Corsair Gaming, Inc.

Third quarter of 2022 Earnings Conference Call. As a reminder, today's call is being recorded. Annual 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, please press Start then 0 on your telephone keypad. With that, I would now like to turn the conference over to Ronald Van Fien, Corsair's Vice President of Finance and Investor Relations. Thank you, sir. Please begin.

Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference Call for the third quarter ending September 30, 2022. On the call today, we have Corsair CEO Andy Paul and CFO Michael Potter. Andy will review highlights from the third quarter and the business environment. 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 our other 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 closed today. With that, I'll now turn over the call to Andy.

Thank you, Ronald, and welcome everyone to our Q3 2022 earnings call. I'm very pleased to report that we achieved a 10% sequential revenue growth, in Q3 2022 from Q2 2022, while continuing to deal with higher than normal inventory levels. Sales out levels from our channel to consumers were significantly above pre-pandemic levels in almost all product lines, and many were above the year ago level. As we have reported in recent earnings calls, this year has been marked by excessive inventory in the channel, especially in Europe. We continue to report and make comments on consumer sales from our channel, as well as our revenue from sales into the channel, to provide clarity on the progress we are making. For example, in the U.S., we have made great progress in reducing this inventory, and stock levels are now closer to a more normal level. The European channel inventory position remains elevated, but is also slowly normalizing. Our target is to reduce our worldwide channel inventory overhang by roughly $100 million from the start of 2022 to the end of this year, with a little left more to go in our creative and peripheral segment and our European channel inventory. As we mentioned in previous quarters, the self-built PC market has been held back over the past two years with high demand for graphics cards from crypto miners, on top of increased demand for computers during the pandemic, which had caused GPU prices to rise and in some cases to double. Now that crypto mining cannot use GPUs as effectively as before, there's been a decline in demand and prices are back to standard MSRP or below. Additionally, in recent months, there have been launches of new technology platforms for NVIDIA, AMD, and Intel, which looked to be accelerating demand in the self-built PC market as our enthusiast customers can now build a better and faster gaming PC for a lower cost than they could over the last two years. The added positive for Corsair is that gaming PCs built with these new platforms need faster memory, such as DDR5, larger power supplies with a thousand watt capability or higher and better cooling technology. all product categories that we are expert in and have attained a dominant market share. There have also been several recent games launched or updated that take full use of the new technologies built into the new GPUs, making them more immersive and more exciting to play. This is also helping to drive higher demand for gaming PCs and peripherals. In general, as we move through the second half of the year, we are starting to see the market recover from the lower demand seen in the early part of 2022. The US continues to be a strong market, and we expect Q4 to see continued growth in all categories. Europe is still tracking lower than last year, but has shown improvements, and we currently also expect growth in Q4 compared to Q3. Revenue in Asia for Q3 was approximately flat compared to last year. Let me now take a minute to update you on some of our Q3 product developments. In Q3, we began selling the Corsair Voyager A1600 AMD Advantage Edition laptop. This is our first Corsair branded laptop, and it combines AMD's latest CPU and GPU platforms with our software and technologies to create an unparalleled gaming and streaming experience. This laptop has been the highest single R&D investment in our company's history, entering the top end of the gaming laptop market.