Corsair Gaming, Inc. (NASDAQ:CRSR) Q1 2023 Earnings Call Transcript

Corsair Gaming, Inc. (NASDAQ:CRSR) Q1 2023 Earnings Call Transcript May 10, 2023

Corsair Gaming, Inc. beats earnings expectations. Reported EPS is $0.11, expectations were $0.1.

Operator: Good afternoon, and welcome to the Corsair Gaming’s First Quarter 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. [Operator Instructions] With that, I’d now like to turn the call over to Ronald Van Veen, Corsair’s Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Ronald Van Veen: Thank you. Good afternoon, everyone, and thank you for joining us for Corsair’s financial results conference call for the first quarter ended March 31, 2023. On the call today, we have Corsair’s CEO, Andy Paul; and CFO, Michael Potter. Andy will review highlights from the quarter, Michael 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 forward-looking statements. 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 on our SEC filings. Today’s remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release we issued after the 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 are pleased to be off to a strong start in 2023, with a 33% improvement in adjusted EBITDA compared to the year-ago period. We are also pleased to see that enthusiast-level consumers continue to build new gaming PCs at a rate significantly above pre-pandemic levels. Recent third-party data shows that Corsair continues to gain and hold market share positions in most of our categories of components used in those gaming builds. The broader market for gaming peripherals is also holding up at a level significantly above pre-pandemic levels, although slightly behind 2022, most notably in Europe, while the U.S. market has largely recovered. This is in line with what we have talked about on prior quarters where Europe was impacted by the Russia-Ukraine conflict and economic weakness.

From a product standpoint, we continue to drive the high level of innovation and premium quality products that enthusiast turn to Corsair for. During Q1 2023, we started to ship our 45-inch Flex OLED bendable monitor, engineered in partnership with LG. We also expanded our industry-leading gaming headset lineup with the new wireless HS65 and HS55 models. These are lightweight headsets with great gaming audio and multi-platform compatibility. We launched Corsair Build Kits, a new initiative, allowing customers to skip the research and hunting for parts when building a new PC. This should grow our self-built TAM by providing an easy out of the box solution for people that are interested in building a PC, but without the experience to do it alone.

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With six different kits to start off with, the enthusiast can get everything they need to build a high-performance gaming PC, including CPU, graphics card, motherboards, and all the other components of memory made by Corsair. These kits are supported by an in-depth tutorial build videos with easy to follow clear step-by-step instructions. We launched a marketplace for Stream Deck, which allows third-party plug-ins and applications that run on our world famous Stream Deck to be available to our content creators directly from the Elgato website. Developers will now be able to easily access Elgato’s large and rapidly growing Stream Deck installed base. We believe that these added plug-ins and applications will dramatically increase our installed base of Stream Deck users.

We also entered into a multi-year partnership with Nick Kolchoff, better known as Nickmercs, the well known personality in the gaming community with over 15 million followers and an average daily viewership of 60,000. Nick will exclusively play and stream using Corsair’s high-performance gaming and streaming gear, including Scuf Controllers, Elgato’s streaming hardware and gaming PCs from ORIGIN PC. Back to our markets, with lower priced GPUs such as the NVIDIA 4060 and 4070 coming to the market and exciting new game titles being released this year, we are confident that the gaming market will continue to grow off the higher recent levels and we believe that with our product road map, Corsair can continue to grow market share in many of the new categories we are entering.

Let me now 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. We were able to build off the good start to the year and continue to improve our financial strength and flexibility, with momentum expected to continue into Q2 2023. Revenue and gross margin were in line to slightly above our expectations as we benefited from strong demand for our components used to build gaming PCs. In terms of specifics, Q1 2023 net revenue was $354 million compared to $380.7 million in Q1 2022. European markets continue to be softer than Americas, but are improving and contributed about 32% of our revenues, below the historic average in the high 30 percentile, but up from 30% in Q4 2022. Turning now to our segments. The Gamer and Creator Peripherals segment contributed $88.9 million of net revenue during the first quarter compared to $134.1 million in Q1 2022.

The Gaming Components and Systems segment contributed $265 million of net revenue during the quarter, an increase of 7.5% from $246.5 million in Q1 2022. Memory Products contributed $131.3 million in 1Q 2023 compared to $132.2 million in 1Q 2022. Overall gross profit in the first quarter was $85.4 million compared to $90.8 million in Q1 2022. The decrease was primarily driven by reduced revenues. Gross profit margin increased 30 basis points to 24.1% compared to 23.8% in Q1 2022. The Gamer and Creator Peripherals segment gross profit was $26.6 million compared to $43.1 million in Q1 2022, the decrease primarily driven by reduced revenues. Gross profit margin was 30% compared to 32.1% in Q1 2022. We believe that excess promotions by some leading competitors on gaming peripherals showed signs of easing near the end of the first quarter, which we hope will lead to further improvements in margins later in 2023.

The Gaming Components and Systems segment gross profit was $58.8 million, an increase of 23.2% from $47.7 million in Q1 2022. Gross profit margin was 22.2% compared to 19.3% in Q1 2022. Our Memory Products margin in this segment was 15.8% for the first quarter compared to 15.9% in Q1 2022. We are starting to see the benefit of cost actions we took last year, with operating expenses down almost 10% year-over-year. First quarter SG&A expenses were $67.5 million, and 11.3% decrease compared to $76.1 million in Q1 2022, driven in part by reduced freight rates and freight costs out to our customers on lower revenues. This also reflects the impact to some prior 2022 headcount reductions, along with our continued close management of all expenses as we support revenue-generating areas.

Our cost control actions last year during a period of excess channel inventory have put us into a better position this year to invest and market our products. We will continue to be prudent in our spending, but we expect to and are able to slowly increase spending as the market improves. First quarter R&D expenses were $16.8 million, flattish with the year ago period, but up 7% from Q4 2022 as we continue to invest in our new products. GAAP operating income in the first quarter of 2023 was $1 million compared to GAAP operating loss of $2.5 million in Q1 2022. First quarter adjusted operating income was another bright spot for us, increasing 36.3% to $18.2 million compared to $13.3 million in Q1 2022. We reduced our first quarter net loss attributable to common shareholders to $1.1 million or $0.01 per diluted share as compared to a net loss of $5.1 million or $0.05 per diluted share in Q1 2022.

On an adjusted basis, our first quarter net income improved to $11.9 million or $0.11 per diluted share, compared to $9.2 million or $0.09 in Q1 2022. Finally, we increased first quarter adjusted EBITDA by a third to $20.6 million compared to $15.4 million for Q1 2022. Turning now to our balance sheet. The positive start to 2023 allowed us to continue to reduce debt while increasing capital to invest further in growth. We ended Q1 with a cash balance of $182 million that was partially driven by a return to more normal working capital levels after our inventory reduction efforts in 2022. After paying down $10 million of debt, we ended Q1 with $230 million of debt at face value, approximately $50 million of net debt and our $100 million working capital revolver remains fully undrawn and fully available.

In terms of the full-year 2023, we are reiterating our previous outlook of flat to up revenue. We continue to expect total revenue in the range of $1.35 billion to $1.55 billion, adjusted operating income in the range of $75 million to $95 million and adjusted EBITDA in the range of $90 million to $110 million. As we noted on our last earnings call, we expect to see revenue distributed more as it was in the past before the pandemic, with Q2 being the lowest quarter of revenue and the second half of 2023 being stronger than the first half. With that, we are now happy to open the call for questions. Operator, will you please open up the call for Q&A?

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Operator: Next question, Drew Crum with Stifel. Please go ahead.

Operator: [Operator Instructions] Next question comes from Aaron Lee with Macquarie. Please go ahead.

Operator: [Operator Instructions] Next question, Mario Lu with Barclays. Please go ahead.

Operator: There are no further questions. I would like to turn the floor over to Andy Paul for closing remarks.

Andy Paul: All right. Well thank you, everyone, for joining us on the call 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.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.