Corsair Gaming, Inc.

Good afternoon and welcome to Corsair Gaming's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's prepared remarks, we will conduct a question and answer session. To ask a question at that time, please press star, then 1 on your telephone keypad. I would now like to turn the call over to David Pascal, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Thi La, our Chief Executive Officer, and Gordon Mattingly, our Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion contains forward-looking statements, including but not limited to our guidance for the third quarter and full year 2026, potential future growth in certain product categories, and other statements that are not historical in nature, are predictive in nature, or Thank you for joining us. We undertake no obligation to update these forward-looking statements. Additionally, we will discuss certain non-GAAP financial measures today. Definitions and reconciliations to the most comparable GAAP measures are included in our earnings press release and the investor presentation posted to our investor relations website at ir.corsair.com. With that, I'd like to now turn the call over to Corsair's CEO, Thi La.

Thank you, David, and good afternoon, everyone. We are pleased to report strong results for Q2. Our core business outperformed expectations, and we are raising our outlook for the rest of the year. Based on our recent performance, Corsair is becoming a more profitable, more cash-generative company. We are improving the quality of our revenue, gaining share in the right categories, and and building platforms for growth beyond the traditional PC cycle. I want to share the five numbers that tell the story. Gross profit for the quarter grew 21% year over year. Gross margin hit a company record of 33.2%. Gamer and creator peripherals revenue for the quarter grew 13% year over year. Gross profit in that segment grew 27% year over year. and Gross Margin reached 44.9%. We cut operating expenses for the quarter by 6.1 million year-over-year, so more of our gross profit gains reached the bottom line. Operating cash flow for the quarter grew 148% year-over-year to 74.8 million, and we are raising our full-year 2026 outlook, which Gordon will review in a few minutes. Let's talk about gamer and creator peripheral segment. This segment was, again, I'll stand out. Revenue grew 13% year-over-year to $115.9 million. Gross profit grew 27% year-over-year to $52 million. Gross margin expanded to 44.9%. This is the mixed shift we've been working toward. Faster growth in categories that carry stronger margins, and deeper customer relationships. Fanatec remained a key driver, supported by new products, wider distribution and strong direct-to-consumer sales. Fanatec has also carried gross margins above the segment average, so its growth improved both scale and quality. We are building on that with the acquisition of TrackRacer, a complementary sim racing hardware brand with a strong direct-to-consumer model. It broadens our product range, extends our distribution, and brings experienced leadership into our SIM solution group. Our licensing strategy is also growing the Fanatec platform. We recently announced a partnership with Nissan, adding another global automotive brand alongside our existing motorsport relationships. These partnerships reinforce Fanatec as the premium platform for SIM racing. Elgato, Stream Deck, and Marketplace are evolving from creator tools into a broader workflow platform. In the first half of 2026, Elgato Marketplace revenue and transactions each more than doubled year over year. Product submissions grew more than 300%. The Marketplace added more than 500,000 new accounts, which is impressive growth on all metrics. The flywheel is working. More users attract more developers, more products increase the value of Stream Deck, and that value drives both hardware demand and recurring revenue. AI-assisted development is making it easier to build new profiles and plugins, which we believe should speed this up further. This quarter, we made a minority investment in Bitfocus, a professional show control software company already integrated with Stream Deck. This extends Elgato from the creator desktop into broadcast, live events, and control rooms. These are all higher value professional environments with a coordinated go-to-market path. As part of the agreement, Corsair and Bitfocus also established a partnership under which Stream Deck Studio and the broader Stream Deck range will serve as preferred and primary control services across Bitfocus customer deployments. We are excited to build on our relationship and expand our growth opportunities. In the gaming components and systems segment, revenue in this segment declined 9% year-over-year to $198.5 million, as elevated memory pricing continues to delay DIY PC builds. We believe this demand is deferred, not lost. When builders have historically delayed an upgrade, the need didn't disappear. It built up. and it returned as pricing and the product cycle normalized. Even so, segment gross profit grew 17% year-over-year to 52.2 million and gross margin expanded 570 basis points year-over-year to 26.3%. Memory net revenue grew 17% year-over-year on strong supply chain execution and share gains in North America. Our memory inventory is now properly sized and supply availability remains adequate. System was a bright spot too, with solid year-over-year growth in AI workstations. This isn't a pivot. It's a natural extension of capabilities we've built over decades in high-performance system design, customization, overclocked memory, advanced water cooling, and power delivery to support the hottest GPUs. We are targeting the roughly 22 billion desktop AI PC market, focused first on prosumers and small and medium businesses that want local compute, data security, and lower cloud cost. The significance of this opportunity to the company's operation remains early, and GPU allocation is tight. Accordingly, we believe revenue contribution will pick up in the latter part of 2027 and beyond. Looking ahead, our investments remain focused on strategic revenue growth with accretive margin, ecosystem value with recurring revenue, and workstation market opportunity. This is why we chose to direct capital toward M&A and strategic partnerships this quarter, including TrackRacer and BitFocus, which we believe will extend our platforms and further diversify our business. We will continue to prioritize these opportunities where we see the clearest path to durable higher margin growth while remaining disciplined on price and integration risk. With GTA 6 expected to launch in Q4 2026, we see a meaningful tailwind for console products and are positioned to capture demand around one of the industry's most anticipated releases. With that, I will turn it over to Gordon to take you through the financials. Gordon.

Thank you, Thi, and good afternoon, everyone. The second quarter showed strong conversion of gross profit improvement into earnings and cash generation. We're excited about our progress and the momentum we are building in our business as we continue to execute and build shareholder value. I'll provide some additional color on the quarter and our outlook before opening the call for any questions. Revenue for the second quarter was $314.3 million, above the assumed midpoint of our guidance range and down 2% year-over-year. Growth profit increased 21% year-over-year to $104.3 million, and growth margin expanded 640 basis points year-over-year and 50 basis points sequentially to a company record of 33.2%. Gap operating income improved to $7.6 million from an operating loss of $16.9 million a year ago. Gap net income was $9.1 million compared with a net loss of $20.3 million in the prior year quarter. Gap diluted EPS was $0.06 compared with a loss of $0.16 a year ago. Adjusted EBITDA increased to $30.8 million from $8.1 million a year ago, and adjusted EBITDA margin expanded to 9.8% from 2.5%. Non-GAAP diluted EPS increased to 23 cents from 1 cent. During the second quarter of 2026, the company recognized the benefit of approximately $15.6 million to GAAP gross profit from refunds of tariffs previously paid under the International Emergency Economic Powers Act. This delivered approximately 500 basis points of benefit to gross margin. Net income benefited by approximately $14.9 million, adjusted EBITDA by approximately $14.3 million, and non-GAAP diluted earnings per share by 13 cents. Excluding this benefit, GAAP net loss would have been $5.7 million and GAAP diluted loss per share would have been $0.07. Adjusted EBITDA would have been $16.6 million and non-GAAP diluted earnings per share would have been $0.09, both above the high end of the company's guided ranges at $15.5 million and $0.07 respectively. Following receipt of these amounts, the company is materially complete with a tariff refund process, although it may receive immaterial administrative adjustments or interest in future periods. Gamer and creator peripherals revenue grew 13% year-over-year to $115.9 million. Segment gross profits increased 27% to $52 million, and gross margin expanded to 44.9% from 40%. The improvement reflects growth in higher margin categories, including sim racing, and continued momentum across gaming peripherals and streaming products, as well as the tariff refund. Gaming components and systems revenue declined 9% year-over-year to $198.5 million, reflecting the market-wide pressure from elevated memory pricing on DIY builds and standalone components. Despite the lower revenue, we were still able to increase segment gross profit by 17% to $52.2 million and gross margin expanded 26.3% from 20.6%. Strong performance in memory led by strong demand, market share gains and continued strong supply chain management helped drive this improvement. along with the refund benefits. Systems also showed year-over-year momentum, led by AI workstation demand. Direct consumer, or D2C, represented 20% of revenue in the quarter. D2C is a priority for us because it carries better unit economics, gives us richer end-user data, and creates a deeper relationship with our customers while benefiting our cash conversions. Fanatec and Track Racer also increased our presence in this structurally attractive channel. Operating expenses declined $6.1 million year over year to $96.7 million. That discipline allowed more of the gross profit improvement to reach operating income and adjusted EBITDA. Cash provided by operating activities increased 148% year over year to $74.8 million, reflecting both strong earnings and disciplined working capital management across inventory, receivables, and vendor terms. Notably, in the first six months of the year alone, we generated more operating cash flow than in all of 2025 and 2024 combined. This is a clear sign of the traction we are gaining in this area and one we plan to build on. Cash and restricted cash increased $74.1 million sequentially to $193.9 million at the end of the second quarter. And with total debt balance of $118.7 million, we ended the quarter with a net cash position of approximately $75.1 million. Our stronger balance sheet increases our flexibility to invest in organic growth, pursue disciplined strategic acquisitions, repurchase shares when attractive, and manage leverage appropriately. We will continue to pursue a combination of those levers as we work to expand growth and profitability and drive shareholder value. I will now turn to the guidance. For the third quarter of 2026, we expect net revenue to be in the range of $320 to $350 million, adjusted EBITDA to be in the range of $18 to $21 million, and non-GAAP diluted EBS to be in the range of $0.09 to $0.12. The outlook assumes continued low double-digit year-over-year growth in gamer and creator peripherals, led by Fanatec, Elgato, and Streamdeck. with a higher margin mix and continued direct consumer progress supporting consolidated gross margin. Gaming components and systems are expected to be down low double digits year over year and will remain pressured by elevated memory pricing and delayed DIY demand, although supply availability is expected to remain adequate. For the fall year 2026, we are raising our outlook. We now expect net revenue to be in the range of $1.4 to $1.47 billion, adjusted EBITDA to be in the range of $121 to $131 million, and non-GAAP diluted EPS to be in the range of 85 to 94 cents. Our full year 2026 outlook for net revenue represents an increase of approximately $35 million at the assumed midpoint of our updated guidance range compared to our prior guidance range of $1.33 billion to $1.47 billion. The assumed midpoint of our adjusted EBITDA range is also up approximately $19 million compared to the assumed midpoint of our prior guidance range of $100 to $115 million. To close, we are encouraged with our continued business momentum and the progress we are making to increase the quality of Corsair's earnings. Our diversified portfolio of leading brands continues to perform strongly. We are entering the second half with stronger financial capacity, improving mix, and a broader set of growth opportunities. We believe that combination positions us well to compound earnings and cash flow and create long-term shareholder value. Operator, that concludes our formal remarks. You can now open the call up for Q&A.

Thank you. We will now open the line for questions. To ask a question, please press star and then 1 on your telephone keypad. To withdraw your question, Please press star and then 2. Please limit yourself to one question and one follow-up. We'll pause for a moment to compile the Q&A roster. Our first question is from Aaron Lee of Macquarie. Please go ahead.

Hey, good afternoon. Thanks for taking the question. I wanted to start with guidance. The midpoint of the 2026 EBITDA guidance range went up by about $19 million, which is more than the $14 million tariff benefit and the 2Q beat versus the midpoint of the guide, which would imply a strengthening of the back half outlook. So can you just talk about what's changed in your expectations for the second half and what the major drivers are?

Yeah, sure. You're absolutely right, Aaron. This is Gordon speaking. The increase in the guidance of about $19 million. If we look at the midpoints, the Q2, the beat was roughly $17 million, of which $14 million was attributable to the tariff, so roughly about $2.5 million from Q2. And then for the rest of the year, the updated guidance is a reflection of a combination of the improved business performance we're seeing with our organic business and then a small amount from the TrackRacer acquisition, but pretty immaterial there. But it's those things really combining that make up the $19 million increase at the midpoint.

Okay, gotcha. That's helpful. And then with regard to the TrackRacer acquisition, can you just talk a bit about the growth potential, the integration timeline and any synergy benefits with Fanatec or the broader organization?

Yes, so with regards to... Hey, Aaron, good to hear from you. With regards to the integration phase, it should be a pretty quick one. We think it's going to take about three to six months to integrate our system infrastructure. What's going to be really meaningful is just really getting the roadmap alignment between the two business units. We've folded SimRacing into one entity, if you want to call it that way. and the track racer products will fold underneath the Fanatec brand umbrella. Fanatec is known for all of the electronics like wheel, wheel base, pedals, anything that requires softwares and track racers is all mechanicals, cockpit and accessories. So it's rare that we are able to find two very complementary product lines. and combine together into a very meaningful range for us and we're looking forward to basically drive that ecosystem and really increase our presence in the market that can continue to be growing very nicely and this is a very good acceleration for us.

Okay, awesome. Thank you very much and really nice quarter.

Thank you. Ladies and gentlemen, just a reminder to ask a question. Please press star and then one on your telephone keypad. The next question we have is from Drew Crum of B. Reilly Securities. Please go ahead.

Okay, thanks. Good afternoon, everyone. I want to ask another question on the guidance, but specific to revenue. I'm just going off the midpoint of the ranges. It looks like you beat the first half by $11 million. and raised by $35 million. So I'm curious as to what the source of the $24 million raise for 3Q, 4Q, what's driving the more optimistic view on the second half?

Hey, Drew. Gordon here. I'll take that question. You're right with the analysis, and it really is a combination of a few things. Mostly the increase in the guides for the second half is just from the organic business. There's quite a lot that's driving that. If you look ahead, we've got GTA 6 launching in Q4, which is a tailwind for our console and peripherals business, into the holiday, Fanatec, new products, wider distribution, and Nissan Partnership. Elgato Marketplace has more than doubled in the first half, and memory continues to gain share in North America. Those really are the catalysts from an organic perspective. And then we have a relatively small amount from the TrackRacer acquisition. I would look at TrackRacer for Q3 as Q3 revenue being purely organic, just given the fact that it's already a month in from close and we're going through the integration process. Modest contribution in Q4, but really it's 2027 where we're looking to see greater contribution from that. So that's really where that increase is coming from in the second half.

Got it. Okay, that's helpful. And then if I heard correctly, you're expecting gaming components and systems to be down low double digits, the balance of the year. Can you parse that performance memory and what your expectations are for gross margin for that business? Thanks.

I won't break memory out specifically, but you're absolutely right. Low double-digit growth as we've been projecting all the way this year. Initial guidance for the year reflected that. Q1 and Q2 guidance reflected that. Remainder of the year, we're still looking at the same outlook. From a growth margin perspective, I would guide you for memory. It's in our Q, 23.4% growth margin in Q2. I would guide Q3 roughly similar. Some moderation of that in Q4. I would expect high teens probably for Q4 for memory. Just some abatement in the margin profile there. For the overall component segment, I would say roughly in the low 20-ish percentage range is reasonable for the rest of the year.

I just wanted to add to that, Drew. The way that we look at the gaming components and system segments, while the gaming component DIY segment portion of that segment is seeing pressure due to high price point from semiconductor and DRAM specifically. We actually were able to diversify that segment with memory business and system business and both of those categories are experiencing good growth and in a way it minimized the impact of DIY. So we're pretty pleased that we're in a position where we're not seeing a bigger impact than others in the market.

Got it. Okay. Thanks so much. Thanks, Drew.

Ladies and gentlemen, just another reminder, if you would like to ask a question, you may press star and then one. The next question we have is from Colin Sebastian of Bode. Please go ahead.

Hey, good afternoon, everyone. This is Colin Moyette. I'm for Colin Sebastian. So you talked about for the DIY that the demand there is more deferred, not lost, kind of as elevated memory pricing delays the build. You know, what are you seeing in terms of, you know, whether other through the sell-through or the channel inventory that kind of supports that deferral rather than, you know, maybe permanent substitution or kind of just lost on that subject? And then, you know, what will kind of happen on pricing for that to return to growth.

Hi, this is Thi. I'm going to take this question. So with regards to the DIY segment, let's just talk about the channel inventory first. So we came into the year with a bit of an elevated inventory in Q1, and that pretty much normalized through Q2 sales. as we were able to successfully calibrate the run rate with what's available in the channel. We do see a little bit more promotional activity just due to the price point being fairly high. But on the other hand, we see that people are just more calibrating the situation with pricing Waiting for a change, whether or not that's going to go back down, because a lot of people, when they buy into PC components, especially around memory, it goes up and down all the time. And toward the end of Q2, we see a lot of settled down in terms of accepting the fact that the price is actually not going to go down, but it's going to start to move up again based on forecast. And I think that we see steady run rates started to pick up. and the demand for AI computing is also started to come in. People are using more larger language model to do a lot more now with capability of AI continue to expand. And so this is a tailwind. This is something that we're looking forward to 2027 where the demand started to pick up again. And in terms of ASP, I mean, it's gone up quite a bit, as you all know. And I think that it will continue to rise a little bit more toward the end of the year. So the longer you wait to build your machine, the more expensive it's going to get. So people are also going to start to realize that as well.

Thank you very much and great work. Thank you.

Ladies and gentlemen, just a final reminder, if you wish to ask a question, you may press star and then 1 on your telephone keypad. We will pause for a moment to see if we have any further questions. It seems we have no further questions, and with that we have reached the end of the question and answer session, and I will now hand back to Corsair's CEO, Thi La, for closing remarks.

Thank you all for joining us today. We are pleased with the progress we delivered in the first half of 2026 and remain focused on carrying that momentum through the balance of the year. We look forward to updating you again when we report our third quarter results and have a good evening.

Thank you. This concludes today's conference call. You may now disconnect.