sair Gaming(CRSR) - 2021 Q1 - Quarterly Report

FORM 10-Q Filing Information This section details the filing specifics for Corsair Gaming, Inc.'s Quarterly Report on Form 10-Q for Q1 2021 Filing Details This document is a Quarterly Report on Form 10-Q for Corsair Gaming, Inc., filed for the period ended March 31, 2021 - The report is a Quarterly Report on Form 10-Q for the period ended March 31, 2021[2] - Corsair Gaming, Inc. is a Delaware corporation and a non-accelerated filer[2][4] Common Stock Outstanding (as of April 26, 2021) | Metric | Value | | :----- | :---- | | Common Stock Outstanding (as of April 26, 2021) | 92,187,443 shares | | Par Value per Share | $0.0001 | Note About Forward-Looking Statements This section outlines the disclaimer regarding forward-looking statements in the Form 10-Q, subject to various risks Forward-Looking Statements Disclaimer This section highlights that the Form 10-Q contains forward-looking statements regarding operations, financial performance, and strategy - The report contains forward-looking statements concerning operations, financial performance, industry, business strategy, goals, market position, future operations, margins, profitability, capital expenditures, liquidity, and capital resources[8] - Forward-looking statements are subject to uncertainty and changes in circumstances, with actual results potentially differing materially due to global, regional, or local economic, business, competitive, market, and regulatory factors, including the COVID-19 pandemic[9] - The company does not undertake to publicly update or review any forward-looking statement, except as required by applicable securities laws[9] PART I. FINANCIAL INFORMATION This part presents Corsair Gaming, Inc.'s unaudited financial statements and management's discussion and analysis for Q1 2021 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Corsair Gaming, Inc. for Q1 2021 Condensed Combined Consolidated Statements of Operations This statement details Corsair's revenues, expenses, and net income for the three months ended March 31, 2021 and 2020 Condensed Combined Consolidated Statements of Operations (Three Months Ended March 31) | Metric (in thousands, except per share) | 2021 | 2020 | | :-------------------------------------- | :--- | :--- | | Net revenue | $529,414 | $308,518 | | Cost of revenue | $369,086 | $229,896 | | Gross profit | $160,328 | $78,622 | | Total operating expenses | $93,039 | $65,285 | | Operating income | $67,289 | $13,337 | | Total other expense, net | $(7,371) | $(9,437) | | Income before income taxes | $59,918 | $3,900 | | Income tax expense | $(13,195) | $(2,683) | | Net income | $46,723 | $1,217 | | Net income per share (Basic) | $0.51 | $0.01 | | Net income per share (Diluted) | $0.47 | $0.01 | - Net revenue increased by 71.6% YoY, from $308.5 million in Q1 2020 to $529.4 million in Q1 2021[12] - Net income saw a substantial increase from $1.2 million in Q1 2020 to $46.7 million in Q1 2021[12] Condensed Combined Consolidated Statements of Comprehensive Income (Loss) This statement presents Corsair's net income and other comprehensive income (loss) components for the three months ended March 31 Condensed Combined Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended March 31) | Metric (in thousands) | 2021 | 2020 | | :-------------------- | :--- | :--- | | Net income | $46,723 | $1,217 | | Foreign currency translation adjustments, net of zero tax | $165 | $(3,600) | | Unrealized foreign exchange loss from long-term intercompany loans, net of tax | $(224) | $(309) | | Comprehensive income (loss) | $46,664 | $(2,692) | - Comprehensive income significantly improved from a loss of $2.7 million in Q1 2020 to an income of $46.7 million in Q1 2021, primarily driven by higher net income and positive foreign currency translation adjustments[14] Condensed Combined Consolidated Balance Sheets This statement provides a snapshot of Corsair's assets, liabilities, and equity as of March 31, 2021 and December 31, 2020 Condensed Combined Consolidated Balance Sheets (as of March 31, 2021 and December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total current assets | $711,644 | $690,971 | | TOTAL ASSETS | $1,333,427 | $1,314,115 | | Total current liabilities | $499,270 | $505,381 | | Debt, net | $294,254 | $321,393 | | TOTAL LIABILITIES | $845,720 | $876,725 | | Total Stockholders' Equity | $487,707 | $437,390 | - Total assets increased by $19.3 million from December 31, 2020, to March 31, 2021, reaching $1.33 billion[18] - Total liabilities decreased by $31 million, while total stockholders' equity increased by $50.3 million, reflecting improved financial health[18] Condensed Combined Consolidated Statements of Stockholders' Equity This statement details changes in Corsair's stockholders' equity for the three months ended March 31, 2021 Condensed Combined Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2021) | Metric (in thousands) | December 31, 2020 | March 31, 2021 | | :-------------------- | :---------------- | :------------- | | Common Shares | 91,935 | 92,087 | | Additional Paid-in Capital | $438,667 | $442,320 | | Retained Earnings (Accumulated Deficit) | $(2,813) | $43,910 | | Accumulated Other Comprehensive Income (Loss) | $1,527 | $1,468 | | Total Stockholders' Equity | $437,390 | $487,707 | - Retained earnings shifted from a deficit of $2.8 million at December 31, 2020, to a positive balance of $43.9 million at March 31, 2021, driven by net income[21] - Total stockholders' equity increased by $50.3 million, primarily due to net income and stock-based compensation[21] Condensed Combined Consolidated Statements of Cash Flows This statement summarizes Corsair's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31 Condensed Combined Consolidated Statements of Cash Flows (Three Months Ended March 31) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Net cash provided by operating activities | $27,768 | $2,000 | | Net cash used in investing activities | $(8,073) | $(1,847) | | Net cash used in financing activities | $(27,815) | $(1,309) | | Net decrease in cash and restricted cash | $(7,986) | $(1,464) | | Cash and restricted cash at end of period | $125,582 | $50,483 | - Net cash provided by operating activities increased significantly to $27.8 million in Q1 2021 from $2.0 million in Q1 2020[23] - Cash used in financing activities increased to $27.8 million in Q1 2021, primarily due to debt repayment[23] Notes to Condensed Combined Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of Business and Basis of Presentation This note describes Corsair's business, segments, and the basis for preparing the financial statements - Corsair Gaming, Inc. is a global provider of high-performance gear for gamers, streamers, and content creators, organized into two reportable segments: Gamer and Creator Peripherals, and Gaming Components and Systems[25][26][27] - A corporate reorganization was consummated on September 15, 2020, consolidating operating subsidiaries under Corsair Gaming, Inc. and converting Parent units into Corsair common stock[28][30][31] - The company completed its IPO on September 25, 2020, selling 7.5 million shares at $17.00 per share, generating $118.6 million net proceeds[32][34] A secondary offering occurred on January 26, 2021, where selling stockholders sold 8.625 million shares at $35.00 per share, with no proceeds received by the company[35] 2. Summary of Significant Accounting Policies This note outlines the key accounting policies and estimates used in preparing Corsair's financial statements - The financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim reporting, using management estimates and assumptions that affect reported amounts[37][41] - The COVID-19 pandemic has caused business disruptions, supply chain issues, and increased distribution costs, but also led to strong revenue growth due to increased demand for gear from shelter-in-place restrictions, with the future impact remaining uncertain[43] - The company adopted ASU No. 2019-12 (Income Taxes) effective January 1, 2021, with no material impact, and is evaluating ASU No. 2020-04 (Reference Rate Reform) for potential effects on financial statements[45][46] 3. Fair Value Measurement This note details the fair value measurements of Corsair's financial assets and liabilities using a three-level hierarchy - The company measures financial assets and liabilities at fair value using a three-level hierarchy based on input observability[47][48][49] Fair Value of Financial Assets and Liabilities (March 31, 2021) | Metric (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :-------------------- | :------ | :------ | :------ | :---- | | Assets: Foreign currency forward contracts | $— | $642 | $— | $642 | | Assets: Other | $— | $19 | $— | $19 | | Liabilities: Deferred cash consideration (SCUF) | $— | $— | $1,250 | $1,250 | | Liabilities: Other | $— | $14 | $735 | $749 | - The Origin earn-out liability of $2.9 million and deferred cash consideration of $1.5 million were fully paid and settled in the three months ended March 31, 2021[55] 4. Derivative Financial Instruments This note explains Corsair's use of derivative instruments to manage foreign currency and interest rate risks - The company uses foreign currency forward contracts and interest rate cap contracts to minimize exposure to foreign currency and interest rate fluctuations, not for trading purposes[56] - Derivative instruments are recorded at fair value, with changes recognized in other (expense) income, net[56] Foreign Currency Forward Contracts Notional Principal and Fair Value Gain | Metric | March 31, 2021 | December 31, 2020 | Q1 2021 Gain | Q1 2020 Gain | | :-------------------------------- | :------------- | :---------------- | :----------- | :----------- | | Notional Principal Amount (in millions) | $38.6 | $41.6 | N/A | N/A | | Fair Value Gain (in millions) | N/A | N/A | $0.7 | $0.3 | 5. Business Combinations This note provides information on Corsair's recent acquisitions, including Visual by Impulse in February 2021 - In February 2021, Corsair acquired Visual by Impulse (VBI), a creative design services business for streamers, for approximately $1.7 million in cash[59] - In 2020, the company completed two immaterial acquisitions, EpocCam and Gamer Sensei, for a total cash consideration of $1.3 million[60] 6. Goodwill and Intangible Assets This note details changes in Corsair's goodwill and intangible assets, including additions from acquisitions and amortization Changes in Goodwill by Reportable Segment (in thousands) | Segment | December 31, 2020 | Addition from Acquisition | FX Effect | March 31, 2021 | | :---------------------------- | :---------------- | :------------------------ | :-------- | :------------- | | Gaming Components and Systems | $145,644 | $— | $(18) | $145,626 | | Gamer and Creator Peripherals | $167,116 | $1,272 | $75 | $168,463 | | Total | $312,760 | $1,272 | $57 | $314,089 | Intangible Assets, Net (in thousands) | Intangible Asset | March 31, 2021 Net Carrying Amount | December 31, 2020 Net Carrying Amount | | :----------------------- | :--------------------------------- | :---------------------------------- | | Developed technology | $21,716 | $22,124 | | Trade name | $27,410 | $27,759 | | Customer relationships | $140,177 | $145,577 | | Patent | $26,804 | $27,595 | | Non-competition agreements | $706 | $832 | | Indefinite life trade name | $35,430 | $35,430 | | Total intangible assets | $252,243 | $259,317 | - Goodwill increased by $1.3 million to $314.1 million, primarily due to an immaterial business acquisition in the Gamer and Creator Peripherals segment[61] - Total intangible assets, net, decreased by $7.1 million to $252.2 million as of March 31, 2021, mainly due to amortization[62] 7. Balance Sheet Components This note provides a breakdown of key balance sheet items, including cash, inventories, and accounts receivable Cash and Restricted Cash (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------- | :------------- | :---------------- | | Cash | $121,622 | $129,543 | | Restricted cash—short term | $3,729 | $3,795 | | Restricted cash—noncurrent | $231 | $230 | | Total cash and restricted cash | $125,582 | $133,568 | Inventories (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :---------------- | :------------- | :---------------- | | Raw materials | $48,259 | $52,165 | | Work in progress | $9,462 | $9,654 | | Finished goods | $176,890 | $164,188 | | Total Inventories | $234,611 | $226,007 | - Total cash and restricted cash decreased by $7.9 million from December 31, 2020, to March 31, 2021[65] - Inventories increased by $8.6 million, primarily in finished goods, indicating higher stock levels[67] - Two customers each represented 10% or more of consolidated accounts receivable, net, as of March 31, 2021 and December 31, 2020[66] 8. Debt This note details Corsair's debt obligations, including the First Lien Term Loan and interest expense - The company's First Lien Term Loan had a carrying value of $294.3 million as of March 31, 2021, down from $321.4 million at December 31, 2020, due to voluntary prepayments[77][78] - The Second Lien Term Loan was fully repaid in 2020, resulting in termination of all obligations and covenants[83] Interest Expense Recognized (in thousands) | Metric | Q1 2021 | Q1 2020 | | :------------------------------------------ | :------ | :------ | | Contractual interest expense for First Lien and Second Lien Term Loan | $3,882 | $8,638 | | Amortization of debt discount | $162 | $243 | | Amortization of debt issuance costs | $375 | $336 | | Loss on debt extinguishment | $439 | $— | | Total interest expense recognized | $4,858 | $9,232 | - Total interest expense decreased by 47.3% to $4.9 million in Q1 2021, primarily due to lower principal outstanding on the First Lien and full repayment of the Second Lien[84] 9. Commitments and Contingencies This note outlines Corsair's warranty obligations, future amortization expense, and new operating lease commitments Changes in Warranty Obligations (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--------------------------------- | :------ | :------ | | Beginning of the period | $5,865 | $3,991 | | Warranty provision related to products shipped | $1,873 | $1,365 | | Deductions for warranty claims processed | $(1,737) | $(1,039) | | End of period | $6,001 | $4,317 | Estimated Future Amortization Expense of Intangible Assets (as of March 31, 2021) | Year | Amounts (in thousands) | | :----------- | :--------------------- | | Remainder of 2021 | $26,092 | | 2022 | $34,506 | | 2023 | $32,899 | | 2024 | $31,541 | | 2025 | $31,051 | | Thereafter | $60,724 | | Total | $216,813 | - Warranty obligations increased to $6.0 million at March 31, 2021, from $5.9 million at the beginning of the period[86] - The company entered into a new 10.5-year operating lease for its Milpitas headquarters in April 2021, with total undiscounted fixed lease payments of approximately $45.6 million, not yet included in the March 31, 2021, contractual obligations[91] 10. Stockholders' Equity This note describes changes in Corsair's authorized capital stock and equity structure following the reorganization - Following the Reorganization on September 15, 2020, the company's authorized common stock increased to 300,000,000 shares and preferred stock to 5,000,000 shares, with no preferred stock outstanding as of March 31, 2021[92][93] 11. Equity Incentive Plans and Stock-Based Compensation This note details Corsair's stock-based compensation expense and unrecognized compensation under equity incentive plans Stock-Based Compensation Expense (in thousands) | Line Item | Q1 2021 | Q1 2020 | | :------------------------------------------ | :------ | :------ | | Cost of revenue | $181 | $63 | | Sales, general and administrative | $2,572 | $880 | | Product development | $323 | $162 | | Total stock-based compensation expense | $3,076 | $1,105 | | Income tax benefit | $(919) | $— | | Total stock-based compensation expense, net of income tax benefit | $2,157 | $1,105 | - Total stock-based compensation expense increased by 178.4% to $3.1 million in Q1 2021, compared to $1.1 million in Q1 2020[96] - Unrecognized stock-based compensation totaled $30.3 million for options and restricted stock units (amortized over 3.0 years) and $0.5 million for ESPP (amortized over 0.5 years) as of March 31, 2021[96] 12. Net Income Per Share This note provides the calculation of basic and diluted net income per share for Corsair Net Income Per Share Calculation (Three Months Ended March 31) | Metric (in thousands, except per share) | Q1 2021 | Q1 2020 | | :-------------------------------------- | :------ | :------ | | Net income, basic and diluted | $46,723 | $1,217 | | Weighted-average shares used to compute net income per share, basic | 91,951 | 84,079 | | Effect of dilutive securities | 8,260 | 1,991 | | Weighted-average shares used to compute net income per share, diluted | 100,211 | 86,070 | | Net income per share: Basic | $0.51 | $0.01 | | Net income per share: Diluted | $0.47 | $0.01 | - Diluted EPS increased significantly to $0.47 in Q1 2021 from $0.01 in Q1 2020, reflecting higher net income and increased dilutive securities[98] 13. Income Taxes This note details Corsair's income before taxes, income tax expense, and effective tax rates Income Before Income Taxes, Income Tax Expense, and Effective Tax Rates (Three Months Ended March 31) | Metric (in thousands) | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Income before income taxes | $59,918 | $3,900 | | Income tax expense | $(13,195) | $(2,683) | | Effective tax rate | 22.0% | 68.8% | - The effective tax rate decreased significantly to 22.0% in Q1 2021 from 68.8% in Q1 2020, primarily due to a reduction in valuation allowance on U.S. tax losses and credits[101] - Unrecognized tax benefits were $1.3 million as of March 31, 2021, which, if recognized, would favorably affect future effective income tax rates[102] 14. Segment and Geographic Information This note provides a breakdown of Corsair's net revenue by reportable segment and geographic region - Corsair operates in two reportable segments: Gamer and Creator Peripherals, and Gaming Components and Systems[103] Net Revenue by Reportable Segment (in thousands) | Segment | Q1 2021 Net Revenue | Q1 2020 Net Revenue | | :---------------------------- | :------------------ | :------------------ | | Gaming and Creator Peripherals | $175,912 | $75,861 | | Gaming Components and Systems | $353,502 | $232,657 | | Total net revenue | $529,414 | $308,518 | Net Revenue by Geographic Region (in thousands) | Region | Q1 2021 Net Revenue | Q1 2020 Net Revenue | | :------------------- | :------------------ | :------------------ | | Americas | $226,388 | $123,710 | | Europe and Middle East | $225,494 | $110,550 | | Asia Pacific | $77,532 | $74,258 | | Total net revenue | $529,414 | $308,518 | - The Americas and Europe/Middle East regions showed significant revenue growth, while Asia Pacific had a more modest increase[107] - Sales to customers in the United States represented 36.2% of total net revenue in Q1 2021, up from 32.9% in Q1 2020[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Corsair's financial condition and operational results for Q1 2021 Overview This overview describes Corsair's business as a global provider of high-performance gear for gamers, streamers, and content creators - Corsair is a leading global provider of high-performance gear for gamers, streamers, and content creators, offering products in two segments: Gamer and Creator Peripherals, and Gaming Components and Systems[112][113] - The company's product offerings are enhanced by proprietary software platforms, iCUE for gamers and Elgato suite for content creators, providing unified control and customization[112] - Net revenue increased by 71.6% to $529.4 million in Q1 2021, with net income reaching $46.7 million, up from $1.2 million in Q1 2020[116] Key Factors Affecting Our Business This section identifies critical factors influencing Corsair's business, including market trends, product mix, and COVID-19 impacts - Key factors include increasing gaming engagement, introduction of new high-performance computing hardware (CPUs/GPUs) and sophisticated games, product mix (peripherals have higher gross margin), customer concentration (Amazon accounts for 24.6% of net revenue), new product introductions, seasonal sales trends, currency exchange rate fluctuations, COVID-19 impact, and integrated circuits pricing[118][119][120][121][122][123][125][127][129] - The COVID-19 pandemic has led to increased demand for home entertainment and work-from-home setups, offsetting supply chain disruptions and increased freight costs, but future demand is uncertain if restrictions ease[127] - Seasonal sales are typically lowest in Q1 and Q2, with higher revenues in Q3 and Q4 due to holiday seasons and new product introductions[123] Components of our Operating Results This section explains the primary components of Corsair's operating results, including revenue, cost of revenue, and operating expenses - Net revenue is primarily from sales of gamer and creator peripherals and gaming components and systems, recognized net of allowances for returns, discounts, and incentives[130] - Cost of revenue includes product costs, freight, materials, duties, warranty, warehousing, and inventory write-downs[131] - Operating expenses consist of sales, general and administrative (SG&A) and product development[133] SG&A includes distribution, sales, marketing, and administrative costs, expected to increase with business growth[134][135] Product development costs are expensed as incurred and are expected to increase with new product investments[136][137] - Interest expense relates to debt financing, while other expense, net, primarily reflects foreign currency exchange gains and losses[138][139] Results of Operations This section provides a detailed analysis of Corsair's financial performance for the three months ended March 31, 2021 Key Financial Results (Three Months Ended March 31) | Metric (in thousands) | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Net Revenue | $529,414 | $308,518 | $220,896 | 71.6% | | Gross Profit | $160,328 | $78,622 | $81,706 | 103.9% | | Gross Margin | 30.3% | 25.5% | 4.8 pp | N/A | | SG&A Expenses | $77,853 | $53,729 | $24,124 | 44.9% | | Product Development | $15,186 | $11,556 | $3,630 | 31.4% | | Interest Expense | $(4,946) | $(9,374) | $4,428 | (47.2%) | | Other Expense, Net | $(2,425) | $(63) | $(2,362) | 3749.2% | | Income Tax Expense | $(13,195) | $(2,683) | $(10,512) | 391.8% | | Net Income | $46,723 | $1,217 | $45,506 | 3739.2% | - Net revenue increased by 71.6% due to strong growth in both gaming components and systems and gamer and creator peripherals, driven by increased demand from COVID-19 related home activities[146] - Gross margin improved to 30.3% from 25.5%, primarily due to a favorable product mix, especially strong sales of higher-margin Elgato streaming products, partially offset by increased freight costs[147] - Interest expense decreased by 47.2% due to lower debt principal outstanding and the full repayment of the Second Lien Term Loan[152] - The effective tax rate decreased to 22.0% from 68.8%, mainly due to a lower valuation allowance on U.S. tax losses and credits[155] Segment Results This section analyzes the financial performance of Corsair's Gamer and Creator Peripherals and Gaming Components and Systems segments Segment Net Revenue and Gross Margin (Three Months Ended March 31) | Segment | Q1 2021 Net Revenue (in thousands) | Q1 2020 Net Revenue (in thousands) | Q1 2021 Gross Margin | Q1 2020 Gross Margin | | :---------------------------- | :--------------------------------- | :--------------------------------- | :------------------- | :------------------- | | Gamer and Creator Peripherals | $175,912 | $75,861 | 39.1% | 29.2% | | Gaming Components and Systems | $353,502 | $232,657 | 25.9% | 24.3% | | Total Net Revenue | $529,414 | $308,518 | 30.3% | 25.5% | - Gamer and Creator Peripherals segment net revenue increased by 131.9%, driven by strong sales across all product categories, especially Elgato branded streaming products, and improved gross margin by 9.9 percentage points[158][162] - Gaming Components and Systems segment net revenue increased by 51.9%, with gross margin improving by 1.6 percentage points due to a favorable shift to higher-margin products[160][163] Liquidity and Capital Resources This section discusses Corsair's cash position, debt, and expected capital needs for future operations - As of March 31, 2021, Corsair had $125.6 million in cash and restricted cash, and $48.1 million capacity under its revolving credit facility, with $294.3 million in long-term debt[164] - The company expects existing cash and operating cash flow to be sufficient for the next 12 months, with principal uses including inventory purchases, operating expenses, debt repayments, and capital expenditures[165] Cash Flows Summary (in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :------------------------- | :------ | :------ | | Operating activities | $27,768 | $2,000 | | Investing activities | $(8,073) | $(1,847) | | Financing activities | $(27,815) | $(1,309) | - Net cash from operating activities increased to $27.8 million in Q1 2021, driven by net income and non-cash adjustments, partially offset by changes in operating assets and liabilities[168] - Cash used in investing activities was $8.1 million, including payments for the Origin acquisition, capital equipment, and an immaterial business acquisition[170] - Cash used in financing activities was $27.8 million, primarily due to $28.0 million in debt repayment[172] Contractual Obligations and Commitments (as of March 31, 2021, in thousands) | Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :-------------------------- | :------ | :--------------- | :-------- | :-------- | :---------------- | | Debt principal and interest | $348,202 | $14,397 | $28,833 | $304,972 | $— | | Purchase obligations | $144,121 | $139,839 | $3,177 | $1,105 | $— | | Operating leases | $29,974 | $9,956 | $13,390 | $5,111 | $1,517 | | Total | $522,297 | $164,192 | $45,400 | $311,188 | $1,517 | Critical Accounting Polices and Estimates This section confirms no material changes to Corsair's critical accounting policies and estimates for the quarter - No material changes to critical accounting policies and estimates were reported for the three months ended March 31, 2021, compared to the Annual Report on Form 10-K for December 31, 2020[189] Recent Accounting Pronouncements This section refers to Note 2 for details on recently adopted and yet-to-be-adopted accounting pronouncements - Refer to Note 2 of the financial statements for details on recently adopted and yet-to-be-adopted accounting pronouncements[190] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Corsair's exposure to market risks, primarily from interest rate and foreign currency fluctuations Interest Rate Risk This section details Corsair's exposure to interest rate fluctuations on its variable-rate debt - As of March 31, 2021, the company had $125.6 million in cash and restricted cash and $294.3 million in variable-rate indebtedness under its First Lien Term Loan[193] - A hypothetical 100 basis point change in interest rates would result in an approximate $0.1 million change in interest expense for the three months ended March 31, 2021[193] Foreign Currency Risk This section discusses Corsair's exposure to foreign currency exchange rate fluctuations and mitigation strategies - Approximately 19.6% of net revenue in Q1 2021 was denominated in foreign currencies, exposing the company to exchange rate fluctuations, particularly with the Euro, British Pound, and Chinese Yuan[194][195] - The impact of foreign currency rate changes on other (expense) income, net, was $(2.5) million in Q1 2021, compared to $(0.1) million in Q1 2020[194] - The company uses forward currency contracts to mitigate short-term foreign currency fluctuations, with outstanding notional principal amounts of $38.6 million as of March 31, 2021[195] Item 4. Controls and Procedures This section addresses the effectiveness of Corsair's disclosure controls and internal control over financial reporting Limitations on Effectiveness of Controls and Procedures This section acknowledges the inherent limitations of internal control systems, providing reasonable, not absolute, assurance - The effectiveness of internal control systems is subject to inherent limitations, including judgment and the inability to eliminate misconduct, providing reasonable, not absolute, assurances[198] Evaluation of Disclosure Controls and Procedures This section confirms management's conclusion on the effectiveness of Corsair's disclosure controls and procedures - As of March 31, 2021, management, including the CEO and CFO, concluded that disclosure controls and procedures are designed at a reasonable assurance level and are effective[199][200] Changes in Internal Control Over Financial Reporting This section states no material changes in internal control over financial reporting occurred during Q1 2021 - There were no changes in internal control over financial reporting during Q1 2021 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[201] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, and other miscellaneous information for Corsair Gaming, Inc. Item 1. Legal Proceedings This section states that Corsair does not expect pending legal matters to materially affect its business or financial condition - The company may be involved in various legal proceedings in the ordinary course of business[204] - Management does not believe that the ultimate outcome of any pending legal matters will have a material adverse effect on the business, results of operations, or financial condition[204] Item 1A. Risk Factors This section outlines significant risks that could impact Corsair's business, financial condition, and stock price Risk Factor Summary This summary highlights key risks including brand dependence, competition, COVID-19 impact, and control by a single stockholder - Key risks include dependence on brand strength, continuous product development, success of third-party hardware (GPUs/CPUs) and games, intense competition, growth of the gaming industry (including streaming/eSports), retention of key management, currency exchange rate fluctuations, seasonal sales, COVID-19 impact, material weaknesses in internal controls, and control by a single stockholder (EagleTree)[205] Risks Related to Our Business This section details risks concerning Corsair's operations, products, supply chain, and market environment - The company's success relies on maintaining brand strength, continuous innovation in new gear, and the introduction of new high-performance computer hardware (GPUs, CPUs) and sophisticated video games by third parties[208][210][215][216] - Intense competition, potential decline in gaming/eSports growth, and the impact of COVID-19 (supply chain disruptions, increased costs, and potential post-pandemic demand decline) pose significant threats[217][224][228][256][259] - Reliance on a limited number of manufacturers and suppliers, particularly in Asia, creates risks of product shortages, quality control issues, and increased costs, especially for DRAM ICs which are a significant cost component[252][255][263][265][268][269] - Operational risks include fluctuations in currency exchange rates, seasonal sales, potential software bugs (iCUE, Elgato), product defects, freight costs, and the need for substantial working capital[235][236][271][272][279][305] - The company faces risks related to data security breaches, compliance with evolving privacy and cybersecurity laws (GDPR, CCPA), and potential restructuring or impairment charges[319][321][328][332][341] Risks Related to Our Common Stock This section addresses risks associated with Corsair's common stock, including control by EagleTree and market volatility - EagleTree controls approximately 67% of common stock, enabling it to control corporate affairs and potentially pursue interests that conflict with other stockholders[361][362][363] The company operates as a 'controlled company' under Nasdaq rules, exempting it from certain corporate governance requirements[365] - The market price of common stock may be volatile due to operating performance, analyst estimates, key personnel changes, strategic decisions, and general market conditions[366] - Future sales of common stock by existing stockholders (61.9 million shares held by those with registration rights) could cause the stock price to fall due to dilution[371][372] - Anti-takeover provisions in the company's charter and bylaws could delay or prevent takeover attempts or management changes[373][374][375][376] - The company does not intend to pay dividends, so investment return depends on stock price appreciation[379] The Delaware Court of Chancery is designated as the exclusive forum for most disputes, potentially limiting stockholder litigation options[383] General Risk Factors This section covers broader risks such as tax audits, regulatory compliance, and public company expenses - The company is subject to future tax audits in various jurisdictions, which could result in significant cash payments without reimbursement[385] - Failure to comply with environmental laws, conflict mineral provisions (Dodd-Frank Act), anti-forced labor laws, and other governmental regulations could lead to substantial costs, fines, and reputational damage[357][359][360][387][388] - Non-compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-corruption/anti-bribery laws could result in severe fines, penalties, and operational disruptions[390][391] - As a public company, Corsair incurs significant legal, accounting, and compliance expenses, and failure to maintain effective internal controls over financial reporting could adversely affect investor confidence and stock value[392][395][396] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[398] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - Not applicable; no defaults upon senior securities[399] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Not applicable; no mine safety disclosures[400] Item 5. Other Information This section states that there is no other information to report - No other information to report[401] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Investor Rights Agreement, Description of Securities, and certifications from principal executive and financial officers[403] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, and Presentation Linkbase Documents are also filed[404][405] SIGNATURES This section contains the signatures of the authorized officers certifying the filing of the report on May 4, 2021 Signatures This section contains the signatures of the authorized officers, Michael G. Potter and Gregg A. Lakritz, for the report - The report is signed by Michael G. Potter, Chief Financial Officer and Treasurer, and Gregg A. Lakritz, Vice President, Corporate Controller[410] - The report was signed on May 4, 2021[410]