Corsair Gaming, Inc.

Good afternoon and welcome to the Corsair Gaming's second 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 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 1 on your telephone keypad. With that, I would now like to turn the call over to Ronald Van Veen, 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 second quarter ended June 30, 2023. On the call today, we have our Corsair 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 other SEC filings. Note that until our 10Q has been filed, these numbers are preliminary. 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 the call over to Andy.

Thank you, Ronald, and welcome everyone to our earnings call. The key takeaways for Q2 are, first, our revenue exceeded expectations for Q2, growing nearly 15% on a year-over-year basis. Consumer spending on gaming hardware is holding at significantly higher levels than pre-pandemic. We believe that even with a challenging macro-level environment, We're seeing increased activity due to new gamers that came into the mix in 2020, now starting to refresh and upgrade their gear. Second, gross margins showed strong growth with healthy imagery profiles and reduced rate costs. Third, we're now active again in M&A, which is a key component of our growth strategy. Our strong cash balance and low leverage is now allowing us to pursue M&A opportunities with the latest announcement made in July that we agreed to purchase Drop Incorporated. Taken together, we expect the gaming market to continue to be healthy for the balance of the year, with new game titles and lower-cost GPU cards in the market. And we expect to continue to take market share with our continued new product rollouts. Let me take a few minutes to expand on these points. So first, I'm very pleased to report that our results for the second quarter exceeded our original expectations. The gaming hardware market is healthy and appears resilient to macroeconomic effects, driven by new games and new graphics cards launching. For components used for building gaming PCs, depending on region, we see a 24% to 28% increase from Q2 2019 to Q2 2023. For gaming peripherals, we see an overall increase of 57% to 63% this year compared to pre-pandemic. Now, it's reasonable to consider current consumer activity as a post-pandemic baseline since there's no evidence of increased current activity due to COVID-related stay-at-home behavior. Based on everything we're seeing and hearing, we believe this increased activity is coming from the surge of new gaming hardware buyers who entered the market during 2020 and 2021, which we now refer to as the COVID bulge. Since this comparison is now over four years, that would lead to a net CAGR from pre-pandemic to post-pandemic as approximately 5% to 6% for PC platform building and 12% to 13% for gaming peripherals. This is roughly in line with what we shared with investors over the years as expected growth rates for these categories.