# Corsair Gaming, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Corsair Gaming, Inc.](/companies/crsr.md) (CIK 1743759)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 20:24 ET
- Period: 2023-03-31
- Accession: 0000950170-23-020577
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1743759/000095017023020577/crsr-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1743759/000095017023020577/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $354.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $268.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $85.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $16.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-03-31 | $67.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $1.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$639.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$2.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 101,685,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $41.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $4.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $179.1m | us-gaap:Cash |
| Current assets | at 2023-03-31 | $633.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $1.30bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $348.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $633.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $220.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $8.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $633.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,069 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

### AND RESULTS OF OPERATIONS

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q as well as in conjunction with the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States Securities and Exchange Commission (“SEC”) on February 27, 2023. The following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.*

### Overview

We are a leading global provider and innovator of high-performance gear for gamers, streamers and content creators, many of which build their own PCs using our components. Our industry-leading gaming gear helps digital athletes, from casual gamers to committed professionals, perform at their peak across PC or console platforms, and our streaming gear enables streamers and content creators to produce studio-quality content to share with friends or to broadcast to millions of fans. Our PC components products offer our customers multiple options to build their customized gaming and workstation desktop PCs. Our solution is the most complete suite of gear among our major competitors and addresses the most critical components for both game performance and streaming. Our product offering is enhanced by our two proprietary software platforms: iCUE for gamers and the Elgato streaming suite for content creators, including our Stream Deck control software, which provide unified, intuitive performance, and aesthetic control and customization across their respective product families. We also offer digital services to enhance the customer experience by integrating esports, stream deck marketplace, customer care and extended warranty into our product offerings.

We group our products into two categories (operating segments):

- ***Gamer and creator peripherals.*** Includes our high-performance gaming keyboards, mice, headsets, controllers, and streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories, and EpocCam software, among others.
- ***Gaming components and systems.*** Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, and DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others.

We are committed to continuing to grow in our current markets as well as new markets through the development of innovative technologies and by entering into new categories through organic growth or acquisition. In 2022 and 2021, we entered into four new markets, namely the microphones and cameras markets for content creators, the gaming monitors market and prebuilt gaming laptops market for both gamers and content creators. We continue to expand our product portfolio, launching 125 new products in the year of 2022. During the three months ended March 31, 2023, we started to ship various new innovative products including our new FLEX OLED bendable monitor, engineered in partnership with LG, and we expanded our Stream Deck product family, which further enhances the speed and workflows in streaming and content creation. In addition, with lower priced GPUs coming to market and new game titles being released this year, we believe that the gaming market will continue to grow.

### Summary of Financial Results

Our net revenue for the three months ended March 31, 2023 decreased by $26.7 million or 7.0%, as compared to the same period last year. The decrease in net revenue for the three-month period was driven by decreased revenue in our gamer and peripherals segment, offset partially by increased revenue in our gaming components and systems segment. Our gross margin increased from 23.8% to 24.1% for the three months ended March 31, 2023, as compared to the same period last year.

As of March 31, 2023, we had cash and restricted cash, in the aggregate of $182.1 million and the principal balance outstanding of the Term Loan was $230.0 million. Cash provided by (used in) operations was $41.8 million and $(6.1) million in the three months ended March 31, 2023 and 2022, respectively.

### Key Factors Affecting Our Business

Our results of operations and financial condition are affected by numerous factors, including those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and those described below.

### Impact of Macroeconomic Conditions

Our business and financial performance are significantly impacted by worldwide economic conditions. Global macroeconomic challenges, such as the effects of the ongoing war between Russia and Ukraine, the COVID-19 pandemic, supply chain constraints, market uncertainty, and the risk of a recession, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment, have impacted our business and financial performance. Throughout 2022, these conditions adversely impacted our net revenue and resulted in higher cost of sales due to increased shipping and production costs. Such conditions also resulted in excess inventory in our distribution channels that led to us recognizing higher inventory impairment related charges in 2022 in order to rationalize our inventory levels to align with the reduced revenue in the period. These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics in our markets and have had significant impacts on our financial results.

The extent of the impact of macroeconomic conditions, geopolitical tensions and the COVID-19 pandemic on our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are not within our control and are highly uncertain and cannot be predicted. We will continue to evaluate these risks and uncertainties and further our mitigation plans.

### Impact of fluctuations in Currency Exchange Rate

We are exposed to fluctuations in foreign currency exchange rates. Some of our international sales are denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries may negatively impact our revenue. For example, our net revenue for the year ended December 31, 2022 was in part negatively impacted by the strengthening of the U.S. dollar against the Euro and the British Pound. In addition, we generally pay our employees located outside the United States in the local currency, with a significant portion of those payments being made in Taiwan dollars and Euros. As a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies, in particular the Chinese Yuan, Euro and British Pound.

### Impact of Industry Trends

Our results of operations and financial condition are impacted by industry trends in the gaming market, including:

- *Increasing gaming engagement.* We believe that gaming’s increasing time share of global entertainment consumption will drive continued growth in spending on both games and gaming gear. Gaming continues to become increasingly social, as streaming viewership becomes more widely adopted with increasing numbers of content creators. This trend, which has accelerated in the past few years experienced a setback in 2022 primarily due to challenging macroeconomic conditions and the ongoing war between Russia and Ukraine. Nonetheless, we have seen some recovery starting from the fourth quarter of 2022. Accordingly, we believe that the acceleration trend will resume in the remainder of 2023 and that we are well-positioned to serve the streaming market with best-in-class tools for content creation.
- *Introduction of new high-performance computing hardware and sophisticated games*. We believe that the introduction of more powerful CPUs and GPUs that place increased demands on other system components, such as memory, power supply or cooling, has a significant effect on increasing the demand for our gear. The shortage of reasonably priced GPUs since the second half of 2021 had a negative impact on our gaming component revenue, but starting from the third quarter of 2022, we saw the availability of reasonably priced GPUs began to normalize which brought along some positive effects to the self-built PC market.
- In addition, we believe that our business success depends in part on the introduction and success of games with sophisticated graphics that place increasing demands on system processing speed and capacity and therefore require more powerful CPUs or GPUs, which in turn drives demand for our high-performance gaming components and systems, such as PSUs and cooling solutions, and our gaming PC memory. As a result, our operating results may be materially affected by the timing of, and the rate at which computer hardware companies introduce, new and enhanced CPUs and GPUs, the timing of, and rate at which computer game companies and developers introduce, sophisticated new and improved games that require increasingly high levels of system and graphics processing power, and whether these new products and games are widely accepted by gamers.

### Impact of Product Mix

Our gamer and creator peripherals segment has a higher gross margin than our gaming components and systems segment. As a result, our overall gross margin is affected by changes in product mix. External factors can have an impact on our product mix, such as popular game releases that can increase sales of peripherals and availability of new CPUs and GPUs that can impact component sales. In addition, within our gamer and creator peripherals and gaming components and systems segments, gross margin varies between products, and significant shifts in product mix within either segment may also significantly impact our overall gross margin.

### Impact of Customer Concentration

We operate a global sales network that consists primarily of retailers (including e-retailers), as well as distributors we use to access certain retailers. Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with e-retailer Amazon accounting for 25.8% and 30.4% of our net revenue for the three months ended March 31, 2023 and 2022, respectively, and sales to our ten largest customers accounting for approximately 51.5% and 52.5% of our net revenue for the three months ended March 31, 2023 and 2022, respectively. Our customers, including Amazon, typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us. As a result of this concentration and the lack of long-term agreements with our customers, a primary driver of our net revenue and operating performance is maintaining good relationships with these retailers and distributors. To help maintain good relationships, we implement initiatives such as our updated packaging design which helps e-retailers such as Amazon process our packages more efficiently. Further, given our global operations, a significant percentage of our expenses relate to shipping costs. Our ability to effectively optimize these shipping expenses, for example utilizing expensive shipping options such as air freight for smaller packages and more urgent deliveries and more cost-efficient options, such as train or boat, for other shipments, has an impact on our expenses and results of operations.

### Impact of New Product Introductions

Gamers demand new technology and product features, and we expect our ability to accurately anticipate and meet these demands will be one of the main drivers for any future sales growth and market share expansion. While we intend to continue to develop and release new products, there can be no assurance that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over those of our competitors.

### Impact of Seasonal Sales Trends

We have experienced and expect to continue to experience seasonal fluctuations in sales due to the buying patterns of our customers and spending patterns of gamers. Our net revenue has generally been lower in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, GPUs, and other computer hardware products, which usually take place in the second calendar quarter, and which tend to drive sales in the following two quarters. Further, our net revenue tends to be higher in the third and fourth calendar quarters due to seasonal sales such as “Black Friday” and “Cyber Monday”, as well as “Singles Day” in China, as retailers tend to make purchases in advance of these sales. Our sales also tend to be higher in the fourth quarter due to the introduction of new consoles and high-profile games in connection with the holiday season. As a consequence of seasonality, our net revenue for the second calendar quarter is generally the lowest of the year followed by the first calendar quarter.

### Impact of Fluctuations in Integrated Circuits Pricing

Integrated circuits, or ICs, account for most of the cost of producing our high-performance memory products. IC prices are subject to pricing fluctuations which can affect the average sales prices of memory modules, and thus impact our net revenue, and can have an effect on gross margins. The impact on net revenues can be significant as our high-performance memory products, included within our gaming components and systems segment, represent a significant portion of our net revenue.

### Components of our Operating Results

### Net Revenue

We generate materially all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers, including online retailers, gamers and distributors worldwide. Our revenue is recognized net of allowances for returns, discounts, sales incentives and any taxes collected from customers.

### Cost of Revenue

Cost of revenue consists of product costs, including costs of contract manufacturers, inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments, cost of materials and overhead, duties and tariffs, warranty replacement cost to process and rework returned items, depreciation of tooling equipment, warehousing costs, excess and obsolete inventory write-downs, and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.

### Operating Expenses

Operating expenses consist of sales, general and administrative expenses and product development expenses.

*Sales, general and administrative.* Sales, general and administrative, or SG&A, expenses represent the largest component of our operating expenses and consist of distribution costs, sales, marketing and other general and administrative costs. Distribution costs include outbound freight and the costs to operate our distribution hubs. Sales and marketing costs relate to the costs to operate our global sales force that works in conjunction with our channel partners, gaming team and event sponsorships, advertising and marketing promotions of our products and services, costs of maintaining our web store and credit card processing fees related to sales on our webstore, personnel-related cost and allocated overhead costs. General and administrative costs consist primarily of personnel-related expenses for our finance, legal, human resources, IT and administrative personnel, as well as the costs of professional services related to these functions and allocated overhead costs.

*Product development*. Product development costs are generally expensed as incurred. Product development costs consist primarily of the costs associated with the design and testing of new products and improvements to existing products. These costs relate primarily to compensation of personnel and consultants involved with product design, definition, compatibility testing and qualification, as well as depreciation costs of equipment used, prototype material costs and allocated overhead costs.

### Interest Expense, Net

Interest expense, net consists of interest associated with our debt financing arrangements, including our revolving line of credit, and amortization of debt issuance costs and debt discounts. Interest income earned on our cash and cash equivalents balance is included within interest expense, net as an offset to interest expense.

### Other Expense, Net

Other expense, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in foreign currencies, and net fair value gains and losses from our foreign currency forward contracts.

### Income Tax Benefit

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of foreign tax credits and changes in tax laws. Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the tax and financial reporting bases of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled.

### Net Income (Loss) Attributable to Noncontrolling Interest

Net income (loss) attributable to noncontrolling interest represents the share of the net income (loss) of iDisplay attributable to the 49% ownership interest of iDisplay we did not acquire.

### Results of Operations

The following tables set forth the components of our condensed consolidated statements of operations, in dollars (thousands) and as a percentage of total net revenue, for each of the periods presented.

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net revenue | $353,964 | $380,691 |
| Cost of revenue | 268,560 | 289,935 |
| Gross profit | 85,404 | 90,756 |
| Operating expenses: |  |  |
| Sales, general and administrative | 67,529 | 76,131 |
| Product development | 16,838 | 17,110 |
| Total operating expenses | 84,367 | 93,241 |
| Operating income (loss) | 1,037 | (2,485) |
| Other (expense) income: |  |  |
| Interest expense, net | (2,828) | (1,279) |
| Other expense, net | (496) | (499) |
| Total other expense, net | (3,324) | (1,778) |
| Loss before income taxes | (2,287) | (4,263) |
| Income tax benefit | 639 | 983 |
| Net loss | (1,648) | (3,280) |
| Less: Net income (loss) attributable to noncontrolling interest | 364 | (407) |
| Net loss attributable to Corsair Gaming, Inc. | $(2,012) | $(2,873) |

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net revenue | 100.0% | 100.0% |
| Cost of revenue | 75.9 | 76.2 |
| Gross profit | 24.1 | 23.8 |
| Operating expenses: |  |  |
| Sales, general and administrative | 19.1 | 20.0 |
| Product development | 4.8 | 4.5 |
| Total operating expenses | 23.9 | 24.5 |
| Operating income (loss) | 0.2 | (0.7) |
| Other (expense) income: |  |  |
| Interest expense, net | (0.8) | (0.3) |
| Other expense, net | (0.1) | (0.1) |
| Total other expense, net | (0.9) | (0.4) |
| Loss before income taxes | (0.7) | (1.1) |
| Income tax benefit | 0.2 | 0.3 |
| Net loss | (0.5) | (0.8) |
| Less: Net income (loss) attributable to noncontrolling interest | 0.1 | (0.1) |
| Net loss attributable to Corsair Gaming, Inc. | (0.6)% | (0.7)% |

### Components of Results of Operations

### Net Revenue

*(In thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net revenue | $353,964 | $380,691 |

Net revenue decreased by $26.7 million, or 7.0%, for the three months ended March 31, 2023 as compared to the same period last year. The decrease was due to a 33.7% decrease in sales for our gamer and creator peripherals segment and partially offset by a 7.5% increase in sales for our gaming components and systems segment.

Overall, the demand for most of our peripheral products was lower in the three months ended March 31, 2023 compared to same period last year primarily due to the challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine as well as inflationary trends. The decline in demand for our peripherals products was partially offset by an increase in demand for our component and system products, primarily driven by the self-built PC market expansion due to the increase in availability of reasonably priced GPUs and CPUs as well as the release of new game titles.

### Gross Profit and Gross Margin

*(In thousands, except percentages)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Gross profit | $85,404 | $90,756 |
| Gross margin | 24.1% | 23.8% |

Gross margin increased 0.3% for the three months ended March 31, 2023 as compared to the same period last year. The increase was primarily attributable to lower freight costs and tariffs as the elevated freight rates caused by the COVID-19 pandemic have normalized to close to pre-pandemic level.

We expect our gross margin in the remainder of 2023 to benefit from further improvement in the supply chain environment.

### Sales, General and Administrative (SG&A)

*(In thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Sales, general and administrative | $67,529 | $76,131 |

SG&A expenses decreased $8.6 million, or 11.3%, for the three months ended March 31, 2023 as compared to the same period last year. The majority of the decrease in SG&A expenses was due to reduced freight rates and lower freight costs on lower revenues. The remaining decrease in SG&A expenses was primarily due to lower marketing and advertising expenses, partially offset by higher bonus expenses and higher stock-based compensation expenses.

### Product Development

*(In thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Product development | $16,838 | $17,110 |

Product development expenses decreased $0.3 million, or 1.6%, for the three months ended March 31, 2023 as compared to the same period last year. The decrease was primarily due to lower personnel-related cost which was offset partially by higher consulting and contractor costs.

### Interest Expense, Net and Other Expense, Net

*(In thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Interest expense, net | $(2,828) | $(1,279) |
| Other expense, net | (496) | (499) |

Interest expense, net increased $1.5 million, or 121.1%, for the three months ended March 31, 2023 as compared to the same period last year. The increase in interest expense, net was primarily due to a higher interest rate on our Term Loan compared to the same period last year, partially offset by $1.5 million interest income earned in the three months ended March 31, 2023. There was no interest income earned in the three months ended March 31, 2022.

Other expense, net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies of our subsidiaries. Our foreign currency exposure is primarily driven by fluctuations in the foreign currency exchanges rates of the Euro, British Pound and the Chinese Yuan.

### Income Tax Benefit

*(In thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Loss before income taxes | $(2,287) | $(4,263) |
| Income tax benefit | 639 | 983 |
| Effective tax rate | (27.9)% | (23.1)% |

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of net operating loss and tax credit carry forwards, changes in geographic mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.

Our effective tax rates were (27.9)% and (23.1)% for the three months ended March 31, 2023, and 2022, respectively. The increase in our effective tax rate was primarily due to an increase in non-deductible stock-based compensation expense partially offset by an increase in windfall tax benefit from stock-based compensation expense.

### Segment Results

### Segment Net Revenue

The following table sets forth our net revenue by segment expressed both in dollars (thousands) and as a percentage of net revenue:

|  | Three Months Ended March 31, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Gamer and Creator Peripherals Segment | $88,942 | 25.1% | $134,148 | 35.2% |
| Gaming Components and Systems Segment |  |  |  |  |
| Memory Products | 131,337 | 37.1 | 132,154 | 34.7 |
| Other Component Products | 133,685 | 37.8 | 114,389 | 30.0 |
|  | 265,022 | 74.9 | 246,543 | 64.8 |
| Total Net Revenue | $353,964 | 100.0% | $380,691 | 100.0% |

#### Gamer and Creator Peripherals Segment

Net revenue of the gamer and creator peripherals segment decreased $45.2 million, or 33.7%, for the three months ended March 31, 2023 as compared to the same period last year due to demand softness primarily driven by challenging macroeconomic environment, including the adverse impacts from the war between Russia and Ukraine and inflationary pressure on consumer spending, most notably in Europe.

#### Gaming Components and Systems Segment

Net revenue of the gaming components and systems segment increased $18.5 million, or 7.5%, for the three months ended March 31, 2023 as compared to the same period last year, primarily due to increased sales in the demand for our PSU and cooling solutions as the self-built PC market has been positively impacted by an increase in availability of reasonably priced GPUs and CPUs as well as the release of new game titles.

### Segment Gross Profit and Gross Margin

The following table sets forth our gross profit expressed in dollars (thousands) and gross margin (which we define as gross profit as a percentage of net revenue) by segment:

|  | Three Months Ended March 31, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Gamer and Creator Peripherals Segment | $26,648 | 30.0% | $43,057 | 32.1% |
| Gaming Components and Systems Segment |  |  |  |  |
| Memory Products | 20,806 | 15.8 | 21,065 | 15.9 |
| Other Component Products | 37,950 | 28.4 | 26,634 | 23.3 |
|  | 58,756 | 22.2 | 47,699 | 19.3 |
| Total Gross Profit | $85,404 | 24.1% | $90,756 | 23.8% |

26

#### Gamer and Creator Peripherals Segment

The gross margin of the gamer and creator peripherals segment decreased in the three months ended March 31, 2023 by 2.1% as compared to the same period last year, primarily due to higher excess and obsolescence charges, partially offset by lower freight costs and tariffs as well as decreased promotional activity.

#### Gaming Components and Systems Segment

The gross margin of the gaming components and systems segment increased in the three months ended March 31, 2023 by 2.9% as compared to the same period last year, primarily due to a change in sales mix toward higher margin products in this segment and lower freight costs and tariffs.

### Liquidity and Capital Resources

### Overview

Our principal sources of liquidity have been the payments received from customers purchasing our products, the borrowings under our Credit Agreement (defined below) and the net proceeds we received from our underwritten public offerings.

On September 29, 2022, one of our subsidiaries entered into an accounts receivable Factoring Agreement with a third-party financial institution, or the Factor. Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. Our obligations to the Factor, related to advances from the Factor, are secured by certain assets of our subsidiary. The cost of factoring is not expected to have a material effect to our overall liquidity, financial condition or results of operations. There was no advance taken from the Factor during the three months ended March 31, 2023.

Our principal uses of cash generally will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our products, capital expenditure, repayments of debt and related interest, income tax payments, future investments in business and technology, and selective mergers and acquisitions.

As of March 31, 2023, we had cash and restricted cash, in aggregate of $182.1 million, including $27.9 million held by our foreign subsidiaries. Amounts held outside of the United States are generally utilized to support our non-U.S. liquidity needs. Repatriations of amounts held outside the United States generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the United States to have a material effect on our overall liquidity, financial condition or results of operations.

We believe that the anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash balances at March 31, 2023, supplemented with the borrowings under our Revolving Credit Facility will be sufficient to fund our principal uses of cash for at least the next twelve months. In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on the demand for our products. We may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financial covenants that would restrict our operations. There can be no assurance that any such equity or debt financing will be available on favorable terms, or at all.

### Liquidity

The following table summarizes our cash flows for the periods presented (in thousands):

| Net cash provided by (used in): | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $41,826 | $(6,106) |
| Investing activities | (4,677) | (23,899) |
| Financing activities | (9,886) | (1,906) |

27

#### Cash Flows from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2023 was $41.8 million and consisted of a net cash inflow of $25.7 million from changes in our net operating assets and liabilities and non-cash adjustments of $17.8 million, offset partially by a net loss of $1.6 million. The net cash inflow from changes in our net operating assets and liabilities was primarily related to a decrease in accounts receivable, a decrease in inventories and an increase in accounts payable due to timing of payments. These net cash inflows were partially offset by a decrease in other liabilities and accrued expenses mainly due to lower accrual for sales returns and customer incentives. The non-cash adjustments consisted primarily of amortization of intangibles, depreciation and stock-based compensation expense, which were partially offset by changes in deferred income taxes.

Net cash used in operating activities for the three months ended March 31, 2022 was $6.1 million and consisted of net loss of $3.3 million and $17.3 million net cash outflow from changes in our net operating assets and liabilities, partially offset by non-cash adjustments of $14.5 million. The net cash outflow from changes in our net operating assets and liabilities was primarily related to a decrease in accounts payable due to timing of payments and a decrease in other liabilities and accrued expenses mainly due to lower accrual for sales returns and customer incentives and bonus expense, as well as an increase in prepaid and other assets. The net cash outflows were partially offset by a decrease in accounts receivable. The non-cash adjustments consisted primarily of amortization of intangibles, depreciation and stock-based compensation expense, which were partially offset by changes in deferred tax assets.

#### Cash Flows from Investing Activities

Cash used in investing activities was $4.7 million for the three months ended March 31, 2023 and consisted of purchases of capital equipment and software.

Cash used in investing activities was $23.9 million for the three months ended March 31, 2022 and consisted of $19.5 million for the iDisplay Acquisition (net of cash acquired) and $4.4 million for the purchase of capital equipment and software.

#### Cash Flows from Financing Activities

Cash used in financing activities was $9.9 million for the three months ended March 31, 2023 and consisted of $10.0 million repayment of debt, $1.0 million payment of contingent consideration, $0.6 million payment of taxes related to net share settlement of equity awards, and $0.5 million payment of offering costs in connection with our underwritten public offering in the fourth quarter of 2022, partially offset by $2.1 million proceeds received from the issuance of shares through employee equity incentive plans.

Cash used in financing activities was $1.9 million for the three months ended March 31, 2022 and consisted primarily of $1.3 million repayment of debt and $0.9 million payment of taxes related to net share settlement of equity awards, partially offset by $0.5 million proceeds received from the issuance of shares through the employee equity incentive plans. During the three months ended March 31, 2022, we also borrowed $293.0 million from our revolving credit facility to fund our operations and the full amount was repaid within the same quarter.

### Capital Resources

#### Credit Agreement (Term Loan and Revolving Credit Facility)

On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement with a new Credit Agreement (as amended, the “Credit Agreement”). The new Credit Agreement provides for a total commitment of $350.0 million, consisting of a $100.0 million revolving credit facility (“Revolving Credit Facility”) and a $250.0 million term loan facility (“Term Loan”).

The Credit Agreement is available for a period of five years, maturing September 2026, and provides for additional incremental facilities up to a maximum aggregate principal amount of $250.0 million, subject to the satisfaction of certain conditions. We may prepay the Term Loan and the Revolving Facility at any time without premium or penalty. We prepaid $3.75 million and $8.75 million of the Term Loan principal in the year ended December 31, 2022 and in the three months ended March 31, 2023, respectively.

The Term Loan and Revolving Credit Facility under the Credit Agreement will each bear interest at our election, either (a) LIBOR plus a percentage spread (ranging from 1.25% to 2.0%) based on our total net leverage ratio, or (b) the base rate (described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.0%) based on our total net leverage ratio.

Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.

On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”) which, among other changes, resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR.

Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at our election at either (a) BSBY plus a percentage spread (ranging from 1.25% to 2.25%) based on our total net leverage ratio, or (b) the base rate (as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month BSBY plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.25%) based on our total net leverage ratio. In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) was also amended to increase to 3.50 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.00 to 1.00 from the quarter ended June 30, 2023 and each quarter thereafter; provided, that upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.50 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met.

On September 29, 2022, we entered into an accounts receivable Factoring Agreement with the Factor. In connection with the Factoring Agreement, we also entered into (i) a Second Amendment (“Second Amendment”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral.

On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement which provides for, among other things: (i) a decrease in the required minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to 2.50 to 1.00 for the quarters ending on and after March 31, 2023 through and including December 31, 2023; (ii) an increase in the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to 3.75 to 1.00 for the quarters ending December 31, 2022 and March 31, 2023, stepping down to 3.50 to 1.00 for the quarter ending June 30, 2023, and 3.25 to 1.00 for the quarters ending September 30, 2023 and December 31, 2023; and (iii) a modified pricing grid providing for an increased margin (ranging from (x) 1.50% per annum to 3.25% per annum for loans bearing interest at the BSBY rate, and (y) 0.50% per annum to 2.25% per annum for loans bearing interest at the base rate, in each case depending on our Consolidated Total Net Leverage Ratio) for the period of December 31, 2022 through December 31, 2023.

As of March 31, 2023, we were not in default under the Credit Agreement. As of March 31, 2023, the total principal outstanding of the Term Loan was $230.0 million and the available and uncommitted capacity under the Revolving Credit Facility was $100 million.

### Contractual Cash and Other Obligations

The following table summarizes our contractual cash and other obligations as of March 31, 2023 (in thousands):

|  | Payments Due by Period Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Debt principal and interest payments (1) | $272,618 | $24,584 | $47,594 | $200,440 | $— |
| Inventory-related purchase obligations (2) | 92,260 | 92,260 | — | — | — |
| Operating lease obligations (3) | 65,233 | 13,175 | 17,982 | 11,905 | 22,171 |
| Other purchase obligations (4) | 20,278 | 18,569 | 1,709 | — | — |
| Total | $450,389 | $148,588 | $67,285 | $212,345 | $22,171 |

(1) Amounts represent the principal cash payments as of March 31, 2023 of our Term Loan based on the repayment schedule according to the Credit Agreement and the expected interest payments associated with the Term Loan. See Note 8, “Debt” to our condensed consolidated financial statements for more information.

(2) Amounts represent an estimate of purchase obligations related to inventory.

(3) Amounts represent contractual obligations from our operating leases for offices and warehouse spaces.

(4) Amounts represent non-cancelable obligations related to capital expenditures, software licenses, marketing and other activities.

As of March 31, 2023, we had $2.6 million in non-current income tax payable, including interest and penalties, related to our income tax liability for uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the contractual cash obligation table above.

### Critical Accounting Polices and Estimates

A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results may differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.

Other than the new items discussed in Note 2 of our condensed consolidated financial statements, there have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2023 as compared to the critical accounting policies and estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 27, 2023.

### Recent Accounting Pronouncements

Refer to Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted and to be adopted.

## Market risk

As filed, 3,115 characters.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates.

### Interest Rate Risk

As of March 31, 2023, we had cash and restricted cash of $182.1 million, which consisted primarily of bank deposits. Our cash is held for working capital purposes.

As of March 31, 2023, under the Credit Agreement, we had $230.0 million Term Loan outstanding (face value), and the Term Loan bears variable market rates, primarily BSBY. See Note 8, “Debt - Credit Agreement” to our condensed consolidated financial statements for additional information on the Credit Agreement. A significant change in these market rates may adversely affect our operating results. As of March 31, 2023, a hypothetical 100 basis point change in interest rates would result in a change to annual interest expense by approximately $2.3 million.

### Foreign Currency Risk

Approximately 15.7% of our net revenue for the three months ended March 31, 2023 was denominated in foreign currencies, primarily Euro and British Pound. Any unfavorable movement in the exchange rate between U.S. dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our net revenue and gross margins as we may have to adjust local currency product pricing due to competitive pressures if there is significant volatility in foreign currency exchange rates. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, China and Taiwan. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

We enter into forward currency contracts to reduce the short-term effects of currency fluctuations on Euro, British Pound, and Chinese Yuan denominated cash, accounts receivable, and intercompany receivable and payable balances. These forward contracts generally mature within two to four months, and we do not enter into foreign currency forward contracts for trading purposes. The outstanding notional principal amount was $25.3 million and $23.4 million as of March 31, 2023 and December 31, 2022, respectively. The gains or losses on these contracts are recognized in earnings based on the changes in fair value of the foreign currency forward contracts.

The impact of changes in foreign currency rates, including the gains or (losses) on the forward currency contracts, recognized in other (expense) income, net was $(0.6) million for each of the three months ended March 31, 2023 and 2022. A hypothetical ten percent change in exchange rates between foreign currencies and the U.S. dollar would increase or decrease our gains or losses on foreign currency exchange of approximately $0.9 million in our condensed consolidated financial statements for the three months ended March 31, 2023.

## Controls and procedures

As filed, 2,360 characters.

### Limitations on Effectiveness of Controls and Procedures

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but there can be no assurance that such improvements will be sufficient to provide us with effective internal control over financial reporting.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 829 characters.

We have disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. The risks that we describe in our public filings are not the only risks we may face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely effect on our business, financial condition and/or future operating results.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-020577. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.