Corsair Gaming, Inc.

Good morning and welcome to the Corsair Gaming's third quarter 2021 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 mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference call, please press star zero on your telephone keypad. With that, I'd now like to turn the call over to Ronald Vanveen, Corsair's Vice President of Finance and Investor Relations. Thank you, sir. Please begin.

Thank you. Good morning, everyone, and thank you for joining us for Corsair's Prudential Results Conference Call for the third quarter ending September 30th, 2021. On the call today, we have Corsair CEO Andy Paul and CFO Michael Pollard. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This goal, including the Q&A portion of the goal, may include forward-looking statements related to the expected future results of a 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 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. I would also like to remind everyone that until our 10Q is on file, the Q3 2021 numbers are preliminary. This conference call will be available for replay by webcast through Corsair's Investor Relations website at ir.corsair.com. Andy will begin with a third quarter business highlights and a discussion on what we are seeing in the market, and Michael will then take you through a review of the financials and our outlook before we proceed to Q&A. With that, I'll now turn the call over to Andy.

Thank you, Ronald, and welcome to our Q3 2021 earnings call. During the third quarter, we delivered revenues of $391 million. and gross profit of $101 million, resulting in gross margin of 25.9%. While we continue to see solid demand for our products, our performance was impacted by a very difficult logistics and supply chain environment, particularly the availability of reasonably priced GPUs, and we believe it prudent to reset expectations for the year. Michael will walk through our financial results in greater detail later in our discussion. I'd like to spend a few minutes to provide an update on what we are seeing in the market and why we remain confident that Corsair is well positioned to navigate the current industry headwinds to deliver sustainable shareholder value creation over the long term. First, Corsair is the 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 fans. As gaming and streaming continues to become more mainstream, we believe Corsair is uniquely positioned with our comprehensive product suite to meet the needs of this rapidly growing market. We have maintained our market leadership across most of our product lines with our relentless focus on enhancing the customer experience by delivering cutting edge technology and creating innovative gaming and streaming gear and related software. Based on outside data, we believe that we gained market share in most categories in Q3. Since the start of 2021, we've maintained an astounding pace of innovation launching 113 new products, including the addition of several entirely new product lines, which we believe has greatly expanded our total addressable market opportunity. In July, we launched a new Elgato camera called FaceCam, designed specifically for streamers and content creators. We are encouraged by the great momentum that we've seen so far, and we are gaining market share very quickly. The global TAM for USB cameras is over $1 billion. In September, we debuted the Xeon gaming monitor, which features an ultra-slim 32-inch QHD screen with a combination of powerful specs, smart features, and thoughtful design that power users need. We're excited to enter this new and large market for gaming monitors, which we believe to be approximately $4.5 billion globally. Finally, last week, we announced our new DDR5 memory products. DDR5 is the latest technology standard for DRAM, which allows speeds of over 6,000 megahertz, a huge performance increase compared to DDR4, the previous standard. and both Intel and AMD are supporting this interface on their latest processors. We expect that this will encourage many gaming enthusiasts to build new PCs around this platform. We believe new product innovation remains an important driver of our future growth, and we will continue to invest to increase value for our customers. Overall, demand has remained strong for gaming components and gaming peripherals, In fact, recent market data shows consumer demand for peripherals at close to the elevated 2020 work-from-home levels. We also recently conducted a survey of the PC gaming hardware market with DFC Intelligence, and we found that the refresh cycle for building and upgrading PCs is shorter than previously thought, closer to one to two years rather than two to three years. The semiconductor shortage has caused graphics cards to be in very short supply compared to demand and has driven market prices of certain graphics cards through 150% to 200% of normal MSRP. This has caused gaming enthusiasts to hold back on building new high-end gaming PCs that use our components. By our estimate, approximately 10% of our natural demand for our components and memory products in our gaming component segment was held back in 2021. We believe this should cause a bubble of pent-up demand, which will be released as GPUs return to normal MSRPs in 2022. We estimate the impact of the semiconductor shortage on our components business for 2021 is at least a $100 million revenue issue, and has made growth in the components market difficult in 2021. Although we still expect some growth, mainly from the fact that we have gained market share in components. Finally, we remain focused on strengthening our relationship with end users by increasing direct-to-consumer sales. We acquired Origin and Scuf in 2019, which are both direct-to-consumer, and we have continued to expand our direct-to-consumer channel with our other product lines. During the third quarter, direct-to-consumer was 13.1% of sales, up from 10% in Q3 2020, and we expect this trend to continue. We truly believe direct consumer sales represents a significant avenue to drive growth by facilitating increased engagement with our consumers. In closing, our third quarter results reflect a good demand environment against challenging logistics and supply chain conditions. We believe that as these constraints ease and GPUs become more available, we will return to our revenue and margin targets. While Q3 was only our second highest ever third quarter, it is notable that our revised full year outlook is in line with our initial expectations for the year, which we'd outlined during our Q4 earnings call, and well above our expectations during the time of our IPO. We firmly believe that Corsair remains uniquely positioned to capitalize on the underlying secular growth trends around gaming, esports, and streaming. We feel good about our continued investments in R&D and marketing, and the market reception of our new product introductions so far this year. We plan on having an analyst day very early in 2022, where we will discuss our product lines in more detail, including the new products we released since the IPO that have opened up a much larger TAM for us. We'll discuss our 2022 expectations then as well. 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.