Corsair Gaming, Inc.

Good afternoon and welcome to CoreSair Gaming's first quarter 2025 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 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 then zero on your telephone keypad. With that, I would now like to turn the call over to David Pasquale with Investor Relations. Thank you, sir. Please begin.

Good afternoon, everyone, and thank you for joining CoreSair's financial results conference call for the first quarter ended March 31, 2025. On the call today, we have CoreSair's CEO, Andy Paul, P. Law, CoreSair's president and future chief executive officer of CoreSair as of July 1, 2025, and CFO, Michael Potter. Andy will review highlights from the quarter followed by T. Michael will then review the financials. 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, may include forward-looking statements related to the expected future results for 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 will now turn the call over to CoreSair's CEO, Andy Paul. Please go ahead, sir.

Thanks, David. Firstly, I'm pleased to report that we met our revenue and earnings targets for Q1 with $370 million of revenue, representing an approximate 10% growth over Q1 of last year. Margins and EBITDA were also on target, which Michael will cover in detail later. Our new Fanatec sim racing operation helped growth in our gamer and creator peripheral segment and a rebound in our gaming component and systems segment signaled renewed energy in the core of our enthusiast base with new GPU cards shipping from Nvidia. One of the key milestones this quarter was the successful initial integration of Fanatec into Corsair. This included seamless alignment across our website, e-commerce systems, ERP, supply chain, and customer support infrastructure. We're already seeing the results. Consumers have responded enthusiastically to improve product availability, faster support, and a more streamlined experience. We're excited to build on this momentum by shortly bringing Fanatec products to some of our specialist retailers, further expanding our presence in the enthusiast gaming space, and driving incremental revenue. Clearly, one of the main topics of the day is tariffs and how they affect us, and T. Law, who was recently announced as our new CEO, will address what we're doing to mitigate any tariff impact. But the headline is that we don't source much for the US market from China, and so far we saw very little effect in terms of our consumer base reducing demand. In Q1, we have seen solid demand for our components and memory products as enthusiasts build new gaming PCs based on new high-performance GPUs. As we have mentioned before, the new 50 series GPU cards are higher power than before, especially when overclocked. This means higher grade power supplies and cooling devices need to be used, which is where we specialize. So we started the year in a good position. Looking forward, there are always multiple variables that can change, and of course we don't know what exactly is going to happen with tariffs given the fluid situation. However, we are encouraged with the more measured approach to tariffs on semiconductors and related products, and would expect to end up at a place which would not meaningfully affect the consumer demand for building gaming PCs and buying peripherals. My belief, having watched many economic cycles over the years, is that home entertainment, like gaming or watching content at home, tends to be less effective during a recession than spending outside the home, such as restaurants, bars, and other outside entertainment. Having said that, any economic slowdown or recession that involves layoffs and prices generally going up will not likely induce any meaningful growth for our markets. The other thing we need to look at is how we fare compared to our competitors. In most of our categories, we are the largest supplier, and so we probably have more flexibility and likely would gain market share if large tariffs go into effect. As I mentioned, Tee will cover this in detail next. Lastly, I want to touch on the growing impact of artificial intelligence across our business. This is an exciting development with massive implications to our business and to gameplay. We're already seeing early benefits. For example, Elgato is shipping AI enhanced tools like the AI Promptor, and we integrated AI into Wavelink with AI Acoustic. Our support teams are also using AI-driven knowledge systems to deliver faster, more accurate service. This ultimately creates a better customer relationship, reduces support costs, and builds brand strength. We believe AI will become a meaningful growth driver as it shapes the entire ecosystem from game creation to gameplay. In summary, Q1 was a solid start to the year. With the successful Phanatech integration, strong product demands, an adaptable supply chain, and early wins in AI, Corsair is well positioned for continued growth and innovation in the coming years. We're excited to what lies ahead. Let me now turn the call over to Tee La before Michael reviews our financials. Tee, please go ahead.

Thank you, Andy. Corsair has a long history of navigating global trade dynamics with agility and efficiency. We've spent years building a flexible, multi-location manufacturing strategy that allows us to quickly adapt to changes in the market and policy environment. Today, our products are manufactured in several countries, including the United States, through a combination of our own factories, and a network of trusted assembly subcontractors tailored to our diverse product lines. Thanks to our operational expertise and deep supplier relationships, we've consistently demonstrated the ability to shift production locations within just two to four quarters, an advantage that gives us tremendous resilience. While the U.S. represents roughly 45% of our total sales in Q1 2025, only 19% of the products sold into that market are sourced from China, and this number is expected to drop during this year. This means that we are well positioned to continue serving U.S. consumers cost effectively due to our fluid operation. Our experience and scale allow us to move faster than many smaller competitors, and we believe this environment creates a meaningful opportunity for us to capture share. We're also encouraged by recent NPD group data. We show strong -over-year growth in components markets. These are areas where Corsair maintains a leadership position, and we're confident in our ability to meet growing demand with minimal disruption. Let me now turn the call over to Michael for a review. Michael?

Thank you, Andy and Tee. We're very pleased with our first quarter performance, which highlights the continued progress we're making across the business. One of the highlights this quarter was the expansion in margins. The increase in revenue from higher performance gear resulting from the high-end GPU releases, so it's coupled with our continued discipline execution and focus on operational efficiency. This performance reflects the strength of our underlying business and our team's ability to execute on a long-term business model. On the financial side, we made significant progress in further strengthening our balance sheet. We continue to actively reduce debt and improve our overall liquidity position. Taken together, these actions further enhance our financial flexibility and resilience, which takes on added importance in the current dynamic market environment. In terms of the specifics, Q1 2025 net revenue was $369.8 million compared to $337.3 million in Q1 2024. European markets contributed .2% of our Q1 2025 revenues compared to 38% in Q4 2024, while the APAC region was .3% of our Q1 2025 revenues compared to .1% in Q4 2024. Turning now to our segments. The Gamer and Creator Peripheral segment contributed $112 million of net revenue during the first quarter compared to $107 million in Q1 2024. The Gaming Components and Systems segment contributed $257.8 million of net revenue during the first quarter compared to $230.3 million in Q1 2024. Memory Products contributed $141.1 million in Q1 2025 compared to $124.9 million in Q1 2024. Overall gross profit in the first quarter was $102.4 million compared to $86.6 million in Q1 2024, reflecting the continued growth in our Gaming and Creator Peripheral segment and some benefit from the initial integration of Fanatec. Gross margin increased to .7% compared to .7% in Q1 2024. While gross margin can fluctuate in any given quarter, we are pleased with the improvement in Q1 and this remains a focus for us longer term. Gross profit in the Gamer and Creator Peripheral segment was $46.4 million compared to $43.6 million in Q1 2024. Gross margin improved to .5% compared to .8% in Q1 2024. The Gaming Components and Systems segment gross profit was $55.9 million compared to $43 million in Q1 2024. Gross margin was .7% compared to .7% in Q1 2024. Our Memory Products gross margins in this segment were .9% for the first quarter compared to .5% in Q1 2024. First quarter SG&A expenses decreased slightly as a percentage of total revenue to .5% or $87 million compared to .8% or $80.2 million in Q1 2024. First quarter R&D expenses also decreased slightly as a percentage of total revenue to .8% or $17.6 million compared to .9% or $16.6 million in Q1 2024. We continue to target investments in higher ROI innovations including both hardware and software to enhance the customer experience and to create revenue opportunities for us. Gap operating loss in the first quarter of 2025 was $2.3 million compared to $10.2 million in Q1 2024. First quarter adjusted operating income was $20.6 million compared to adjusted operating income of $15.4 million in Q1 2024. First quarter net loss attributable to common shareholders was $10.1 million or $0.10 per diluted share as compared to net loss of $12.5 million or $0.12 per diluted share in Q1 2024. On an adjusted basis, first quarter net income was $12.3 million or $0.11 per diluted share compared to an adjusted net income of $9.5 million or $0.09 per share in Q1 2024. Finally, our first quarter adjusted EBITDA was $22.6 million compared to $18 million for Q1 2024. We are pleased to start the year on a journey. Shortly after the end of the quarter, we finished the last and largest effort to move Fanatec fully into our base systems. That was successful and should help us better manage in the future. Although there are still some supply chain changes that are being made, we do expect integration expenses to be mostly behind us now. Turning now to our balance sheet. We ended Q1 with $10.5 million. We invested in inventory in some categories we thought might help with any needed transitions, with inventory ending Q1 at $276.8 million, up $16.9 million from the prior quarter. We ended Q1 with $149 million of debt at face value, down $25 million from the prior quarter, and our $100 million working capital revolver remains undrawn and fully available. Overall, our liquidity remains excellent and allows us to pursue different strategies to support growth opportunities, including building inventory in strategic categories as I mentioned earlier. Finally, with regard to our outlook, as noted in our Q1 earnings release, given current uncertainty resulting from new tariffs and the possibility of additional tariffs and retaliatory actions taken in response to such tariffs, we are not reaffirming full year 2025 financial guidance, but intend to provide an update later in the year as visibility improves. With that, we're now happy to open the call for questions. Operator, would you please open up the call for Q&A?

Absolutely. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Again, that is star and then one to ask a question. At this time, we will pause momentarily to assemble our roster. And your first question today will come from Aaron Lee with Macquarie. Please go ahead.

Hey, good afternoon. Thanks for taking my question.

I appreciate all the color. Obviously a lot going on in the world right now, inflation, tariffs, macro. It sounds like everything is on track, but has anything changed in terms of your confidence in the hardware refresh cycle around the new NVIDIA GPUs? And can you talk a bit more about how Corsair has performed in past recessions and maybe any lessons you can apply going forward? Thanks.

Well, yeah, it's a complicated question. So I think that one thing we're mindful about is that two-thirds of our revenue comes from people building gaming PCs. And the determining factor on whether they're going to build or not is going to come down to the cost of a GPU and the CPU. And that's why so much depends on the tariff level of semiconductors and what ends up being exempt. So you can imagine that if there was a 50 percent tariff on GPUs, that would almost certainly impact demand. Now our current expectation, or maybe it's a hope, is that semiconductors are not going to get heavily tariffed because we think that there's a lot of people lobbying against this. And I think there's going to be an understanding that it does take a long time to rebuild up a semiconductor based in the U.S. So early signs though is that people are clearly building with 50 series cards from Nvidia. That's already started. Remember, they didn't really start shipping until March. So we've only had a small amount of activity. But certainly all the way through March, 50, 90 cards, which are the high-end cards, were essentially on allocation for the whole Q1. We couldn't get enough cards to make our high-end systems. So yeah, the refresh cycle is certainly starting. But there's a lot of factors that could change how big it is. You asked about recession. And we don't have a huge amount of historical data on that. What I think is that we're in a recession. History shows that people resort to alcohol and watching TV historically in recessions. And I think now it's more playing video games and watching Netflix. So I think that we'd be in a reasonable situation if people started tightening their pocketbooks.

Gotcha. Thank you. That's helpful. I wanted to dig

into the segment as well. Growth in peripherals, 5% in the quarter. Any drivers of that in particular you would call out? And conversely, strong growth in the component segment. Do you think any of that was pull forward demand from people buying ahead of tariffs? Or do you think momentum can continue to build from here? Thank you.

Yeah. So I think in the components area, no, I don't think we saw that because the market was actually completely limited by the availability of cards. And really, the tariffs didn't start kicking into right at the end of the quarter. So in fact, early April. So in terms of peripherals, main driver for the growth was clearly the fanatic acquisition. That went pretty much as planned. We're pretty happy with the way that's going. Yeah. So those are the two segments.

Okay. Appreciate it. Thank you.

Okay. Again, if you have a question, please press star and then one. Please stand by as we pull for questions. So no further questions. This will conclude our question and answer session. I would turn the conference back over to Corsair CEO Andy Paul for any closing remarks.

Okay. Thank you everyone for joining us on the call today and for your continued support. If you have any follow up questions, please contact our investor relations department and we look forward to updating you next quarter. Thank you and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.