Corsair Gaming, Inc.

Greetings, and welcome to the Corsair Gaming third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ronald Van Veen, Corsair's Vice President of Finance Investor Relations. Thank you, Mr. Van Veen. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for Coursera's financial results conference call for the third quarter ending September 30th, 2020. On the call today, we have Coursera CEO, Amy Paul, and CFO, Michael Potter. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including 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 predictions 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. Today's remarks will also include reference to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release. This conference call will be available for replay via webcast through Corsair's investor relations website at ir.corsair.com. Andy will begin with an overview of Corsair, followed by our third quarter highlights. Michael will then take you through a review of the financials before we proceed to Q&A. And with that, I'll now turn the call over to Andy.

Thank you, Ronald, and welcome to our first earnings call as a public company. It was great to meet many of you during the course of our IPO Roadshow in September, and we look forward to getting to know all of you better as we go forward. Now, as some of you may be new to our story, I'd like to spend a few minutes to take you through a brief overview of who we are, what we do, and the growing market opportunity we see in front of us. Please note that this overview will make today's call a little longer than what will be typical going forward. and then I'll provide an overview of our recent progress and performance, and then turn the call over to Michael for a financial review of the quarter. We are a leading global provider and innovator of high-performance gear for gamers and content creators. Our gaming gear helps gamers perform at their peak across PC or console platforms, and our streaming gear enables creators to produce studio-quality content to share with friends or to broadcast to millions of friends. We've served the market for over two decades, and most of our product lines maintain a top three US market share position, with several in number one positions, according to data from NPD Group and internal estimates. We have built a passionate base of loyal customers who build and upgrade their gaming PCs using Corsair components, and then use our peripheral products for gaming or streaming. Competitive gaming rewards speed, precision, and reliability. As in other sports, specialized high-performance gears such as gaming mice, keyboards, headsets, and performance controllers allow digital athletes to perform at their best. Modern games also require significant processing power to render high-resolution graphics and reward the speed and precision of user inputs, driving demand for powerful gaming components and systems. Further, in a world where the ability to create content is democratized and competition for viewer engagement is greater than ever, content creators, particularly streamers, are increasingly seeking ways to maximize the quality of their video capture and broadcasting, which requires specialized high-performance gear. 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, IQ for Gamers and El Gallo's Streamer Suite for Content Creators. These software platforms provide unified, intuitive performance and aesthetic control and customization across their respective product families. As gaming has gone mainstream, streaming has followed suit. games are now broadcast over the Internet at both the tournament level and by gamers at home. Today, 71% of millennial gamers in the U.S. watch gaming video content on streaming platforms for an average of almost six hours a week. Further, there are over 6 million committed streamers in the world today who fuel the over 12 billion streaming hours watched in 2019 alone. The global market for PC and streaming gear totaled $36 billion in 2019. Of that, 83% was spending from competitive and committed gamers. These are players who spend between $1,000 to over $1,800 on gaming hardware and accessories. These are our core customers. What's incredible is these competitive and committed gamers while accounting for 83% of spend, only account for 18% of the worldwide total of 524 million PC gamers in 2019, with the remainder being casual gamers who often do not yet own any specialized gear. This highlights the significant growth potential for our TAM. We see that the average spend of gamers is still fairly low compared to spending on other sports gears. and very concentrated at the high end. As casual gamers become competitive and committed gamers, their spending grows. If the average spend of this group of gamers were to significantly move up, then the market for gaming gear could grow by multiples. In gaming, where we see the biggest opportunity in market growth is in peripherals, because while most entry-level gamers will have access to a console or some sort of PC in their home, they will likely not have specialized peripherals. We have seen the peripherals growth exploded as teenagers play Fortnite or other online multiplayer games on PCs and laptops. Further, as more and more gaming is watched online, gamers aspire to emulate professional streamers, resulting in incremental spending on gear. Beyond success in gaming, these emerging applications represent a promising avenue for the continued expansion of the streaming gear market opportunity. So, moving on to our growth strategy, we intend to grow our business by increasing value to our customers, expanding our market opportunity, and further differentiating ourselves from competitors. We believe our brand name, high-performance gear and market position will allow us to capture a large share of this market growth. And we intend to continue to make significant marketing investments in leading esports teams, athletes, streamers, and social media influencers. Other key parts of our growth strategy include continuing to develop innovative, market-leading gaming and streaming gear. We intend to prioritize investment in creating innovative gaming and streaming gear and related software to enhance the customer experience by delivering cutting-edge technology. Secondly, expanding into new gear and services that grow our market opportunity. Since our inception, we have successfully entered a number of new gear categories, including gaming PC peripherals, streaming accessories, console controllers, and prebuilt and gaming PCs and laptops. As the gaming and content creation landscape continues to evolve, we intend to continue to introduce new products and services to address our customers' new and changing needs and to grow our market opportunity. Next, leveraging our software platforms to sell more gear to existing customers. Our software platforms integrate and enhance our ecosystem of gaming and streaming gear which drives customer loyalty and allows us to successfully sell additional gear to existing customers, strengthening our relationships with end users by increasing direct consumer sales. Through our acquisition of Origin and Scuf in 2019, we acquired two companies whose sales are primarily generated through direct consumer channels. While sales from this channel are relatively small contributors to our revenue today, We believe direct consumer sales represents a significant avenue to drive growth by facilitating increased engagement with our consumers. And finally, we'll continue to grow market share globally. As a globally recognized brand, we have a footprint that reaches customers in more than 75 countries. We will continue to invest in enhancing our sales and distribution infrastructure to expand our leadership position in the Americas and Europe and we view Azure as a significant long-term opportunity. We are a clear market leader in the gaming PC components market, and we have a steadily growing market share in gaming and streaming gear. So with that as a backdrop, I'd now like to review our performance in the quarter. We are very pleased with our strong results in the third quarter, which exceeded our expectations, as we achieved net revenues of $457.1 million, a 60.7 year-on-year growth, and we achieved adjusted EBITDA of $63.7 million, which is a year-on-year growth of 184.9%. Looking at the business highlights, the market for gaming and streaming gear continues to grow from strength to strength. as people who are spending more time at home are learning how to play games better, how to stream content to their friends, and how to build high-performance gaming PCs. All of these things require high-performance gaming and streaming gear, and so we are massively benefiting from this trend. In fact, we hope we're helping drive this trend. What we learned from Q3 was that the surge in gaming activity which started in Q2 now doesn't appear to be a pull forward in sales. In other words, our growth in Q2 did not come at the expense of Q3 or Q4. Far from it, what we are learning is that the biggest part of the increased demand is coming from first-time buyers. In other words, gamers who have not bought gaming products before. This is evidenced by strong sales for entry-level products, which means new gamers and streamers are beginning to invest real money on gear to support their hobby for the first time. And there are many more gamers and streamers who have not bought any gear yet. As we mentioned before, most of the TAM at this point is spent by the top 18% of the market, with the remaining 82% of gamers mostly not having bought much of any gear yet. Our estimates are that in the U.S., where we have very good data, The incremental new buyers that have come into the market this year and started to buy gaming and streaming gear represent less than 5% of total US gamers. Our expectation is that all these new gamers and streamers who are buying our gear for the first time will come back in the following years to upgrade and buy more high performance products from us. Demand was strongly up in all product lines, most notably in the streaming and gaming segment where we grew by 129% year-on-year. But our gaming components and system segment also showed huge growth of 38% year-on-year and is now at a yearly run rate of over $1 billion. These incremental new gamers are not just buying peripherals. Many of them are buying gaming PCs or buying ready-assembled machines as well. During the quarter, we introduced several new high-performance products. These are all listed out in detail in the press release, but they include two new keyboards, including the K100 new flagship products, a new wireless mouse, a new haptic headset, a new range of cases, a new family of CPU coolers, and a new gaming PC featuring the new NVIDIA RTX 30 series GPUs. We expect to continue to launch new high-performance products at a blistering pace, approximately one per week, and use these new products to gain market share. Our new microphones started shipping in volume in Q3 and exceeded our sales expectations. More recently, we acquired the popular app called Epoch Cam, which allows your iPhone to be configured as a webcam and connect wirelessly to your PC or Mac. This is one of the most popular apps in the Apple Store in the photo and video category. This adds to our video solutions that we already have in the Elgato product portfolio. Our main product in this category today is our Cam Link 4K, which allows people to connect a high-resolution DLSR camera directly to a PC and stream 4K video. The Epoch Cam app allows your phone to be used as a secondary camera or for many people, can be the only camera they use for casual video interaction with others. We expect to continue to add to our streaming video solutions in the near future. And lastly, we have made two significant steps in our move into coaching and training. Firstly, we've partnered with Pipeline, which is a course-based education platform to help streamers improve their quality and increase their viewers. we'll be offering these courses bundled with our Elgato streaming products. Secondly, we just announced the acquisition of Gamer Sensei, which is one of the top platforms for connecting gamers with coaches to help them improve their gameplay. We believe that the coaching and training market around gaming and streaming is largely untapped, and we expect that eventually it should be a similar market size that we see in other sports and pastimes, such as skiing, golf, or tennis, where lessons are always or almost always part of someone's journey to improve their performance. In closing, I'm obviously very pleased with our strong third quarter results and our progress heading into the end of this year. We continue to execute on our strategic growth initiatives, and we remain focused on capitalizing on tremendous market opportunity before us. Our recent IPO was a significant milestone for us, Although we are very proud of all that we've achieved so far, we acknowledge that this is just the next step forward in serving our customers, employees, and shareholders. Thank you for your time and continued support. I'll now turn the call over to Michael to discuss our financial results for the quarter.