Q2 2024 Corsair Gaming Inc Earnings Call
Good afternoon, and welcome to you of course their gaming's second quarter 2024 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.
Speaker Change: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press the star key followed by zero on your telephone keypad with that I would like to turn the call over to Ronald ban been corsairs, Vice President of finance and.
Speaker Change: Investor Relations. Thank you Sir Please go ahead.
Unknown Attendee: Thank you, sir. Please go ahead.
Ronald Veen: Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference Call for the second quarter ended June 30, 2024. On the call today, we have our Corsair CEO, Andy Paul, and CFO, Michael Potter. Andy will review highlights from the quarter. Michael will then review the financials and our outlook, and we will then have time for any questions. Our 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. Note that until our 10Q has been filed, these numbers are preliminary.
Unknown Attendee: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Thank you good afternoon, everyone and thank you for joining us for precise financial results conference call for the second quarter ended June 32020 for it on the call today, we have art Coursera CEO, Andy Paul and CFO Michael power.
Andy will review highlights from the quarter, Mike will then review the financials and our outlook. We will then have time for any questions. 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 the expected future results of our company and are therefore.
Speaker Change: These statements our actual results may differ materially from our projections to number of risks and uncertainties.
Speaker Change: The risks and uncertainties that forward looking statements are subject to are described in our earnings release and our SEC filings.
Speaker Change: Note that until our 10-Q has been filed these numbers are preliminary.
Speaker Change: Today's remarks will also include references to non-GAAP financial measures.
Andy: Additional information, including reconciliation between non-GAAP financial information to the 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.
Andy Paul: Thank you, Ronald, and welcome everyone to our earnings call. We've launched some exciting products over the last nine months that have increased our footprint and market reach. This includes our K65 wireless keyboard, which quickly became the best-selling keyboard in the U.S. according to third-party data in Q2. We see market dynamics where incredibly exciting new games and gaming hardware technology are on the horizon, but are not here yet. We saw a dip in this components market of approximately 15% year on year. And on top of that, some ASP pressure and channel inventory reduction, that all together led to a year-on-year drop of 32% in this business segment.
Andy Paul: Well, thank you everyone for joining us on 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.
Thank you Ronald and welcome everyone to our earnings call.
Andy: Q2 is always the lowest revenue quarter of the year for us and this year is no exception.
Andy: However, current macroeconomic trends and lengthened refresh cycles of calls this quarter to be weaker than expected.
Andy: You know two business segments. The game room creates a segment showed good growth with revenue up approximately 20% year on year.
Speaker Change: We've launched some exciting products over the last nine months, which have increased our footprint and market reach.
Speaker Change: <unk> case, 65 wireless keyboard, which quickly became the best selling keyboard in the U S. According to third party data in Q2.
Andy: Okay.
Andy: The gaming components and systems segment, which makes components used for self built P. CS and also full gaming systems was a different story.
Speaker Change: There, we see market dynamics were incredibly exciting new games and gaming Hellboy technology is on the horizon, but not here yet.
Speaker Change: Which is causing many consumers to hold off with upgrades on new builds.
Speaker Change: We saw a dip in this components market of approximately 15% year on year.
Speaker Change: And on top of that some ASP pressure and channel inventory reduction.
Andy Paul: Thank you everyone for joining us on the call today and for your continued support. If you 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.
Speaker Change: But altogether led to a year on year drop was 32% in this business segment.
Andy Paul: To expand on market trends and conditions, it's helpful to put a five-year lens on recent activity. We went through a surge of activity during the COVID lockdown where third-party data showed that the demand for gaming headsets approximately tripled, and the self-built PC market approximately doubled. Three years on, having emerged from the lockdowns, the gaming headset market, which is the best indicator for peripherals, is clearly lengthening on high-priced items like $2,000-plus gaming pieces.
Speaker Change: To expand on the market trends and conditions. It's helpful to put a five year lens on recent activity.
Speaker Change: We went through a surge of activity during the Covid lockdown.
Speaker Change: Third party data showed that the demand for gaming headsets approximately tripled.
Speaker Change: And the self built P simo can't approximately doubled.
Speaker Change: Three years old and they're having to emerge from the Lockdowns. The gaming headset market, which is the best indicator for peripherals is now roughly double the size. It was pre COVID-19, while the self built P. Simo kit, which we can see from third party data on cases in panel suppliers is roughly flat too.
Speaker Change: Pre COVID-19 levels.
Speaker Change: Yeah.
Speaker Change: Refresh cycles are clearly lengthening on high priced items like $2000 plus gaming Pcs.
Speaker Change: We see GPU college, which used to be on the 19 to 24 month refresh cycle.
Speaker Change: Have now moved to 24 to 30 months.
Speaker Change: And some highly anticipated more complex games.
Speaker Change: Like Grand Theft auto six.
Speaker Change: I've been pushed to 2025.
Speaker Change: Well, others like call of duty Black ops, six and now expected to be released very soon this year.
Andy Paul: We think that our historical view of a 3-5 year refresh cycle may now be looking more like 4-6 years in these current economic conditions. As a result, sales in the immediate months before Prime Day appeared to drop.
Speaker Change: We think that all historical view of a three to five year refresh cycle may now be looking more like four to six years in these current economic conditions.
Speaker Change: Also weighing on the market is the fact consumers are acting with caution.
Speaker Change: And they're getting used to July prime day.
Speaker Change: As a result sells in the immediate bumps before prime day up here the job.
Speaker Change: And as a quick preview.
Speaker Change: Prime day sales in July were quite successful with most categories over performing compared to last year.
Andy Paul: Looking at an overall view of the gaming market, we see that the installed base of gaming hardware, post-COVID, is at an all-time high. In fact, the gaming hardware space looking at 2025 has never looked more exciting, and we expect to see new generation GPU cards within the next six months. We also recently announced our entry into the sim racing market with products which we recently showcased at Computex. Additionally, as we noted in today's earnings press release, And though we were disappointed to see the company file for insolvency, we are still hopeful that we can acquire this company. We're positioned to benefit from a strong refresh cycle when the new GPUs launch later this year, and we are excited about continued strong growth in our core gamer and creator peripheral segments.
Speaker Change: Looking at the overall view of the gaming market, we see that the installed base of gaming hardware post COVID-19.
Speaker Change: Is that an all time high.
Speaker Change: Gaming It has continued to rise generation by generation.
Speaker Change: And incredibly exciting new games, and new AI pack gaming technology are around the corner.
Speaker Change: In fact, the gave me hope West basically means it's 2025 has never looked more exciting.
Speaker Change: <unk> continues to move into every piece of gaming hardware.
Speaker Change: As we'll be able to use technology to make devices more adaptive and able to customize their settings to our game is playing a bit of a.
Speaker Change: And we expect to see new generation GPU College within the next six months.
Speaker Change: You know a game and create a peripheral segment as I mentioned before we are seeing very good growth with revenue up 19, 6% year over year.
Speaker Change: This is the third successive quarter of high teens percentage growth.
Speaker Change: We are benefiting from a slight improvement in the overall market combined with our success entering new parts of the market, which will drive our long term growth.
Speaker Change: We intend to continue to grow the game and create a peripheral segment organically as well as with strategic acquisitions.
Speaker Change: We expect this business will become larger than our traditional components business within a few years. This year alone we launched Teleprompters P C controllers and mobile controllers as well as many other innovative new products in the existing categories.
Speaker Change: We also recently announced our entry into the same racing market with products, which we recently showcased at Computex.
Speaker Change: Separately as we noted in today's earnings press release.
Speaker Change: We remain interested in the same rising brands Pan attack owned by Endo E G.
Speaker Change: Though we were disappointed to see the company falls insolvency were still hopeful that we can acquire this company.
Speaker Change: Onto all components of memory businesses.
Speaker Change: We continue to dominate the market with leading market share in most categories.
Speaker Change: We intend to continue that trend well running these businesses as efficiently as we can from a cost standpoint.
Speaker Change: We wait for the market to recover on a tons of growth.
Speaker Change: Overall, our long term fundamentals remain strong and we continue to lead with.
Speaker Change: The position to benefit from a strong refresh cycle when the new Gpus launched later this year and we are excited about continued strong growth in our core gamer and create a peripheral segment.
Speaker Change: Let me now turn the call over to our CFO, Michael Potter for details on the financials. Michael. Please go ahead, thanks, Andy and good afternoon, everyone.
Speaker Change: This quarter was particularly challenging due to the lower than expected demand in the high end gaming components and systems market, where we have a leading market share.
Michael Potter: This had a significant impact on our profitability due to the lower than expected revenue and our operating cost base not yet being adjusted it.
Michael Potter: It also had an impact on cash as we paid for inventory that has not yet been sold. The gaming components and systems segment contributed $167.1 million of net revenue during the second quarter, from $246.7 million in Q2 2023. Memory products contributed $81.8 million in Q2 2024, compared to $108.9 million in 2Q 2023. For the first six months of 2024, gaming components and system segment revenue decreased to $397.4 million from $511.7 million in the first six months of 2023, with revenue from memory products decreasing to $206.7 million from $240.2 million. Gross margin decreased 24.1% compared to 25.5% in Q2 2023. Overall gross profit decreased to $149.7 million for the first six months of 2024 compared to $168.2 million in the first six months of 2023.
Speaker Change: It also had an impact on cash as we paid for inventory that has not yet been sold.
Speaker Change: However, as Andy discussed we continue to expect a better second half due to normal seasonality and our new product introductions.
Andy: To partially mitigate the near term impact of lower revenue, we implemented additional cost saving measures in July and will continue to reduce operating expenses where needed to better align with the reduced sales levels in the short term.
Speaker Change: In terms of the specifics Q2, 2024, net revenue was $261.3 million compared to $325 $4 million in Q2 2023 for the first six months of 2024 net revenue was $598.6 million.
Speaker Change: From $679 $4 million in the year ago period.
Speaker Change: European markets contributed 33% of our Q2 2024 revenues compared to 34, 3% in Q1 2024, while the APAC region was 10, 9% of our Q2 2024 revenues compared to 13, 8% in Q1 2024.
Speaker Change: Turning now to our segments the.
Speaker Change: The Gamer and creator peripheral segment contributed $94 $2 million of net revenue during the second quarter compared to $78.8 million in Q2 2023 for the first six months of 2024 Gamer and creator peripheral segment revenue was $201.2 million compared to.
Speaker Change: $167.7 million for the first six months of 2023.
Speaker Change: The gaming components and system segment contributed $167 $1 million of net revenue during the second quarter from $246 $7 million in Q2 2023.
Speaker Change: Memory products contributed $81.8 million in Q2, 2024 compared to $108 $9 million in <unk> 2023.
Speaker Change: For this first six months of 2020 for gaming components and system segment revenue decreased to $397 $4 million from $511.7 million in the first six months of 2023 with revenue from memory products decreasing to $206 7 million.
Speaker Change: From $242 million.
Speaker Change: Overall gross profit in the second quarter was $63 $1 million compared to $82.8 million in Q2, 2023, reflecting the lower revenue level and a 1% to 2% margin impact from fixed costs allocated over lower than expected volumes gross margin decrease.
Speaker Change: 24, 1% compared to 25, 5% in Q2 2023 overall gross profit decreased to $149 $7 million for the first six months of 2024 compared to $168 $2 million in the first six months of 2023.
Michael Potter: Gross profit in the gamer and creator peripheral segment was $35.7 million compared to $25.5 million in Q2 2023. Gross margin was 37.9% compared to 32.4% in Q2 2023. We're pleased to see the continued rebound in this business and believe we're on track for further improvements while higher sales volume continues.
Speaker Change: Gross profit in the Gamer and creator peripheral segment was $35 $7 million compared to $25 $5 million in Q2 2023.
Speaker Change: Most margin with 37, 9% compared to 32, 4% in Q2 2023, we're pleased to see the continued rebound in this business and believe we are on track for further improvements while higher sales volume continues.
Michael Potter: The Gaming Components and Systems segment gross profit was $27.4 million, compared to $57.3 million in Q2 2023, reflecting the lower sales volume. Gross margin was 16.4%, compared to 23.2% in Q2 2023. Our Memory Products gross margin in this segment was 11.5% for the second quarter, compared to 14.6% in Q2 2023. Second quarter R&D expenses were $17.4 million, compared to $15.6 million in Q2 2023. This reflects our investments in support of our expanded product line and new areas, including mobile controllers and sim racing. As an additional caller, we are executing on cost savings and took additional action in July, including the reduction of approximately 100 employees.
Speaker Change: The gaming components and system segment gross profit was $27.4 million compared to $57 $3 million in Q2, 2023, reflecting the lower sales volume gross margin was 16, 4% compared to 23, 2% in Q2 2023.
Speaker Change: Our memory products gross margin in this segment were 11, 5% for the second quarter compared to 14, 6% in Q2 2023.
Speaker Change: Second quarter, SG&A expenses were $74 million compared to $70 million in Q2 2023.
Speaker Change: Second quarter, R&D expenses were $17 $4 million compared to $15 $6 million in Q2 2023. This reflects our investments in support of our expanded product line and new areas, including mobile controllers and Sim racing.
Speaker Change: We expect R&D to decrease in Q3, given the number of new products, we have already launched in 2024.
Speaker Change: As additional color we are executing on cost savings and took additional action in July including the reduction of approximately 100 employees.
Speaker Change: And will reduce some external expenses, which will lower operating expenses in the second half of 2024.
Michael Potter: We remain committed to controlling operating expenses while continuing to support growth in our gamer and creator peripheral segment, which has higher operating expense demands for R&D and marketing. Gap operating loss in the second quarter of 2024 was $24.7 million, compared to gap operating loss of $2.7 million in Q2 2023. Second quarter adjusted operating loss was $3.8 million compared to adjusted operating income of $15.9 million in Q2 2023. Adjusted operating income was $11.6 million for the first half of 2024 compared to $34 million in the first half of 2023.
Speaker Change: We remain committed to controlling operating expenses, while continuing to support growth in our gamer and creator peripheral segment, which has higher operating expense demands for R&D and marketing.
Speaker Change: GAAP operating loss in the second quarter of 2024 was $24 $7 million compared the GAAP operating loss of $2.7 million in Q2 2023.
Speaker Change: Second quarter, adjusted operating loss was $3 $8 million compared to adjusted operating income of $15 $9 million in Q2 2023.
Speaker Change: Adjusted operating income was $11 $6 million for the first half of 2024 compared to $34 million in the first half of 2023.
Speaker Change: Second quarter net loss attributable to common shareholders was $29 $6 million or 28 cents per diluted share as compared to net income of $1.1 million or one cents per diluted share in Q2 2023.
Speaker Change: On an adjusted basis second quarter net loss was $6 $8 million or seven cents per diluted share compared to an adjusted net income of $9 $8 million or nine cents per share in Q2 2023.
Michael Potter: For the first six months of 2024, adjusted net income was $2.7 million, or three cents per diluted share, compared to $21.8 million, or 20 cents per share, in the first six months of 2023. Adjusted operating income was in the range of $48 million to $63 million, and adjusted EBITDA was in the range of $60 million to $75 million. With that, we're now happy to open the call for questions. Operator, will you please open up the call for Q&A?
Speaker Change: For the first six months of 2024, adjusted net income was $2 $7 million or <unk> <unk> per diluted share compared to $21 $8 million or <unk> 20 per share in the first six months of 2023.
Speaker Change: Finally second quarter, adjusted EBITDA was a loss of $1 $2 million compared to a gain of $17 8 million for Q2 2023 for the first six months of 2024.
Speaker Change: Adjusted EBITDA was $16 $8 million compared to $38 $3 million in the year ago period.
Speaker Change: Turning now to our balance sheet.
Speaker Change: We ended Q2 with a cash balance, including restricted cash of $94 $6 million. We continue to maintain a healthy balance sheet with sufficient cash to fund the development of our expanding product portfolio. We expect to further reduce inventory during the third quarter as we move into the traditionally stronger second half which will.
Speaker Change: So generate additional cash in particular, we expect to start on the inventory that we ordered based on higher expected demand. This is concentrated in components inventory, which has a longer technology refresh rate and we anticipate selling that inventory in the second half and turning it into cash in Q4 2024 in Q1 two.
Speaker Change: 25.
Speaker Change: We ended Q2 with $189 million of debt at face value and our 100 million working capital revolver remains undrawn and fully available overall, we expect liquidity to remain excellent for the rest of 2024, allowing us to be flexible as opportunities present themselves.
Speaker Change: In terms of the full year 2024, we are updating our previous outlook to reflect the market softness Andy discussed earlier, we now expect total revenue in the range of one point to $5 billion to $1.35 billion adjust.
Speaker Change: Adjusted operating income in the range of $48 million to $63 million and adjusted EBITDA in the range of $60 million to $75 million.
Speaker Change: With that we're now happy to open the call for questions. Operator will you. Please open up the call for Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two alright.
Operator: Our first question comes from George Wang with Barclays. Please go ahead.
Speaker Change: Our first question comes from George Wang with Barclays. Please go ahead.
George Wang: Oh, Hey, guys. Thanks for taking my question. Firstly, just you found a self build yeah like you see kind of a memory component you guys. All follow kind of whole recovery pushed out in terms of the refresh can now for six years.
Speaker Change: Expecting GPU refresh in the next six months.
George Wang: You can't talk about kind of who you know potential further delay all you guys saw kind of a quiet continent.
Speaker Change: You should be on the horizon, just maybe you can give any more color just on how you forecast the potential downside.
Speaker Change: Given the macro or do you think given the historical precedence.
Speaker Change: The data you're seeing you know should be relatively in short order.
Speaker Change: Yeah, So there's two things on that.
Speaker Change: One is obviously you know we're privy to.
Speaker Change: The combination of information from our partners that account share.
Speaker Change: Say on the standard release of cards the market is all.
Speaker Change: Oh kind of agreeing the buzz around the market is that are the new cards will come out.
Speaker Change: Either very late this year or early next year.
George Wang: So that's, yeah, that's out there. Now, buying activity. Clearly, every two years up until now, or every 18 months to two years, Nvidia or AMD have launched new graphics cards. So, if they launch in Q1, we're pretty convinced that a refresh cycle after COVID where almost the same number that previously existed.
Speaker Change: So that's yeah that's out there now.
Speaker Change: What will that do in terms of.
Speaker Change: Buying activity clearly the every two years until now.
Speaker Change: 18 months to two years in video video ANV as long as geographic Scouts. So.
Speaker Change: So if they launch in Q1.
Speaker Change: Oh that would be more like a 30 months. So that's that's a delay now the second thing is what do we expect that refresh cycle to look like.
Speaker Change: We are pretty convinced that the refresh cycle off the COVID-19 worthy.
Speaker Change: P C component business basically doubled has to be followed by an echo of that.
Speaker Change: Huge surge.
Speaker Change: For an eco not to a car would mean that all the people that came into the market to buy.
Speaker Change: The new people, who came into the market to build gaming Pcs, which we think was.
Speaker Change: Almost the same number that previously existed.
Speaker Change:
George Wang: All of those would have to go way up.
Speaker Change: Great, which is we don't believe that's news. So we are pretty sure. It was gonna be a refresh a strong refresh next year and and obviously once we get into new graphics cards or the higher end where people are using these cards to build two or 3000 dollar machines that is much more where we offer.
Speaker Change: And we have high market share.
George Wang: Okay, great. Just a second to quickly follow up, if I may just on the peripheral creative business. It's nice to see, you know, almost 20% of growth year over year with nice margins. I'm just curious how sustainable it is. And, you know, from a kind of high level on any latest updates in terms of the consumer as it relates to the peripherals. I mean, do you still see more white space to drive up the ASP over the next few quarters?
Speaker Change: Okay great.
Speaker Change: Secondly, a quickly follow up if I may just on the peripheral a creative business. It's nice to see Ah you know almost 20% growth year over year with a nice margin just just curious how sustainable it is and you know.
Speaker Change: You know from that kind of high level in any latest update in terms of the consumer as it relates to the peripherals I mean do you still see more white space to drive up the ESP over the next few quarters.
Andy Paul: Well, yeah. Actually, this is a very interesting question, and I'll take in a few different parts.
Speaker Change: Well, yeah. So actually this is a very interesting question and they'll take it in a few different parts firstly the oval peripheral business.
Speaker Change: <unk> is a twice the size of what it was pre COVID-19. So if you look at headsets, which is just kind of the bellwether.
Andy Paul: Firstly, the overall peripheral business is twice the size of what it was pre-COVID. So, if you look at headsets, which are kind of the bellwether of the gaming piece, you know, the gaming market, it's the first thing gamers usually buy, the number of headsets that were sold in the COVID period tripled from pre-COVID, so 2019 to 2020, and at this point, it's still 2X So there's a healthy market that's growing there in terms of the number of people that are getting into gaming and buying gear. But this year, compared to last year, the market has been relatively flat.
Speaker Change: Aiming piece you know the gaming market, especially in game is usually buying.
Speaker Change: The number of headsets.
George Wang: Sold in the Covid period tripled from pre Covid. So 2019 2020 and at this point, it's still too X. So that's a healthy market. That's growing there in terms of the number of people that are getting into gaming and buying gear.
Speaker Change: Now this year compared to last year, the market has been relatively flat, but what we've seen in general is that.
Andy Paul: But what we've seen in general is that. And that's the same we've seen in any enthusiast-type products, whether it be skiing or golf. You know, people, as they get older, buy more expensive gear with better features.
Speaker Change: There is the milk, it's bifurcated a little bit and so there's a fair number very low ends peripherals at low Isps, which we really don't participate in the Isps from the major suppliers.
Speaker Change: Those all up.
Speaker Change: Those asps are typically going up and so I think this is something that I talked a lot about and in when we did the IPO that I saw there was a lot of expansion possible as people who've been gave them for awhile.
Speaker Change: I'm happy to pay more for products with extra features.
Speaker Change: And that's the same we've seen in any enthusiast a type products, whether it be skiing on golf and the people as they get older by more expensive geared with better features.
Speaker Change: Yeah.
George Wang: Okay, great. I'll go back to the queue.
Speaker Change: Okay, Great I'll go back to the queue.
Operator: And the next question comes from Colin Sebastian with Baird. Please go ahead.
Speaker Change: And the next question comes from Colin Sebastian with Baird. Please go ahead.
Colin Sebastian: Thanks, and good afternoon. Andy, the comment in the release about the gamer peripheral segment perhaps becoming larger than components over time. I mean, that's an intriguing comment. I guess maybe if you could walk us through that dynamic in terms of maybe what you see is normalized growth rates on both sides of the business and maybe how that's informing your product development as you think about the next few years, then I have a follow-up. Well, look, first thing, this has always been so.
Colin Sebastian: Hi, Thanks, and good afternoon Andy.
Colin Sebastian: The comment in the release about the game or a peripheral segment.
Colin Sebastian: Perhaps becoming larger than components over time, I mean that was that's an intriguing comment I guess, maybe if you could walk us through that dynamic in terms of maybe what you see as normalized growth rates in both sides of the business and maybe how that's informing your product development as you think about the next few years and I haven't found yet.
Andy Paul: Well, look, first thing, this has always been our plan. And just from the pure maths of it, we have a very, very high market share. Well, let me start with the growth numbers. So we've seen historically, because we've been doing this for a long time, right?
Speaker Change: Well look first thing this has always been our plan and just in the pure mass of it we have very very high market share well, let me start goes numbers. So we've seen historically because we've been doing this for a long time, but we've seen historically, 5% to 10% market growth.
Andy Paul: We've seen historically 5 to 10% market growth in the gaming PC market. In other words, those people are building two $3,000 gaming PCs. But that just gives you a sense of the market dynamics.
Colin Sebastian: The gaming PC market in other words those people building 3000 delegate M. P. CS.
Colin Sebastian: But we've seen 15% market growth on peripherals and this is over a 10 year period now that's obviously been shaken up a little bit by this explosion in Covid and now with on the back side of it still.
Colin Sebastian:
Colin Sebastian: So that just gives you a sense of the market dynamic and so we were still seeing generational shifts to people doing more and more gaming in other words.
Andy Paul: And so we're still seeing generational shifts of people doing more and more gaming. In other words, Gen Z is gaming more than millennials. Millennials are gaming more than Gen X and this sort of thing. So there are more and more people gaming. And the entry point is always a headset or a gaming keyboard. In terms of white space for us, we have a very, very low market share in peripherals and components. So what that means is that we would expect... And in general, there are a lot of sub $100 million companies that we can absorb and run much more efficiently than they can on their own. R&D and marketing to be successful in the peripheral space, where the products are much more complicated, there are a lot of microcontrollers we have.
Colin Sebastian: Z are gaining more than millennials millennials are gaining more than you know gen X and that sort of thing so there's more and more people gaming.
Colin Sebastian: And the entry point is always you know headset or or gaming keyboard.
Colin Sebastian: In terms of white space for Us, we have very very low market share in peripherals, and we have very high market share in.
Colin Sebastian: Components. So what that means is that we would expect as things move forward, we obviously try and get more and more market share, but realistically, we will grow at or slightly above the growth rate of components, because we already have an extraordinary market share with peripherals, we have so much space to grow.
Colin Sebastian: That it wouldn't be out of the question for us to double that size of our business in a few years.
Colin Sebastian: And on top of that this is why we're doing all the acquisitions. So we're looking around at all the small companies that are.
Colin Sebastian: In the peripheral space will the enthusiast space.
Colin Sebastian: And in general there's a lot of sub 100 millions of other companies that we can absorb and run much more efficiently than they can on their own.
Colin Sebastian: So that's kind of the game plan. So a combination of organic growth and our acquisitions I think will will will go that we were already at this point you know this year.
Colin Sebastian: We would expect that we'll make more gross margin from a peripheral segment than all.
Colin Sebastian: Government segment.
Colin Sebastian: And so that's where we are putting most of the resources and it obviously takes a lot more.
Colin Sebastian: R&D and marketing to be successful in the peripheral space, where the products are much more complicated there's a lot of microcontrollers we have.
Colin Sebastian: So that just gives you a sense of and where are you allocating both acquisition dollars and opex dollars to grow that segment.
Colin Sebastian: Yeah.
Colin Sebastian: Okay. Thanks, Andy and then.
Colin Sebastian: Michael I guess in terms of understanding.
Andy Paul: The pathway back to growth, maybe the shape of Q3 versus Q4. I guess, you know, looking into Q4, what are the indications you're seeing around demand, your ability to meet that demand, and then perhaps the role that promotions will play in driving retail sell-through this year from what you're able to gather at this point?
Speaker Change: The pathway back to growth maybe the shape of Q3 versus Q4, I guess you know looking into Q4, what what are the indications you're seeing around demand your ability to meet that demand and then perhaps the role that promotions will play in driving retail sell through this year from what from.
Colin Sebastian: What you're able to gather at this point so.
Andy Paul: So, we continue to expect to have the normal seasonal effect with the second half bigger than the first half and around the same sort of numbers we've talked about in the past. I mean, roughly, you could say 55 in the back half and 45 in the first half, approximately. Usually, Q3 accelerates off of Q2 and then Q4 is even bigger.
Speaker Change: So we continue to expect to have the normal seasonal effect with the second half bigger than the first half and around the same sort of numbers, we've talked about in the past I mean, roughly you can say 55 back half 45 first half approximately.
Speaker Change: Usually Q3 accelerates off of Q2, and then Q4 is even bigger so that tends to be a pattern that we see and we don't expect anything particularly different this year in terms of supporting growth I mean in my comments, we certainly have inventory ready now so it's not a shortage that we have there are new products.
Andy Paul: So that tends to be the pattern that we've seen. We don't expect anything particularly different this year. In terms of supporting growth, I mean, in my comments, we certainly have inventory ready now. So it's not a shortage that we have there. New products will be able to get to the market in sufficient amounts to support demand as well, so I don't think it will be an issue for us to meet demand for the second half of the year.
Speaker Change: Whenever they get to the market and sufficient amounts to support demand as well so.
Colin Sebastian: So I don't think it'll be an issue for us to support demand for the second half of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Again, if you have a question. Please press star and then one our next question comes from drew Crum with Stifel. Please go ahead.
drew Crum: Okay. Thanks, Hey, guys. Good afternoon, so on the peripheral segment, Michael anything to the step down in gross margin in <unk> versus <unk>.
Speaker Change: And it is 40% to 40% you achieved and once you too optimistic for 'twenty for and I.
Speaker Change: The Sims racing products that you launched back in early June any early read just the receptivity you've seen.
Speaker Change: For that line and then I have a follow up.
Speaker Change: I'll, let Andy talk about this embracing products, a little bit, but just in terms of margins and things somewhere around 40% is achievable Q2 normally we just have lower unit volume, so there's a little bit less fixed cost absorption.
Andy: A little bit of mix difference as well in the in the second quarter, but it was otherwise relatively similar to the first quarter, which had the 40%.
Andy: Promotional activity is usually step up during the Christmas selling season in Q4, but we haven't seen anything abnormal I mean, the indications from the prime data just passed is that people will discount, but they weren't extreme like they were in previous years. So it was more like normal discounting that was going on I'll, let Andy.
Andy: Talk about the same racing product, yeah, and I'd say also true, but we've we spent the last couple of years retooling most of the based technologies in gaming peripherals. So keyboards today, it's looking quite different from the keyboards of two or three years ago, where the trends are slightly different and one of the things we really.
Andy: Was how to get the cost structures right. So that we could get back to target levels.
Andy: So that's the that's the first thing everybody's seeing the as you probably know we bought out a we showed a prototype.
Andy: Essentially at Computex or a chassis that's one that saw it loved it.
Andy: That's not due to go into production later and I think as you know we also in the process of trying to acquire this company fanatic.
Andy: From Germany. So we're all in on Sim racing.
Andy: And I think next year, there's going to be a big year, but that market is strong and growing all the fundamentals are there.
Andy: This is something where.
Andy: You know in an environment, where.
Andy: People's budgets through it a little bit stretched it's actually a lot cheaper for people that like racing too.
Speaker Change: Do you see them racing at home and practice on track rather than take the car to the track.
Speaker Change: And that with the with the.
Speaker Change: The drive to survive success in F. One success in the U S. There's a lot of people now getting into this into this hobby. So.
Speaker Change: The exciting market.
Speaker Change: Got it okay.
Speaker Change: And then on the components business you did discuss the new Gpus launching late in calendar 'twenty four or early calendar 'twenty five what what is factored into your guidance for 24 at this point and does the timing have any bearing on for Q or does it not matter.
Speaker Change: The sale of your products coincident with the launch of the Gpus or is there a lag effect.
Speaker Change: Yeah. It's it is a complicated question what tends to happen or what I've seen in the past is the.
Speaker Change: As soon as the specs are out and people understand.
Speaker Change: What the future looks like then people make buying decisions and there's actually a lot of people who wait until they see the specs of the new cards and then perhaps go but back in by the previous generation because it's a much better deal. So there's a little bit of that you get most hesitation in the market before any of the specs coming out and this is the situation we're in.
Speaker Change: Now where everyone's felt the idea that.
Speaker Change: I mean, just because the technology that's used in AI chips is is going to move onto Gpus everyone's pretty anticipating you know great things from the new new cards.
Speaker Change: But that's that tends to drive it now there are a lot of people and we saw this during COVID-19. The first thing people tend to do is they pay they buy case.
Speaker Change: To start the build and some of these builds.
Speaker Change: So some people spend a weekend doing and other people will spend three months.
Speaker Change: So and the last thing you tend to put it into the graphics cards. So yeah. We would see we would expect to see people sort of as we get towards Q4 once the specs come out and once people decide okay. Now it's time for me to build a new machine.
Speaker Change: There's a good chance that we can start selling cases in some of the other products before then.
Speaker Change: Got it okay. Thanks, guys.
Speaker Change: Again, if you have a question. Please press star and then one our next question comes from Doug Crudes with Cowen. Please go ahead.
Speaker Change: Okay.
Doug Crudes: Hey, Thank you are just looking at your components and systems margins I think they were the lowest they've been in about five years could you talk about you know elaborate on that maybe in and talk about what kind of margin recovery. You you are baking in for the rest of the year. Thank you.
Speaker Change: Well, there's two things I mean, Michael mentioned this earlier.
Michael Potter: Earlier that a certain amount of fixed overhead that we have that applies to margins.
Speaker Change: Much love of revenue base, it doesn't move them down.
Speaker Change: But yes, we all having to retool some of these products.
Speaker Change: Specially in AR in the power supplies are.
Speaker Change: And in some cases and some.
Speaker Change: It's use cases.
Speaker Change: To meet the current trends are.
Speaker Change: And demands so there's a little bit of.
Speaker Change: The inventory clear out of old of old products are in Q2, So yeah, I would say I would not expect the <unk>.
Speaker Change: <unk> that we were seeing in Q2 to be repeated in Sweden for everything we do much better.
Speaker Change: Also there was a shift to lower ASP products for us if we make lower margin percent on the Lora ASP products in general and higher margin percent on the higher ASP.
Speaker Change: Products, so as we move closer to the end of the year and the newer graphics card to start driving more of a buying pattern. The asp's should move up again and that should help margins as well.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: And the last question comes from Aaron Lee with Macquarie. Please go ahead.
unknown: [inaudible]
Aaron Lee: Hey, guys. Good afternoon, and thanks for taking my question and maybe a quick one on the competitive environment can you just comment on what that looks like currently have you seen any competitors behave irrationally, just given the softer than expected market conditions in the first half.
Andy Paul: Yeah, it's a complicated question. What tends to happen, what I've seen in the past, is that as soon as the specs are out and people understand them, and if you don't know what the future looks like, then people make buying decisions. And there are actually a lot of people who wait until they see the specifications of the new cards and then perhaps go back and buy the previous generation because it's a much better deal. So there's a little bit of that.
Andy Paul: You get most hesitation in the market before any of the specifications come out. And this is the situation we're in now, where everyone's got the idea that just because the technology that's used in AI chips is going to move on to GPUs, everyone's pretty anticipating, you know, great things from the new cards.
Andy Paul: But that tends to drive it. Now, there are a lot of people, and we saw this during COVID. The first thing people tend to do is buy a case. Some people spend a weekend doing it; other people spend three months.
Operator: Again, if you have a question, please press star and then 1. Our next question comes from Doug Creutz with Cowen. Please go ahead.
Aaron Lee: Yeah.
Speaker Change: Well the major competitors no in general I mean, obviously, there's always somebody that discount 70, but we just went through prime day and.
Speaker Change: We didn't see anything insane I will say that on a general basis. The there's a lot of new grants showing up from the.
Speaker Change: Thanks, Chris in China, where they're trying to is definitely a week and most of them and it was high unemployment economic situations, but it was there. So it was sort of empty factories that need to be filled up and we do see quite a lot of new brands showing up especially on Amazon marketplace.
Speaker Change: It's fairly would use prices so that's the.
Sohail: That's the main thing I would say, but this is where I was so sohail, there's a little bit about it.
Sohail: S P's.
Speaker Change: Of headsets, we are seeing that you know the market is somewhat bifurcated. So there's there's a big chunk of the very very low cost spirituals out right now.
Sohail: And then in general that the major.
Speaker Change: Manufacturers, you know ourselves logitech laser et cetera, all managed to raise Isps and do pretty well.
Speaker Change: Gotcha that's helpful. Thank you.
Speaker Change: And then a quick follow up you recently announced a partnership with <unk>, which I imagine is geared towards peripherals, maybe something like your ocado products.
Speaker Change: So correct me if I'm wrong, there, but can you just talk about that partnership and what it can be pretty business, yeah, it's really around upbeat or be good. So we've got a small b to B group, where we're seeing demand from.
Sohail: Broadcasters and universities in this sort of thing.
Speaker Change: Yeah. The most promising product lines that we are selling actually the most things we sell out of that group. All systems, you know complete P C systems and they all got to get.
Speaker Change: Gotcha, Okay. Thank you very much and adding TD cynics that we added CDW last year and so this is just putting together the whole channel.
Speaker Change: You know to so that business can grow.
Speaker Change: Understood. Thanks for the color.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Okay.
Doug Creutz: Specially in power supplies and in some cases, in some cases, to meet current trends and demands, so there's a little bit of...
Speaker Change: Well. Thank you everyone for joining us on the call today and for your continued support if you have any follow up questions. Please contact our Investor Relations Department.
Doug Creutz: There's also been a little bit of a shift to lower ASP products for us, where we make lower margin percent on the lower ASP products in general and higher margin percent on the higher ASP products. So, as we move closer to the end of the year and the newer graphics cards start driving more of the buying pattern, the ASPs should move up again, and that should help margins as well.
Speaker Change: And we look forward to updating you next quarter. Thank you and have a good evening.
Sohail: Yeah.
Doug Creutz: Hey guys, good afternoon. Thanks for taking my question. Maybe a quick one on the competitive environment. Can you just comment on what that looks like currently? Have you seen any competitors behave irrationally just given the softer than expected marketing conditions in the first half?
Sohail: Thank you everyone for joining us on the call today and for your continued support if you 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.
Unknown Attendee: New brands are showing up, especially on the Amazon Marketplace. Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Corsair Gaming
Unknown Attendee: Dr. That's helpful. Thank you. And then, quick follow-up, you recently announced a partnership with TD Sinex, which I imagine is geared towards peripherals, maybe something like your Elgato products. Unknown AttendeeYeah, it's really great
Unknown Attendee: Got you. Okay. Thank you very much. And we added TD Cinex and CDW last year. So this is just putting the whole channel together, you know, so that business can grow.
Sohail: Okay.