning the call over to Andy.
Thank you Ronald and welcome to our Q3 2021 earnings call.
During the third quarter, we delivered revenues of $391 million.
And gross profit of $101 million.
<unk> gross margin of 25, 9%.
While we continue to see solid demand for our products. Our performance was impacted by a very difficult logistics and supply chain environment.
Particularly the availability of reasonably priced Gpus, and we believe it prudent to reset expectations for the year.
Michael will walk through our financial results in greater detail later in our discussion.
I'd like to spend a few minutes to provide an update on what we're seeing in the market.
Why we remain confident that <unk> is well positioned to navigate the current industry headwinds to deliver sustainable shareholder value creation over the long term.
First <unk> is the leading global provider of an innovator of high performance gear the games and content creators.
Gaming gear helps games perform at their peak across PCL cultural platforms, and our streaming game enables creators to produce studio quality content share with friends or forecast to millions of fans.
As gaming and streaming continues to become more mainstream we believe coursera is uniquely positioned with a comprehensive product suite to meet the needs of this rapidly growing market.
We have maintained our market leadership across most of our product lines with a relentless focus on enhancing the customer experience by delivering cutting edge technology, and creating innovative gaming and streaming gear and related software.
Based on outside data, we believe that we gained market share in most categories in Q3.
Since the start of 2021, we've maintained an astounding pace of innovation launching 113, new products, including the addition of several entirely new product lines, which we believe has greatly expanded our total addressable market opportunity.
In July we launched our new El Gallo camera called face Ken.
Designed specifically for streamers and content creators.
We are encourage by the great momentum that we've seen so far and we are gaining market share very quickly the.
The global Tam for USB cameras is over $1 billion.
In September we W did the <unk> gaming Melissa.
Which features an ultra slim 32 inch Q HD screen with.
With the culmination of powerful specs small features and thoughtful design the power users need.
We're excited to enter this new and large market the gaming monitors, which we believe to be approximately $4 $5 billion globally.
Finally last week, we announced a new DDL five memory products.
CDL five is the latest technology standard for DRAM, which allows speeds of over 6000 megahertz a huge performance increase compares to PDL for the previous standard and both Intel and AMD all supporting this interface.
Latest processes.
We expect that this will encourage many gaming enthusiasts to build new Pcs around this platform.
We believe new product innovation remains an important driver of our future growth and we will continue to invest to increase value for our customers.
Overall demand has remained strong for gaming components in gaming peripherals. In fact recent market data shows consumer demand for peripherals at close to the elevated 2020 work from home levels.
We also recently conducted a survey of the PC gaming hardware market with Dfc intelligence.
And we found that the refresh cycle for building and upgrading Pcs is shorter than previously thought closer to one to two years rather than two to three years.
The semiconductor shortages caused graphics caused to be in very short supply compared to demand.
That is driven market prices of certain graphics cards through 150% to 200% of normal MSRP.
This has caused gaming enthusiasts to hold back on building new high end gaming Pcs that use our components.
Our estimate approximately 10% of our natural demand for our components and let me products in a gaming component segment was held back in 2021.
We believe this should cause a bubble of pent up demand, which will be released as GPA use returned to normal MSR piece in 2022.
We estimate the impact of.
The semi conductor shortage in our components business for 2021 is at least $100 million revenue issue.
And has made growth from the components market difficult in 2021.
Although we still expect some growth mainly from the fact that we have gained market share in components.
Finally, we remain focused on strengthening our relationship with end users by increasing direct to consumer sales.
We acquired origin and scuff in 2019.
Which are both direct to consumer and we have continued to expand our direct to consumer channel with our other product lines.
During the third quarter direct to consumer was 13, 1% of sales.
Up from 10% in Q3, 2020, and we expect this trend to continue.
We truly believe direct to consumer sales represents a significant avenue to drive growth by facilitating increased engagement with our consumers.
In closing.
Our third quarter results reflected good demand environment against challenging logistics and supply chain conditions.
We believe that as these constraints ease in gpus become more available.
We will turn to our revenue in mortgage margin targets.
While Q3 was only our second highest ever third quarter. It is notable that our revised full year outlook is in line with our initial expectations for the year, which we outlined during our Q4 earnings call and well above our expectations during the time of our IPO.
We firmly believe that <unk> remains uniquely positioned to capitalize on the underlying secular growth trends around gaming E sports and streaming.
We feel good about our continued investments in R&D and marketing and the market reception of our new product introductions. So far this year.
We plan on having an analyst day very early in 2022, where we will discuss our product lines in more detail, including the new products. We released since the Ipos that have opened up a much larger tam for us.
We will discuss our 2022 expectations then as well.
Thank you for your time and continued support and I'll now turn the call over to Michael to discuss our financial results for the quarter.
Thanks, Andy and good morning, everyone. During the third quarter, we delivered net revenue of $391 1 million.
A decrease of 14, 4% compared to $457 $1 million in Q3, 2020, but well above Q3, 2019 pre pandemic level of $284 $4 million net.
Net revenue for the nine months ended September 32021.
Was.
$1.393 billion, an increase of 21, 6% year over year.
As Andy mentioned earlier, our third quarter results were challenged by a very differently difficult logistics and supply chain environment.
Logistics is slower than usual with many shipping lanes, taking over double the normal shipping times and at a much higher cost at times were not able to purchase all of certain semiconductors have we need finally gpus are difficult to find at or near MSRP and we believe that many of our customers are willing to build new systems or the upgrade until <unk>.
<unk> returns to more normal levels, we're trying to mitigate delays by building our inventory and our hubs closer to our markets. It's been difficult to pass costs on to our customers. We estimate that the effect of increased supply costs have had a 2% to 3% headwind on our gross margin and resulting EBITDA percent during the third quarter and <unk>.
This to continue in the fourth quarter Ocean freight a 40 foot containers, which historically would have been in the 3000 to $5000 range have gone up three four even five fold.
Seeing a slight easing in early October we expect continued elevated freight cost for Q4 because of this our adjusted EBITDA in the second half of the year is expected to be 7% to 9% and 10% to 11% for the full year compared to our planned 11% 12%.
Turning now to our segments.
The Gamer and creator peripheral segment provided $139 3 million.
<unk> of net revenue during the third quarter, a decrease of 13, 8% to $161 6 million in Q3, 2020 impacting by supply and logistics constraints, the Gamer and creator peripheral segment net revenue contributed 35, 6% of net revenue and.
<unk> of 30 basis points from 35, 3% in Q3 2020.
For the nine month period Gamer and create a peripheral segment net revenue was $473 million, an increase of 35, 3% year over year.
We expect our gamer and creator peripheral segment to grow by about 20% this year compared to 83% in 2020, we believe that our supply chain delays in 2021 have caused some loss of sales in growth could have been higher perhaps by $50 million or an additional 10%.
The gaming components and system segment provided $251 9 million of net revenue during the third quarter, a decrease of 14, 8% from $295 5 million in Q3, 2020, primarily driven by a shortage of reasonably priced gpus and supply and logistics constraints.
Less than half of this revenue came from memory products, which contributed $115 5 million for the nine month period gaming components and system segment net revenue was $923 1 million, an increase of 15, 6% year over year.
Gross profit in the third quarter decreased by 28% to $101 4 million from $127 $9 million in Q3, 2020, which as you recall was a record third quarter results and is well above the Q3 2019 pre pandemic level up.
$62 million.
The decrease over Q3, 2020 was primarily driven by increased logistics costs and reduced revenues gross profit margin was 25, 9% a decrease of 210 basis points from 28% in Q3 2020, mainly due to significant increases in logistics costs, especially.
Ocean freight.
For the nine month period, this was $392 million an increase of 25, 8%.
The Gamer and creator peripheral segment gross profit was $48 $6 million.
A decrease of 19% from $60 million in Q3, 2020, primarily driven by a decrease in revenue in the same periods and increased supply chain and logistics costs.
Profit margin was 34, 9% a decrease of 220 basis points from 37, 1% in Q3 2020.
We continue to see an overall mix shift as gamer and creator peripheral has contributed a record 47, 9% of gross profit in Q3 2021 as compared to 46, 9% in Q3 2020.
This remains a great overall story and Formula for continued overall margin expansion as our fastest growing and heart highest margin segment also sits in our largest market.
For the nine months ended September 2021, Gamer and creator peripheral segment gross profit was $172 1 million an increase of 42, 3%.
The gaming components and systems segment gross profit was $52 8 million.
A decrease of 22, 3% from $67 9 million in Q3, 2020, primarily driven by the decrease in revenues in the same periods and increased logistics cost gross profit margin was 21% a decrease of 200 basis points from 23% in Q3 2020.
Primarily due to freight cost.
Gaming components and systems contributed 52, 1% of the total gross profit in Q3 2021 as compared to 53, 1% in Q3 2020.
Our memory products margin in this segment was 13, 8% for the quarter for the nine month period gaming components and systems segment gross profit was $220 million an increase of 15, 3%.
Third quarter SG&A expenses were $76 1 million, an increase of 16, 5% compared to $65 $3 million in Q3 2020 <unk>.
Primarily driven by an increase in outbound freight cost due to increases in ocean and air freight offset by a decrease in volumes due to lower revenue and increased due to expenses related to be a public company and an increase in personnel related expenses.
Third quarter product development expenses were $14 5 million, an increase of 12, 3% compared to $12 9 million in Q3, 2020, primarily driven by an increase in personnel related expenses as we continue to focus on bringing in an increasing number of products to the market.
Operating income in the third quarter of 2021 was $10 8 million a decrease of $39 million from $49 7 million in Q3 2020 for the nine month period. This was $112 8 million an increase of 13, 4%.
Adjusted operating income in the third quarter of 2021 was $26 4 million a decrease of 57% from 61 4 million in Q3 2020 for.
For the nine months period, this was $156 million an increase of 16, 6%.
Third quarter net income was $1 8 million or <unk> <unk> per diluted share as compared to net income of $36 four.
$4 million or <unk> 40 per diluted share in Q3 2020 for the nine month period net income was $76 3 million an increase of 26, 7%.
Third quarter adjusted net income was $16 3 million or <unk> 16 per diluted share as compared to adjusted net income of $48 5 million or <unk> 54 per diluted share in Q3 2020 for.
For the nine month period. This was $110 2 million, an increase of $18 2 million or 19, 8%.
Adjusted EBITDA for Q3, 2021 was $27 6 million.
A decrease of 56, 6% compared to $63 7 million for Q3 2020.
Resulting in adjusted EBITDA margin of seven 1% a decrease of 680 basis points from 13, 9% in Q3 2020 adjusted EBITDA for the nine months ended September 32021 was $159 $6 million an increase from 13 six.
6% year over year.
Turning now to our balance sheet, we continue to convert our strong financial performance into an opportunity to further strengthen our balance sheet. In Q3, 2021, we refinance our long term debt substantially reducing the interest rate doubled the available revolver to $100 million increased the term and reduced.
Total outstanding debt by $24 million to $250 million of face value.
Our strong financial position has allowed us to adjust to the current environment by strategically increasing inventory and making longer term supply chain commitments where needed with.
With this refinancing completed we expect to continue to reduce debt over time on a more opportunistic basis subject to business conditions and any need for additional growth capital. We expect the refinancing to save us approximately $2 million per quarter in cash interest expense as of September 32021.
We had $100 million capacity under our revolving credit facility total GAAP debt of $248 8 million of which $244 1 million as long term and cash excluding restricted cash of $71 $9 million.
Turning now to our outlook for the year the actual demand environment remains quite good we believe that as supply and logistics constraints ease and gpus become more available we will be able to return to our revenue and margin targets wherever the various challenge we discuss challenges we discussed earlier.
Our constraining our performance. Therefore, we now expect our full year performance track more closely to the initial expectations. We outlined during our Q4 2020 earnings call.
For 2021, we expect total revenue in the range of $1 $8 5 billion to $1 $95 billion Rep.
Representing growth of seven 2% to 13, 1%.
Adjusted operating income in the range of $180 million to $195 million and adjusted EBITDA in the range of $190 million to $205 million.
The additional modeling details underlying our outlook remains largely the same as we discussed in our prior earnings call with the exception of now reduced interest expense for EES I'll repeat them.
We expect gross margins to slightly decrease year over year and operating expense to increase as well to support our higher revenue level. They need to continue to innovate at a larger scale and a full year of public company costs.
Assuming no further debt Paydown, we now expect interest expense of approximately $1 million per quarter.
$4 million patent trial win in Q1 2021 is not in our outlook. This amount could vary depending on what the judge rules is subject to appeal and the timing of recognition of a gain of any is uncertain at this time.
And effective tax rate of approximately 21% to 23% for 2021 and full year weighted average diluted shares outstanding of approximately $100 million to $102 million.
With that we're now happy to open the call for questions. Operator will you. Please open the line for Q&A.
We will now begin the question and answer session.
To join the question queue you May Press Star then one on your telephone keypad.
Eric Cooney nagi or questions.
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<unk>. Your question. Please press Star then two.
We will pause for a moment as quota has joined the queue.
The first question comes from Mario Lu from Barclays. Please go ahead.
Great. Thanks for taking the questions. The first one is on the fourth quarter revenue guide I believe at the midpoint.
Yes.
13% growth in year on year.
Just wondering if you could provide some color in terms of year on year growth rate.
Exiting the third quarter and September or any early trends.
In October that you are seeing that suggests for our key revenue could accelerate slightly versus the third quarter.
Well, let me answer that question a couple different ways Mario so.
This is new to the right.
Cracking the on.
Im tracking the velocity of performance getting products free carefully.
And we use as a bellwether for that keyboards and mice, we don't use headsets because lot of headsets.
For the purposes.
Sure.
Increasing our skills.
Our gaming and.
And what we're finding there is the.
The sales both in Europe and in the U S are tracking to last year.
So that gives us a good indication of the base demand small performance gaming gear now as we mentioned in the.
The lease in Australia.
The biggest issue we have at the moment other than the supply chain is.
GPU tells a very expensive and very short.
And so.
Gamers that want to build.
This one is gaining PC the holding back somewhat because I don't want to spend $100 of 2000 and high end graphics tub, So thats really.
What's causing almost much worse today than it was in Q4 of last year.
So that's really what's causing the revenue outlook to be a little soft it's not really related to the underlying demand is just the fact that people call gift cards will be target clubs and they won't be able to <unk> cases in the past plus normal cooling products.
Got it thanks, Sandy and then just one on the DDR by memory.
Do we have any color in terms of the timing of that release and 2022 and if there is an increase in ASP.
There are a range of magnitude of that increase and how that should flow to the memory gross margins. Thanks.
Yes, I think it's going to be a slow start with talk to the memory manufacturers. They are really not going to be in high production until second half of next year. So we would expect to see people.
And let me back up so all the multiples that are coming out.
Support <unk> and so there'll be a few leading edge enthusiastic when it goes <unk> very limited quantities available so I wouldn't expect to see any.
Anything until next year.
And then we will see see how that works and there's no reason.
Yes, there is no reason to think that.
Keith will do anything but go up.
But that's an OLED come in.
Dwarfed by the amount of money people are putting in the systems, but I would expect the.
The way consumers are allocating.
The systems I think it's going to go off a little bit in memory.
Just because of the added performance at <unk>.
Got it thank you.
But this is.
Just to sort of conclude that the last question I wouldn't expect to see any meaningful.
So margins until very late in 2000 and some GDS.
Alright. Thanks.
The next question comes from Doug <unk> from Cowen. Please go ahead.
Okay can you talk about.
What youre seeing as far as the level of discounting in the market right now.
Are there areas other product areas.
And more aggressive or areas and less aggressive.
Yes, I'd say.
Sure.
Re depends on the category, but we're not seeing in general a lot of discounting.
And where we are we're not necessarily the accident I mean in general we're just coming off of a short supply situation and starting to.
Have the channel filled up so we don't see any need to.
Discount heavily.
There are some categories where.
The demand is soft.
Post work from home loan, we're seeing people come back to work.
So we don't really.
Pretty small percentage of our sales so I'd say on an overall basis.
I haven't seen.
Much just discounting going on so far.
Okay. Thank you.
Okay.
Your next question comes from drew Crum from Stifel. Please go ahead.
Okay. Thanks, Hey, guys good morning.
Question around new products in your preamble.
Given the supply chain disruptions in logistics issues, you're dealing with how is that affecting the cadence of new product launches are you slowing the pace.
A follow up.
No in fact, we increased our spending on R&D and we are cranking up products.
Like laundry business. So I think we would it be say 113 this year so far.
So well in excess of two weeks.
So we're keeping keeping that going.
And the supply chain delays.
Well understood. So it just means you have to plan longer logo logo ahead, but some.
That's no stuffing the pace of innovation of products coming out.
Got it Okay, and then Michael the adjusted EBITDA guidance would imply an uptick in margin per <unk> versus <unk>.
Anything noteworthy to call out to explain that that improvement.
I think the two main things of our higher volume, so we get a little bit better absorption.
Better cover operating expenses and a slight easing in some of the logistics cost at least at the beginning of the quarter is probably two things.
Okay. Okay. Thanks, guys.
The next question comes from Tim Nolan from Macquarie. Please go ahead.
Great Hi, Thanks, I'd, just like to ask again about the supply chain issues. It sounds like you are saying the same thing you said last quarter, which was the issue is really that.
The shipping prices have gone way up.
And also consumers are holding back on buying things, but just to be clear, it's not a matter of your inability to actually source.
The products and make them just to be clear on that.
That's 95% accurate.
What we found over the last year as the products that had the highest semiconductor content, which of course are the highest ASD.
Products things like.
Our flagship keyboards and.
Wireless headsets with Bluetooth.
Standard one of those as being a struggle to keep keep on the shelves.
We all know in pretty good shape and that's been a fairly recent.
Development so.
Yeah in general we are spending.
Reasonable shape, we've increased inventory to take care of the delays.
It's obviously.
Still a big issue.
And.
They are probably now is worsening.
Dean.
Do hope to see some of the three most sudden doing less but.
Yes, that's the situations. So it's not it's not necessarily stopping us at retail other than a few products.
There is still a bit tight.
Okay, No I know you've said moving forward.
Sorry, yes.
All of this.
Is really dwarfed.
By the amount of Pcs that are getting built and thats really a situation of the graphics Todd. So I mean, that's two thirds of our revenue lighting spin components memory to get into gaming Pcs.
Yes, no I know you've called out before you were in pretty good shape supply chain wise coming in so just wanted to make sure how things sit now and then a follow up you called out a $100 million of mist <unk>.
Revenues basically in some pent up demand that's building and I know youre not talking 'twenty two numbers, yet, but it sounds like we can't really call the timing of this supply chain.
Getting back to normal, but I guess it spills into next year.
How should we start to think about.
What demand looks like into next year I mean, if underlying growth is X and then you add 100 million to that is that the right way to think about where you are real growth trend is going.
Yes, yes, I think so.
I mean, it's very difficult to know exactly what's in consumers' minds I mean, like I said, we think that.
We saw the growth last year right. So.
70% increase in.
<unk> gaming hardware activity.
The U S now is across all product lines.
I'm joking market numbers now and then this year.
The PC builds.
About level with 2019, so dropped back.
So you could argue that as theres been plenty of Gpus <unk> available.
The build is going to be 50, 70% higher they match last year.
We usually have a pretty conservative number.
10% is about the right to.
Is that number that we missed.
And we also don't know of course is how quickly <unk> will get back to normal supply.
There's two things going on there one is the semiconductor issue because obviously some of nuts in themselves.
And also the fact as a bitcoin mining is absorbing a lot of the supplier so.
Hopefully both of those news release next year, we will see a pretty healthy market, but it's very difficult to say.
I think the only way to think about it.
On a fast basis its effect.
With tubs and $1500.
People are still building Pcs at the same rate as they were in 2019.
So.
How we how we model that for next year, we will have to.
Ladies and see how we get there, but we do expect there will be a big surge of develop yes.
Okay cool can I just squeeze in one more please and Thats <unk> got some interesting new product.
Releases in categories, you haven't necessarily been in before could you just give a little bit of color on how these are different.
Better different from better than competitors, so I'm thinking the memory. The gaming monitor that you just mentioned.
Yoga to face Kim how are these different and better than your competitors products.
Well, so let's take the El Gallo camera.
Yes.
That has been designed from the ground up full streamers.
Well it is as you probably know most of the web cameras in the market with design so pretty casual.
Video conferencing.
And that means because the people at the high end of the market we're using.
Pretty expensive DSLR cameras.
And with that you get a whole bunch of different settings. We can adjust white balance you can adjust exposure et cetera, we built all of that into the <unk>.
And the settings are stored inside the face time, so you can basically treat it like a DSL camera.
It's got a very very fast refresh to it. So if you wave your hand in some places can you can see and moving the way that we're kind of a standard web Cam you see a bluff so.
Yes, it's been very well reviewed.
<unk>.
Four five stars on Amazon. So people are really liking that basically making as many as we can.
Gained quite a bit of market share already on that product. So.
Pretty happy with that the monitor is very new we just launched it in just on the sell it obviously that's.
A big heavy products.
So we had to make a decision early on how many logos the channel.
And we didn't want to get too aggressive so thats really.
Early to say, how thats going to go but it's.
It's basically you take the high end of the Multimarket simply high refresh rate.
Two inch monitor.
Still some really nice features into the into the mechanical parts of it so table routing camera mounts. So it's really designed for high end in ECS.
And then the GDS side.
Basically taken all the standard.
Technologies that we put into our lower modules in terms of mobile clocking in.
RGB controlling those with DDI side platform.
Yes, <unk> the chips themselves.
Very very soft and is a huge amount of room global cooking. So we do expect that that's going to excite or enthusiasts.
In terms of differential.
The main differential, but we also as enhanced speed and.
Really nice IQ control, which means the RGB light suite with everything else.
You probably know we have a massive loss of share on memory. So we.
Almost 60% market share.
So.
We're not necessarily looking to.
So to differentiate anymore than we already do.
Thanks very much.
The next question comes from Thomas Forte from D. A Davidson. Please go ahead.
Great. Sir one question and follow up for my first question I wanted to hear your current thoughts on the progression of your core Gamer.
Are you still seeing an acceleration of the timeline from mobile to console build your.
Alan.
Well it certainly looks like it.
We've mentioned before.
Gaming hardware.
<unk> is growing faster than software, which is growing starts with a number of game is sort of the steady acceleration of people.
Game.
Moving into performance hardware and building <unk> so.
We didn't see anything different.
And it's roughly three to one in terms of the pace of growth. So yes, we are seeing steady movement one of the things. We just did recently with the survey.
<unk> PC game is the interesting thing is the.
Almost 90% of PC game is also play on hold so also play on.
Mobile so I don't think it's not quite the situations even migrating from one to another but just doing more things.
As far as we can see once people can afford to build a gaming PC they'll go ahead and do it.
Great and then my follow up question is I think in the press release you talked about.
The ability to take price for times, where you felt like you Couldnt take price.
Just for some of this inflation can you talk about your product portfolio and your ability to take price within different segments.
So.
Luckily you asking whether we are able to pass on cost increases in the form of price increases.
Yeah, Andy if you think that there are certain.
Segments U.
Operator, and where you feel like you can take price.
Versus others, where you feel like you can't take price.
Yes, I think I think that in the yes, it's quite simple really I think in the.
And the categories, where we've got big healthy competitors that are more like us.
I think most people are waiting.
On prices so.
Keyboards mice headsets typically those prices were not seeing being raised the company's assembly absorbing the cost.
With our smaller competitors that we see with <unk>.
Components.
And let's be.
We get the specifically down to things like Chez.
You have to increase prices. So otherwise people will go out of business. So yes, when we got smaller competitors, we are seeing prices go up.
To reflect that for sale.
So we've got some litigation against the costs, but in the peripheral areas and the streaming areas.
We haven't seen even possible a lot of cost yet I think everyone sort of waiting to see how quickly the.
The shipping cost back down.
It's sort of inconceivable to think the.
Container prices would be just in dollars forever, So I'm pretty sure that eventually otherwise it will startup containing samples.
So I think.
I think that's probably going to be pretty quickly.
Great. Thanks for taking my questions.
The next question comes from Rod Hall with Goldman Sachs. Please go ahead.
Hi, This is RK on behalf of Raj. Thanks for taking my question, Andy I wanted to follow up on underlying demand could you give us more color on how you track that <unk> gone and I think you also mentioned some categories were softer and Michael to follow up on the pricing question why is it hard.
To pass along the price increases given that demand is still strong.
Yes.
So let's take the second one first I think that.
It's not necessarily hard to pass on price increases mechanically but.
And the competitive environment like I said just now.
Sure.
In our largest competitors that have healthy balance sheets and the notion is that you shouldn't tell us will ease within a year a lot of times when <unk> got products that are.
Heavily.
<unk> retail.
No.
We'll reset of the raise them a sell through by $10 and then taking it down again in six months. So that's why we tend to not see price increases.
Sure.
The other products things like cases, and pacifiers and Chad.
In general those prices have been rising well.
In many cases, we've got situations, where our retailers by containers for us.
So it'd be in China and that in total the tough themselves so that naturally tends to lift prices up.
The first part of the question.
I missed them sorry.
I wanted to ask on underlying yes.
How do you track that and the JV and some is stronger in software yes.
Yes, yes, sorry.
No.
Yeah. Thanks, Thanks straightforward, what we collect.
NPD data in the U S. We collect GSK data in Europe in many parts of the world we.
We do very surveys.
And of course, we see what's happening with point of sale.
So we've got a pretty good pretty good line on that.
And as I said earlier, what I tend to focus on is performance products those products people are buying.
Tuesday gaming.
And we see those.
Those rose by 70% to 19% to 20 or more currently holding at the same levels as <unk> 'twenty.
So which is pretty remarkable because I think we.
We're a little nervous that perhaps that was a onetime surge would relax back when people went back to work, but that hasnt happened.
Now, we don't know what the true underlying demand is of.
Gaming Pcs.
So people build them, but just think about it if prices are pushed up to 50% to 100% understand at MSRP.
You can imagine that the demand is well in excess of the supply.
And the talent.
Build rates in the U S and Europe is about the level of 2019 so.
So we know that it's somewhere in between 19 and 20 levels.
Could be more than 20 quite honestly, but I would expect it's more likely closer to 20, if graphic styles with the normal prices.
So that's basically how it's figuring it out.
And you mentioned that some categories were softer underlying demand.
So using some categories.
You mentioned I think.
Sure.
Yes, so its been muscled, yes, no I understand the question, yes, when we look across all of the different categories that we're in.
You can see that products that we used for work from home and perhaps not gaming.
Webcams for example.
Those were a bit softer.
We're not really in that market, but we're looking at it because we just launched the Cameron.
And some of the streaming products.
Lights.
Things that were bought by people not just gaming so we've seen that ease a little bit.
But in general all the things that are related to performance gaming has remained steady.
Great. Thanks, Andy.
Okay.
Once again, if you have a question. Please press Star then one.
The next question comes from Colin Sebastian from Baird. Please go ahead.
Great. Thanks. This is <unk> on for Colin two questions. If I may the first can you talk a bit about how the supply chain constraints are impacting the gaming components and the gamer and creator peripherals.
Differently. So it sounds like there is no more of a connection to PC build cycles and that demand getting pushed back for the components side, but how much of the gamer and creator peripherals demand is tied to that kind of new PC build cycle and.
Are you seeing is it a matter of inventory constraints and both segments, there or just kind of wondering why we're seeing the same declines in gamer and creator peripherals as the components.
If underlying demand trends are still healthy there.
Yes, so I think as complicated questions. So firstly those two segments are disconnected right I mean <unk> into <unk> and then at the same moment by new keyboard and mouse.
So those things are a synchronous.
And yes, the component we've got I mean, there's no problem with supply in let's say 95% of our.
Of our components, we're still short on things like very high voltage power supplies, but in general.
We're in pretty good shape.
And it's more of an issue.
Got installed prices that dictates that but that has no effect on the.
On the volume of gaming peripherals.
So it does lead to some other categories that are a little bit lighter.
And we've also got.
Yes.
Scuffs.
Subsidiary that we bought a couple of years ago, we're still going through the transition of <unk>.
And so thats little bit held back sales with that but that should.
A rebound in 2022.
Okay, Great. Thanks, and then you previously commented on some of your supply chain lead times.
I know, we talked about the shipping cost increases recently, but what are you seeing in terms of lead times versus normal and as Youre looking ahead to planning for 2022 and this increase in demand. How are you thinking about kind of planning inventory ahead of that and are stocking up ahead of that in order to.
To be prepared for when Gpus things normalize a bit.
Yes.
The thing about <unk> in terms of finished goods.
We increased inventory.
Different ways. One is you calculate and you need some refresh reload time, so that will have to go off a little bit. We also have probably six weeks of inventory in containers on the water.
Extra compared to last year, because lead times are generally gone from six to 12 weeks.
A container shipments.
So that's how we how we deal with it in terms of raw materials with our subcontractors.
Yes, we have many situations where life controllers.
Some of the numbers, we use are all anywhere from six to 12 months lead time.
So in those cases, we just bought ahead.
Okay, well thank you all.
Sure.
Pretty good pretty good handle on the supply chain in this case it does mean that like I said earlier.
Question on new products, we have to plan a little bit further ahead.
Volume.
At least we know where we stand now.
This concludes our question and answer session.
I would like to turn.
Conference back over to Andy Paul for any closing remarks.
Okay, well, let's take the thank everybody.
Attending the call thanks very much.
You're interested obviously looking forward to a very.
Very exciting.
Next 12 months.
We look forward to seeing you again.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
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