Q4 2023 Corsair Gaming Inc Earnings Call

Operator: Good afternoon, and welcome to the Corsair Gaming fourth quarter and full year 2023 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 a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press pound zero on your telephone keypad.

Good afternoon, and welcome to the Corsairs gaming fourth quarter and full year 2023 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 a listen only mode. A brief question and answer session will follow the formal presentation.

Once you require operator assistance during the conference. Please press the pound zero on your telephone keypad.

Operator: With that, I would now like to turn the call over to Ronald van Veen, Corsair's Vice President of Finance and Investor Relations. Thank you, sir. Please begin.

With that I would now like to turn the call over to Ronald benzene of course, Theres, Vice President of Finance and Investor Relations. Thank you Sir please begin.

Ronald van Veen: Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference call for the fourth quarter and full year ended December 31st, 2023. On the call today, we have Corsair CEO Andy Paul and CFO Michael Potter. Andy will review the highlights for the quarter; Michael will then review the financials, and we're out. We will then have time for any questions. Before we begin, allow me to provide a disclaimer regarding forward...

Thank you.

Afternoon, everyone and.

And thank you for joining us for Costar financial results conference call for fourth quarter and full year ended December 31st 2023.

On the call today, Yes, Coursera CEO, Andy Paul CFO, Michael Bonner Andy.

Andy.

Highlights for the quarter, Michael will review, the financials and our outlook.

It's time for any questions.

And again allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A.

Ronald van Veen: This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results of our company and are therefore forward-looking. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward Whitney's statements are subject to are described in their earnings release and other SEC files. Note that until our 10K has been filed, these numbers are not approved. Today's remarks will also include references to non-GAAP financial measures and Corsair Gaming. With that, I'll now turn the call over to Andrew.

A portion of the call may include forward looking statements related to expected future results of our company and our careful forward 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 the earnings release and all that.

The SEC filings.

It's that until our 10-K has been filed that these numbers are preliminary.

<unk> remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to GAAP financial information is provided in the press release, we issued after market close today with that I'll now turn the call over to Andy.

Andrew Edward Crum: Thank you, Ronald, and welcome everyone to our earnings call. For the full year, we achieved solid revenue growth of 6% in a challenging economic market, led by continued strength in our components business and a strong rebound in peripherals towards the end of the year. The first quarter of 2023 was lapping the end of the pandemic surge in Q1-22 before people generally returned to office work, making that a difficult comp, but during the last three quarters of 2023, we grew by 11%. As we noted in previous earnings calls, through much of 2023, our growth in peripherals was held back by heavy discounting from our competitors to clear up excess inventory. At the end of the year, inventories were back to normal, and, in addition, we saw good consumer spending during the holiday period.

Thank you Ronald and welcome everyone to our earnings call for.

For the full year, we achieved solid revenue growth of 6%.

In a challenging economic market led by continued strength in our components business and a strong rebound in peripheral as towards the end of the year.

The first quarter of 2023 was lapping the end of the pandemic surge in Q1 'twenty two before people generally return to office work, making that a difficult comp, but during the last three quarters of 'twenty to 'twenty three we grew by 11%.

As we noted in previous earnings calls through March of 'twenty, two 'twenty three our growth in peripheral was just held back by heavy discounting from our competitors to clean up excess inventory.

At the end of the year, we saw inventories back to normal and then you shouldn't we saw good consumer spending during the holiday period.

Andrew Edward Crum: This, plus some good product launches from us, allowed us to make much better progress in our gaming and creative peripheral segment, and we grew that segment in Q4 by 16% year on year. Financially, we bounced back well from 2022 with adjusted EBITDA doubling to $95 million, and we expect further gains in 2024. Some of this will come from increased revenue, but our margins are also steadily increasing as we continue to launch compelling products in our higher-growth product categories. Some of our notable new high-performance products launched in 2023 include our latest PC controller, new feature-rich headsets, and multiple new mice and keyboards. We also received a positive response to our first-of-its-kind Elgato teleprompter for content creators, which comes complete with a display and a two-way mirror behind which you can mount either an Elgato face cam or any DSLR camera to make it easier for people to create broadcast content or do a video call.

This plus some good product launches from us allowed us to make much better progress in our gaming and create a peripheral segment and we grew that segment in Q4 by 16% year on year.

Financially, we bounce back well from 2022 with adjusted EBITDA doubling to 95 million and we expect further gains in 2024.

Some of this will come from increased revenue, but our margins are also steadily increasing as we continue to launch compelling products and a higher growth product categories.

Some of our notable new high performance products launched in 2023 include our latest P. C controller, new feature rich headsets, and multiple new mice and keyboards.

Also received a positive response to all sorts of its calendar El Gallo tell of problems of the content creators, which comes complete with a display in two way mirror.

Which you can mail either in El Gallo phase Cam or any jealous all camera to make it easier for people to create brookhouse content or do a video call.

Andrew Edward Crum: Another area we are very excited about is our expanding Stream Deck ecosystem. In addition to launching new models, including a co-branded limited edition model with Starfield, we launched a fast-growing application marketplace for our popular Stream Deck. This new marketplace allows our growing install base of Streamrack users to buy apps and plugins from both our in-house creators and from hundreds of third-party programmers and creators who have also partnered with us.

Another area. We are very excited about is all expanding stream deck ecosystem.

In addition to launching new models, including a co branded limited edition bottle with store field.

We launched a fast growing application marketplace for all popular stream deck.

This new marketplace allows our growing installed base of stream that uses.

Goodbye absent plug ins from both our in house creators and for the hundreds of third party programs and creators.

Also partner with us.

Andrew Edward Crum: This is doing better than expected, and already 35% of the Stream Deck installed base have opened accounts on the Marketplace website. As we continue to gain a critical mass of applications, this will make our already popular Stream Deck a must-have item, driving new hardware sales, and will create a very meaningful new revenue stream from the application. We have made several moves to increase our operational efficiency. For example, during the year, we moved production of many of our SCUF controllers to our factory in Taiwan. This allowed us to close an expensive factory located in the UK.

This is doing better than expected and already 35% of the stream deck installed base have opened accounts on the market place website.

As we continue to gain a critical massive applications. This will make our already popular stream Jack I must have item.

Giving new hardware sales and will create a very meaningful new revenue stream from the applications.

We have made several moves to increase our operational efficiency.

During the year, we moved production of many of our scuffed controllers to our factory in Taiwan.

This allowed us to close and expensive factory located in the U K.

Andrew Edward Crum: At the same time, we expanded our Atlanta facility, where SCUF is headquartered, and we have added a warehouse and shipping hub there to support shipments to the East Coast. This year, we will move our Origin production site, currently in Miami, to the new facility in Atlanta. Our Atlanta facility has also undergone expansion to add capacity for production and warehousing, which provides us with a strategic opportunity to support Corsair's long-term growth. This follows the successful completion of our state-of-the-art facility in Taiwan, which is now in full production and capable of delivering personalized gaming peripherals in the same way they can do today on SCUF controllers. All these changes will give us a strong competitive advantage in the marketplace. Lastly, I am pleased to report our integration of our drop acquisition is largely complete, and our teams have begun actively collaborating to leverage Corsair's global sales and distribution channel and to maximize new development opportunities.

The same time, we expanded our Atlanta facility with Scottish I quoted.

We have added a warehouse and shipping how best to support shipments to the east coast.

This year, we will move off all Virgin production sites currently in Miami.

So the new facility in Atlanta.

Our Atlanta facility is also undergoing an expansion to add capacity for production and warehousing, which provides us with strategic opportunities to support course has long term growth.

Okay.

This follows the.

Successful completion of all state of the art facility in Taiwan, which is now in full production and capable of delivering personalized gaming peripherals in the same way. They can do today I'll discuss controllers will.

All these changes will give us a strong competitive advantage in the marketplace.

Lastly, I am pleased to report our integration of all drop acquisition is largely complete.

But now it seems have begun actively collaborating to leverage <unk> global sales and distribution channel.

And to maximize new development opportunities.

Andrew Edward Crum: We expect Drop to contribute more significantly to our overall revenue and profit growth moving forward. We've done about seven acquisitions over the years, so M&A is part of our growth strategy. We expect to be active in 2024 if the right opportunities exist, which is in line with our view that consolidation will continue to happen over the next few years. Looking forward to 2024, we expect that the gaming components and systems segment will be similar to last year since we are in the mid-cycle for new GPUs, and the next big GPU launch and demand surge is likely to be in 2025. For the gamer and creative peripheral segment, we expect significant growth, especially from new products that we have recently launched and more that we're about to launch. In addition, we will be entering two new product categories in 2024, Sim Racing and Mobile Controllers.

We expect dropped to contribute more significantly to our overall revenue and profit growth moving forward.

We've done about seven acquisitions over the years, so M&A as part of our growth strategy.

We expect to be active in 2020 full if the right opportunities exist, which is in line with all of you that consolidation will continue to happen over the next few years.

Looking forward to 'twenty 'twenty four we expect that the gaming components and systems segment will be similar to last year. Since we are in mid cycle for new Gpus and the next big GPU launched in demand surge is likely to be 2025.

So the game and create a peripheral segment, we expect significant growth, especially from new products that we recently launched a mall that we were about to launch.

In addition, we will be entering two new product categories in 'twenty to 'twenty four seven but are you seeing in mobile controllers.

Michael Potter: We expect the overall gaming market to now enter a new growth phase as we enter a refresh cycle from the surge of consumer spending that occurred during the shelter-at-home years. This, plus our expected market share gains, should allow us in the next few years to drive our revenue to over $2 billion with double-digit percentage EBITDA margins. Let me now turn the call over to our CFO, Michael Potter, for details on the financials. Michael, please go ahead.

We expect the overall gaming markets and now into a new growth phase as we enter a refresh cycle from the surge if consumer spending that occurred during the shelter at home is.

This plus our expected market share gains should allow us in the next few years to drive out revenue to about $2 billion with double digit percentage EBITDA margins.

Now I'll turn the call over to our CFO Michael Potter.

For details on the financials Michael Please go ahead.

Michael Potter: Thanks, Andy, and good afternoon, everyone. Overall, the year developed in line with our expectations. We more than doubled our adjusted EBITDA, turned profitable on a GAAP basis, and tripled our EPS on a non-GAAP basis. Growth in peripherals resumed, and we clearly benefited from demand for new products.

Thanks, Andy and good afternoon, everyone.

Overall, the year developed in line with our expectations and more than doubled our adjusted EBITDA turn profitable on a GAAP basis and tripled our EPS on a non-GAAP basis growth in peripheral has resumed and we clearly benefited from demand for new products.

Michael Potter: As expected, we benefited from reduced promotional activities from other industry players and improved inventory levels. I'm pleased to report that, with regard to inventory, we've returned to target levels in both the channel and our warehouses, and we're actually light in some categories, including some of our more recent product launches. This should be an added tailwind for us in 2024.

As expected we benefited from reduced promotional activities from other industry players and improved inventory levels I'm pleased to report that with regard to inventory returned to target levels in both the channel and our warehouses and we're actually light in some categories, including some of our more recent product launches there.

It should be an added tailwind for us in 2024.

Michael Potter: We expect to build on this positive momentum in 2024 with a strong demand outlook for our new products, improve profitability, and continue growth in adjusted EBITDA. In terms of the specifics, Q4 2023 net revenue was $417.3 million compared to $398.7 million in Q4 2022. For the full year 2023, net revenue increased 6.2% to $1,459.9 million from $1,375.1 million in 2022. European markets contributed 38.6% of our Q4 2023 revenues compared to 36.5% in Q3 2023, which is back to the level prior to the start of the conflict in Ukraine, while the APAC region contributed only 9.9% of our Q4 2023 revenues, largely due to softness in the Chinese market. The Asian market was weaker than we expected during the year, particularly in Q4.

We expect to bid on this positive momentum in 2024 with a strong demand outlook for our new products improve profitability and continued growth in adjusted EBITDA.

In terms of the specifics Q4, 2023, net revenue was $417 $3 million compared to $398 $7 million in Q4 of 2022 for the full year 2023, net revenue increased six 2% to 1 billion 459.

$9 million from 1 billion $375.1 million.

2022.

European markets contributed 38, 6% of our Q4 2023 revenues compared to 36, 5% in Q3, 2023, which is back to the level prior to the start of the conflict in Ukraine, while the APAC region was only nine 9% of our Q4 revenues largely due to softness.

And the China market, the Asia market was weaker than we expected during the year, particularly in Q4.

Michael Potter: Turning now to our segment, the Gamer and Creator Peripheral Segment contributed $136.8 million of net revenue during the fourth quarter, compared to $117.8 million in Q4 2022. For the full year of 2023, Gamer and Creator Peripheral Segment revenue was $394.9 million, compared to $437.8 million for the full year of 2022. The Gaming Components and Systems Segment contributed $280.5 million of net revenue during the quarter, which was relatively flat with $280.9 million in Q4 2022. Memory products contributed $145.5 million in Q4 2023, compared to $158.1 million in Q4 2022.

Turning now to our segments.

The gamba and create a peripheral segment contributed $136 $8 million of net revenue during the fourth quarter compared to $117 $8 million in Q4 of 2022 for the full year of 2023 Gamer and create a peripheral segment revenue was $394 nine.

Million dollars compared to $437 $8 million for the full year of 2022, the gaming components and system segment contributed $280.5 million of net revenue during the quarter, which was relatively flat with $289 million in Q4 of 2022.

Memory products contributed $145 $5 million in Q4, 2023 compared to $158 $1 million in Q4 of 2022 for the full year 2023 gaming components and system segment net revenue increased two 1 billion and 60.

Michael Potter: For the full year 2023, gaming components and system segment net revenue increased to $1,065,000,000 from $937.3 million for the full year 2022, with revenue from memory products increasing to $517.4 million from $504.6 million. Overall gross profit in the fourth quarter was $102.7 million compared to $97.9 million in Q4 2022, reflecting the higher revenue in the current quarter. Gross margin increased to 24.6% compared to 24.5% in Q4 2022. We continue to benefit from further improvements in freight costs and high demand for both new product introductions and popular lines like our Stream Deck and Webcam. Overall gross profit increased to $360.3 million for the full year 2023 compared to $296.6 million for the full year 2022. However, Q4 was negatively impacted by the success of new products Andy mentioned as we had to use more than planned air freight to get those products to market.

$5 million from $937 $3 million for the full year of 2022 with revenue for memory products, increasing to $517 $4 million from $504 $6 million.

Overall gross profit in the fourth quarter was $102.7 million compared to $97.9 million in Q4 of 2022, reflecting the higher revenue in the current quarter gross margin increased to 24, 6% compared to 24, 5% in Q4 2012.

Two we continue to benefit from further improvements in freight costs and high demand for both new product introductions and popular lines like our street back and webcams.

Overall gross profit increased to $363 million for the full year of 2023 compared to $296 $6 million for the full year of 2022 Q4 was negatively impacted by the success of new products and you mentioned as we had to use more than planned airfreight to get those products to market.

Michael Potter: The Gamer and Creator Peripheral Segment Gross Profit was $50.9 million, compared to $39.7 million in Q4 2022. Gross Margin was 37.2%, up 350 basis points, compared to 33.7% in Q4 2022. The gaming components and system segment gross profit was $51.8 million, compared to $58.2 million in Q4 2022. Gross margin was 18.5%, compared to 20.7% in Q4 2022, reflecting mix and some cost headwinds.

The game room creator peripheral segment gross profit was $59 million compared to $39 $7 million in Q4 of 2022 gross margin was 37, 2% up 350 basis points compared to 33, 7% in Q4 of 2022.

The gaming components and system segment gross profit was $51 $8 million compared to $58 $2 million in Q4 2022.

Margin was 18, 5% compared to 27% in Q4 of 2022, reflecting mix and some cost headwinds our memory products gross margins. In this segment were 13, 5% for the fourth quarter compared to 18, 1% in Q4 of 2022.

Michael Potter: Our memory products gross margins in this segment were 13.5% for the fourth quarter compared to 18.1% in Q4 2022. Fourth quarter SG&A expenses were $73.8 million compared to $68.5 million in Q4 2022, while R&D expenses were $16.7 million, up 6% compared to Q4 2022, as we continue to invest in support of new category leadership products in both our components and peripheral segments. Gap operating income in the fourth quarter of 2023 was $12.1 million, compared to $13.6 million in Q4 2022.

Fourth quarter, SG&A expenses were $73 $8 million compared to $68 $5 million in Q4 of 2022, while R&D expenses were $16 $7 million up 6% compared to Q4 2022, as we continue to invest in support of new category.

Sure products in both our components and peripheral segments.

GAAP operating income in the fourth quarter of 2023 was $12 $1 million compared to $13.6 million in Q4 of 2022.

Michael Potter: Fourth Quarter Adjusted Operating Income increased to $31.8 million from $29.6 million in Q4 2022. This was another area of significant improvement as Adjusted Operating Income more than doubled to $85.4 million for the full year 2023 from $34.6 million in 2022. Fourth quarter net income attributed to common shareholders was $6.2 million, or $0.06 per diluted share, as compared to net income of $12.5 million, or $0.12 per diluted share, in Q4 2022.

Fourth quarter, adjusted operating income increased to $31.8 million from $29 $6 million. In Q4 2022. This is another area of significant improvement as adjusted operating income more than doubled to $85 $4 million for the full year 2023 from 34.6.

$9 in 2022.

Fourth quarter net income attributable to common shareholders was $6 $2 million or six cents per diluted share as compared to net income of $12 $5 million or 12 cents per diluted share in Q4 of 2022.

Michael Potter: On an adjusted basis, fourth-quarter net income improved to $23.2 million or $0.22 per diluted share compared to $20.7 million or $0.20 per diluted share in Q4 2022. For the full year 2023, adjusted net income improved to $58.3 million or $0.55 per diluted share from $18.4 million or $0.18 per diluted share in 2022. Finally, we increased fourth quarter adjusted EBITDA to $33.7 million, compared to $32 million for Q4 2022. For the full year 2023, adjusted EBITDA more than doubled to $95.1 million from $46.5 million in 2022. Drop was about $1 million negative again in Q4, totaling about $2 million negative for the year.

On an adjusted basis fourth quarter net income improved to $23 $2 million or 22 cents per diluted share compared to $27 million or 20 cents per share in Q4 of 2022 for the full year of 2023, adjusted net income improved to $58 $3 million.

Or 55 cents per diluted share from $18 $4 million or 18 cents per diluted share in 2022.

Finally, we increased fourth quarter, adjusted EBITDA to $33 $7 million compared to $32 million for Q4 2022.

For the full year of 2023, adjusted EBITDA more than doubled to $95 $1 million from $46 $5 million in 2022.

Crop was about $1 million negative again in Q4 totaling about $2 million negative for the year, but with the integration behind us we expect it to be neutral to start the year and then slowly grow.

Michael Potter: But with the integration behind us, we expect to be neutral to start the year and then slowly grow. Turning now to our balance sheet, we ended Q4 in a strong financial position, with a cash balance, including restricted cash, of $178.6 million. We ended Q4 with $199 million of debt at face value, and our $100 million working capital revolver remains fully undrawn and fully available.

Turning now to our balance sheet.

We ended Q4 in a strong financial position with a cash balance including restricted cash of $178 $6 million. We ended Q4 with $199 million of debt at face value and our 100 million dollar working capital revolver remains fully undrawn and fully available.

Michael Potter: We further reduced debt in Q4 and plan to continue doing so over the coming quarters. We remain in an excellent position with a strong balance sheet and a working capital position to support our organic growth opportunities and to pursue outside opportunities if they are a strategic fit and align with our business goals. For our outlook, in terms of the full year 2024, our financial outlook reflects cautious optimism. We expect total revenue in the range of $1.45 to $1.6 billion. Adjusted operating income in the range of $92 million to $112 million, and adjusted EBITDA in the range of $105 million to $125 million. Assuming we maintain the same debt and cash balances in 2024, we'd expect to have approximately $2 million of net interest expense per quarter. We're using an effective tax rate of approximately 18% to 22% for 2024 and the full year weighted average diluted shares outstanding of approximately 107 to 110 million shares.

We further reduced debt in Q4 and plan to continue doing so over the coming quarters remain in excellent position with a strong balance sheet and working capital position to support our organic growth opportunities and to pursue outside opportunities. If there are strategic fit and align with our business goals.

For our outlook in terms of the full year 2024, our financial outlook reflects cautious optimism. We expect total revenue in the range of 1.45 to $1 $6 billion adjusted operating income in the range of $92 million to 112 million.

And adjusted EBITDA in the range of $105 million to $125 million.

Assuming we maintain the same debt and cash balances in 2024, we'd expect to have approximately $2 million of net interest expense per quarter.

We're using an effective tax rate of approximately 18% to 22% for 2024.

And the full year weighted average diluted shares outstanding of approximately 107 to 110 million shares.

Michael Potter: In terms of more specifics around our 2024 outlook, we expect 2024 to follow a typical seasonal pattern for revenue. We expect the majority of the year-over-year revenue growth at the top end of our guidance to be in the second half of the year, with the first half only slightly up or flat compared to 2023. We expect the margin improvements from 2023 to carry forward into 2024, and we will continue our tight control of operating expenses. So we expect EBITDA to expand year-over-year in every quarter. Even in a flat year-over-year revenue environment, we expect EBITDA percent to improve. We expect CapEx spending to be back to its historic level of under 1% of revenues, and we expect stock-based compensation expense of approximately $36 million for the year.

In terms of more specifics around 2024 outlook, we expect 2024 to follow our typical seasonal pattern for revenue. We expect the majority of the year over year revenue growth at the top end of our guidance to be in the second half of the year with the first half only slightly up to flat compared to 2023, we expect the margins improvement.

From 2023 to carry forward into 2024, and we will continue our tight control of operating expenses. So we expect EBITDA to expand year over year and every quarter.

Even in a flat year over year revenue environment, we expect EBITDA percent to improve.

We expect capex spending to be back to its historic level of under 1% of revenues and we expect stock based compensation expense of approximately $36 million for the year.

Drilling down to our segments, we expect the first half growth to come from our Gamer and creator peripheral segment as the Mentum from our product lineup and strong game releases. In 2023 continues we're amid the typical hardware refresh cycle. So expect a minus 5% to plus 5% revenue growth in our components and system segment.

Michael Potter: Drilling down to our segments, we expect the first half growth to come from our gamer and creator peripheral segment, as momentum from our product lineup and strong game releases in 2023 continues. We are amid the typical hardware refresh cycle, so expect minus 5% to plus 5% revenue growth in our components and systems segment, from the bottom to the top end of the range. We expect gamer and creator peripheral segment year-over-year sales to grow across the entire expected revenue range.

From the bottom to the top end of the range, we expect gamer and create a peripheral segment year over year sales to grow across the entire expected revenue range. We also saw a memory prices increased for the first time in two years in Q4, which if that continues as expected should be another positive for the coming year.

Finally, we expect 2024, it would be a good step to get or adjusted EBITDA margins closer to double digits, which is our near term goal.

With that we're happy to open the call for questions. Operator will you. Please open up the call for Q&A.

Operator: We also saw memory prices increase for the first time in two years in Q4, which if that continues as expected, should be another positive for the coming year. Finally, we expect 2024 to be a good step to get our adjusted EBITDA margins closer to double digits, which is our nearer-term goal. With that, we're happy to open the call for questions. Operator, will you please open up the call for Q&A? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you would like to remove your questions. For Participants Using Speaker Equipment, it may be necessary to pick up your handset before pressing the start button.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment.

It may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Thank you.

Our first question comes from the line of drew Crum with Stifel. Please proceed with your question.

Thanks, Hey, guys. Good afternoon. So you noted a recovery in the gaming peripheral market.

24 guidance would imply your business grows at a mid teens clip.

That's accurate how does that compare to your expectations for category growth and assuming your share gain or what are the sources of increase for Corsair, and then I have a follow up.

Operator: One moment, please, while we pull for questions and Corsair Gaming. Our first question comes from the line of Drew Crum with Corsair Gaming. Please proceed with their questions. Thanks. Hey, guys. Good afternoon.

Yeah.

Yeah, well, it's a combination of market share gain which we're pretty confident of.

And we do expect some small market growth, it's obviously, a little difficult to say well that could be we know historically if you go back pre pandemic the gaming peripheral market was getting a 15% to 20% and suddenly all the underlying drivers of that.

Andrew Edward Crum: So you noted a recovery in the gaming peripheral market. The 24 guidance would imply your business grows at a mid-teens clip. If that's accurate, how does that compare to your expectations for category growth? And assuming you're a share gainer, what are the sources of increase for Corsair? And then I have a follow-up.

It's been in place and we've got to do with the surge obviously of of of Covid and so it's difficult to forecast what that could be we expect eventually it's going to return back to the same gross numbers because the white spaces. So huge but what is going to be this year. I mean, obviously, we've got our own models, which would probably doesn't share but let's just.

Andrew Edward Crum: Yeah, it was a combination of... market share gain, which we're pretty confident of, and we do expect some small market growth. But it's obviously a little difficult to say what that could be.

Michael Potter: We know historically, if you go back pre-pandemic, the gaming peripheral market was going at 15 to 20%. And certainly, all the underlying drivers of that are still in place. But we've got to deal with the surge, obviously, of COVID, and so it's difficult to forecast what that could be. We expect eventually it's going to return to the same growth numbers because the white space is so huge. But what it's going to be this year, I mean, obviously, we've got our own models, which we're probably not going to share. But let's just say that there is a combination of market share gain and market growth in our forecast. And Andy, do the new product categories you referenced, you know, the sim racing and mobile controllers, have a meaningful impact on that part of the business this year? We haven't built that in, so it's possible they would have, but those are not really built into our models in any meaningful way.

Say that there's a combination of market share gain and market growth in our forecast.

And Andy does it does the new product categories, you reference the Sim racing and mobile controllers have a meaningful impact on that part of the business. This year.

Oh, we haven't built that in so they would have but those are not really built into our models in any meaningful way.

Okay got it and then Michael just real quickly on gross margin it looks like the midpoint of the range for this year is 27%, which you know if if I'm accurate here represents a nice step up versus last year and would approach a peak for courser at least as a public company can you talk about what's what's driving the expected year on year.

The increase thanks.

Yeah for the most part it's the recovery in our peripheral segment, we were quite low compared to historical average at the beginning part of the year and we ended the year a lot closer to where we normally are so I'm expecting that to continue in 2024, and then the growth compared to our components segment should pull deal.

Michael Potter: Okay, got it. And then, Michael, just real quickly on gross margin, it looks like the midpoint of the range for this year is 27%, which, you know, if I'm accurate here, represents a nice step up versus last year and would approach a peak for Corsair, at least as a public company. Can you talk about what's driving the expected year on year increase? Thanks.

Our margins up a essentially just a story of the momentum we started getting towards the end of 'twenty three continuing through 'twenty four.

Got it okay. Thanks, guys.

Thank you.

Our next question comes from the line of George Wang with Barclays. Please proceed with your question.

Michael Potter: For the most part, it's the recovery in our peripherals segment. You know, we were quite low compared to our historical average at the beginning part of the year, and we ended the year a lot closer to where we normally are. So I'm expecting that to continue in 2024, and then the growth compared to our components segment should pull the overall margins up. Essentially, just the story, the momentum we started getting towards the end of 23, continuing through 24.

Oh, Hey, guys.

So a lot of color just two quick ones. Firstly, just just by looking at your long term model, obviously nice to see a kind of upward trajectory just curious kind of what timeframe.

Would you be targeting and you know any thoughts on cadence to get to that long term model.

Well I'm not going to share the details of our models like that we've said long term guidance I mean, we made a few years, obviously not decades.

Operator: Okay. Thanks, guys. Thank you. Our next question comes from the line of George Wang with Barclays. Please proceed with your question. Oh, hey, guys. Thanks for the color. Just two quick ones.

A lot of this depends on how fast the market.

It tends to go out and how much growth, we get from the market because as I said in the last question.

Andrew Edward Crum: Firstly, just by looking at your long-term model, obviously, nice to see a kind of upward trajectory. Just curious about what timeframe you would be targeting and, you know, any thoughts on cadence to get to the long-term model? Well, I'm not going to share the details of our models like that.

Question, you know as this is a combination of market share gain as well as market growth.

So hopefully that helps the the cadence of how we get there is really going to be a steady growth.

Very similar to what we expect this year in other words continuous upward.

Margins up them into our margins.

Andrew Edward Crum: We've said long-term guidance, and we mean a few years, obviously not decades. A lot of this depends on how fast the market returns to growth and how much growth we get from the market because, as I said in the last question, this is a combination of market share gain as well as market growth. So hopefully that helps. The cadence of how we get there is really going to be steady growth, very similar to what we expect this year. In other words, a continuous upward movement.

And some regional expansion.

As we look to gain some traction in Asia.

And also we mentioned a new move into more customization and personalization.

Okay great.

I have a quick follow up.

When it comes off the trough rose.

Nice to see growth rebounding.

Double digit level over the next couple of years, just kind of as the news of a refresh cycle.

Andrew Edward Crum: Margins, higher momentum on margins, and some regional expansion, uh... as we look to, you know, gain some traction in Asia, and also, we mentioned a new move into more customization and personalization. Okay, great. I just have a quick follow-up.

Just getting underway.

From the kind of Colgate refresh just maybe you can double click on that just what are you seeing from a macro standpoint to himself with that that kind of held up better.

Andrew Edward Crum: You know, in terms of the peripherals, it's nice to see growth rebounding to double digit levels over the next couple of years, just kind of as the new survey, you know, refresh cycle, you know, just getting underway, you know, from the kind of COVID refresh, maybe you can double click on that, just what I've seen from sort of a macro standpoint in terms of the kind of health of the consumer peripherals. And, you know, and how strong of a rebound do you think the industry can enjoy, and also, obviously, on top of additional share gains by Corsair? Thank you. Yeah, So if you look at last year, clearly 2022 was the first year after the surge in... from the pandemic, even though 2022 was still significantly higher, I think 40 or 50% compared with 2019. So the market was bigger, but it was less than it was during the surge. And 2023 was more of the same.

And you know how.

How's the rates drop it rebounds.

Do you think that the industry can enjoy and also obviously on top of additional chassis and cycles. Yeah. Thank you yeah.

So if you look at last year, clearly 2022 was the first year after the surge in.

From the pandemic, even though 2022 was still significantly up I think 40 or 50% compared with 2019. So the market was big but it was less than it was during the surge in 2023 was more of the same now some of the things that happens in 'twenty. Three was there was a lot of continued cleaning out of.

Tree and.

And discounts that when that happens if he's got a lot of discounts getting on the Isps go down until the industry wide. So therefore, the Tam is a little less than it should be when there's discounting stops and so.

So there's more recovery that we're seeing on industry reports more carefully on Asps and.

Andrew Edward Crum: Now, some of the things that happened in 23 were there was a lot of continued clearing out of inventory at discounts. Now when that happens, if you've got a lot of discounts going on, the ASPs go down, I'm talking industry-wide, so therefore, the TAM is a little less than it should be when the discounting stops. And so there's more recovery that we're seeing in industry reports, more recovery on ASPs than there is on units, meaning that it drives revenue up. So that's the first thing that we've seen. And then, as we move through the year, we were pretty encouraged by the activity around Black Friday and Christmas. There was a lot of activity there at pretty reasonable prices. So we lent in on Black Friday because we could do it without having to over-discount and had pretty good results.

Units, meaning that he drives revenue up.

So that's the first thing that we've seen and then as we move through the through the year, we were pretty encouraged by activity around.

Prime day, but black Friday, and Christmas a lot of activity there at a pretty reasonable prices. So we we learnt in on on Black Friday, because you know we could we could do it without having to discount and had pretty good results.

So that's the that's the sort of the first thing the market is definitely recovering from you know a decline again much bigger than it was before COVID-19, but declines since the.

Since the surge now for US we've got a number of things going on in peripherals right. One is up.

Andrew Edward Crum: So that's the sort of first thing the market is definitely recovering from, you know, a decline again, much bigger than it was before COVID, but a decline since The Stefano's Secret. The Stefano's Secret interview will be available at The Stefano's Secret Website. We've launched some really key products at the right price points that we know are the center of gravity for peripherals, especially on keyboards. The second thing is that, as we mentioned, we're going to be further launching or further rolling out customization. As you may know, the acquisition we did with SCUF was quite strategic, and last year about 50% of the products sold to consumers were customized or personalized in some way, either with graphics or with other features such as, you know, switches and paddles and that sort of thing, and we're going to do the same thing with the rest of our peripherals And the same thing happened with Drop, this company we just bought about four months ago. They're specializing in limited edition drops.

We've launched some really key products at the right price points that we know is the sensor of our center of gravity for peripherals, especially on keyboards. The second thing is that as we mentioned we're gonna be a further launching.

Well further rolling out customization as you May know the acquisition, we did a scarf.

<unk> was quite strategic and lost you about 50% of the products.

So too.

Consumer as well customized personalized in some way either lead graphics or with other features such as switches and pedals and that sort of thing and we're going to do the same thing with the best of our peripherals.

Starting.

Now in the middle of the year.

So yeah, we think it was a huge opportunity there.

And the same thing happens with drop this company. We just bought about four months ago. That's specializing in limited edition drops and so the key thing for US was to get off factory sort. It out so that we can take advantage of that of a fairly low cost premium.

Okay. Those are the main things, we expect to happen yet.

Andrew Edward Crum: And so the key thing for us was to get our factory sorted out so that we could take advantage of that at a fairly low cost premium. Those are the main things we expect to happen, yeah. Okay, great. Let me go back to the, Thank you. As a reminder, press star 1 to ask a question at this time. Our next question comes from the line of Doug Croyton, with P.D. Cowan.

Okay, Great. Let me go back to the queue.

Thank you.

A reminder, press star one to ask a question at this time.

Our next question comes from the line of Doug Quoits.

With TD Cowen.

Please proceed with your question.

Hey, Thank you I'm just wondering if we go back two years you had you had an analyst day and you kind of give longer term guidance of let's say kind of low teens revenue out into the future. Obviously your guidance for this year is.

Operator: Please proceed with your questions. Hey, thank you. If we go back two years, you had an Analyst's Day, and you kind of gave longer-term guidance of, let's say, low teens revenue out into the future. Obviously, your guidance for this year is basically zero to 10%. You talked about being mid-cycle.

Basically zero to 10% you talked about being mid cycle, just wondering how hot a lineup you know what you are expecting this year with that guidance. You gave two years ago have I think change and you no longer feel that guidance is appropriate just whatever color you can give around that would be great.

Andrew Edward Crum: Just wondering how to line up what you're expecting this year with that guidance you gave two years ago. Have things changed, and you no longer feel that guidance is appropriate? Whatever color you can give around that would be great.

Yeah, So I think obviously.

History.

History of the past.

It gives you more details right. So well we now know is what happened during the pandemic and after the pandemic and we now.

Andrew Edward Crum: Yeah, so I think, obviously, you know, history, history of the pessimists, I'm giving you more details, right. So what we now know is what happened during the pandemic and after the pandemic. And we're now, sort of back to normal, I think. But we still do have a hangover of inflation.

Sort of back to normal I think but we still do have.

[noise] over of inflation. We go so you got to deal with that and we see that with all the consumer markets.

We do think that there's going to be a.

Our refresh cycle, we've talked about that quite a lot. We're now four years off to a pretty much exactly four years. After a pandemic started and that was when a lot of people started buying you entry level peripherals, we expect them to start upgrading so that's why we think the immediate growth and then I think once we're through this.

Andrew Edward Crum: We've obviously got to deal with that. We see that with all the consumer markets. We do think that there's going to be a... and Corsair Gaming. So that's where we think the immediate growth is going to be. And then I think once we're through this, the bubble and pull back, and we'll get back to normal drivers. As I said earlier, I don't see why, given the amount of white space that we've got in gaming and the fact that it's growing generationally, it wouldn't surprise me for gaming to get back to 15 or 20% growth per year. But, you know, we're not going to see that this year. I don't think with the inflationary situation going on and the interest rate's pretty high.

Belgium trough or Belgium, pullback and we'll get back to normal drivers and as I said earlier I didn't see why given.

Given the amount of white space, we've got in gaming and the fact that it's growing generationally.

It wouldn't surprise me its for gaming to get back to 15 or 20% growth per year, but you know we're not going to see that this year I didn't think with with the inflationary situation going on and the interest rates pretty high so once once that gets all end.

Andrew Edward Crum: So once that gets ironed out, I think we'll get back to better market growth. Now, in the interim, I do think we've got an opportunity now to really grow some market share. And there are a lot of things that are in our favor for that.

That I think we'll get back to that it's a bad market right now in the interim I do think we've got an opportunity now.

So really growth in market share.

And there's a lot of things that are in our favor for that.

Andrew Edward Crum: Okay, great. Thank you. Thanks. As a reminder, press star 1 to ask a question at the end of the call. Our next question comes from the line of Aaron Lee and Quarry. Please proceed with your questions.

Okay, great. Thank you.

Yeah.

Thank you as a reminder, press star one to ask a question at this time.

Our next question comes from the line of Aaron Lee with Macquarie. Please proceed with your question.

Hi, good afternoon, Thanks for taking my question.

Operator: Thanks for taking my question. So you talked about a few of your initiatives, like the Stream Deck Marketplace and Drop. And I know we're still in the early days, but I'm just looking for any color, really, on your strategy to advance those through the year and any major milestones that we should look out for. Yeah, I mean, they're still pretty early.

So you talked about a few of your initiatives like the stream deck marketplace and drop and I know, we're still early days, but I'm just looking for any color really on your strategy to advance those through the year and any major milestones that we should look out for.

Yeah, I mean, it's still pretty early I think the the first let's talk about marketplace. Our first so very early stages. We just launched it a four months ago, we already have a about 35% of the installed base of signed up for our marketplace account and a.

Andrew Edward Crum: I think the first thing we should talk about is the Marketplace. So, very early stages, we just launched it four months ago. We already have about 35% of the install base that have signed up for a Marketplace account, and a lot of downloads. I think we mentioned 5.5 million downloads so far.

A lot of downloads I think he mentioned this.

Five $4 million to $5 million million downloads to fall so.

Andrew Edward Crum: The next rollout there, we've already started to showcase some products that are, that you have to pay for. And so, you know, the move now is to see how many people we can move from getting free plugins to paid-for plugins. And of course, once you get past there, then you can start thinking about subscription models and that sort of thing. But I think it's kind of a wide open opportunity.

The next rollout that we we've already started to showcase some products at all did you have to pay for and so you know the the mood now is to see how many people we can move from getting free plug ins to painful plug instead of course once you go past. There then you can see.

Thinking about subscription models and that sort of thing, but I, but I think it's it's it's kind of a wide open opportunity.

Andrew Edward Crum: We want to try and make sure that the Stream Deck is as useful as possible. When the Stream Deck was launched, it was launched as a streaming aid. And so for content creators that were streaming, that was the main use case. But we're now seeing all sorts of incremental use cases, even in office spaces and general use cases. So that's going to be the next expansion. But we'll keep everyone posted as we go through the year on significant metrics. This year, we don't expect any huge revenue from it, but it is starting to generate some revenue.

We want to.

Try and make it make sure that the stream decades as useful as possible.

When the stream that was launched it was launched as a streaming aid and so the creative content creators that was screaming that was the main use case, we're now seeing all sorts of incremental use cases, even in office spaces in and general use cases, so that's going to be the next expansion.

We'll keep everyone posted as we go through the year a significant metrics.

This year, we don't expect any any huge revenue from it but but it is starting to generate generate some some some revenue.

Andrew Edward Crum: On Drop, we've just finished the integration, so now everyone's working together, and there are really two things that we're looking forward to. One is taking Drop products into retail, into our channels. And that's going to start happening very quickly in the next few months.

On Trop, we've just finished the integration so now everyone's working together and there's really two things that we're looking forward to what he is taking the dropped products into retail in.

Into all channels and that's going to start happening very quickly in the next few months and the second thing is we're going to experiment with some of our customized products putting them on the jump website. So these are the initial.

Andrew Edward Crum: And the second thing is we're going to experiment with some of our customized products, putting them on the Drop website. So these are the initial... You know, set ups. Obviously, we've had to sort of do all the integration and get everybody working together, which is largely complete, as I said. Okay, great, thank you for the color. Thank you. As a reminder, please press star 1 to ask a question at this time. If there are no further questions at this time, I would like to turn the floor back over to Andy Paul, CEO, for closing comments. Thank you everyone for joining the call today and for your continued support. If you have any follow-up questions, please contact our Investor Relations Department, and we look forward to updating you next quarter. Thank you and have a good evening, and Corsair Gaming. This concludes today's telecom; you may disconnect your lines at this time.

You know set up so obviously, we've had to sort of do all the integration and get everybody working together, which is largely complete as I said, so you know more to come on that and we'll keep everybody posted as we go through the year.

Okay, great. Thank you for the color.

Thank you.

As a reminder, please press star one task a question at this time.

Yeah.

Is it.

There are no further questions at this time I would like to turn the floor back over to Andy Paul.

For closing comments.

Thank you everyone for joining on the call today and for your continued support.

Have any follow up questions. Please contact our Investor Relations Department.

We look forward to updating you next quarter. Thank you and have a good evening.

Yeah.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Andrew Edward Crum: Thank you for your participation, and Corsair Gaming. And I'm Stephen Ju. I'll see you next time. Thanks for watching!

Yeah.

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Operator: Thank you for watching. I'll see you next time. Thank you for watching! Thanks for watching! and Corsair Gaming. Thank you for watching. I'm Stephen Ju, and......... settling in. And Corsair Gaming. I'm Stephen Ju. I'll see you next time.

Yeah.

Yeah.

Okay.

Yeah.

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