sair Gaming(CRSR) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company reports a significant net loss for H1 2022, driven by a sharp decline in revenue and gross profit Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $283,908 | $472,903 | $664,599 | $1,002,317 | | Gross profit | $36,459 | $130,351 | $127,215 | $290,679 | | Operating income (loss) | $(54,960) | $34,713 | $(57,445) | $102,002 | | Net income (loss) | $(51,839) | $27,745 | $(55,119) | $74,468 | | Diluted EPS | $(0.62) | $0.28 | $(0.68) | $0.74 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash | $35,851 | $62,415 | | Accounts receivable, net | $170,309 | $291,287 | | Inventories | $292,586 | $298,315 | | Goodwill | $347,907 | $317,054 | | Total assets | $1,231,892 | $1,337,396 | | Total debt (current & long-term) | $245,084 | $247,651 | | Total liabilities | $669,531 | $769,216 | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,051 | $59,397 | | Net cash used in investing activities | $(32,550) | $(10,931) | | Net cash used in financing activities | $(677) | $(43,541) | | Net (decrease) increase in cash | $(26,678) | $4,983 | Notes to Condensed Consolidated Financial Statements Key disclosures include segment performance, the iDisplay acquisition, and details on goodwill and total debt - The company operates in two reportable segments: Gamer and creator peripherals, and Gaming components and systems[40][41][117] - On January 1, 2022, Corsair completed the acquisition of a 51% stake in iDisplay for a total consideration of $36.4 million, adding $33.0 million to goodwill[68][72] - As of June 30, 2022, the company had total debt of $245.1 million, primarily from a Term Loan facility maturing in September 2026[89][95][98] Segment Net Revenue (in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Gamer and Creator Peripherals | $88,989 | $155,157 | $223,137 | $331,069 | | Gaming Components and Systems | $194,919 | $317,746 | $441,462 | $671,248 | | Total net revenue | $283,908 | $472,903 | $664,599 | $1,002,317 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a significant performance downturn due to macroeconomic pressures, lower demand, and inventory charges - Revenue for Q2 2022 decreased by 40.0% YoY, and for H1 2022, it decreased by 33.7% YoY due to a slowdown in consumer spending[130][143] - Gross margin for Q2 2022 decreased to 12.8% from 27.6% in Q2 2021, impacted by freight costs, promotions, and inventory charges[130][164] - The company recorded a $22.7 million inventory impairment charge in Q2 2022 and implemented a restructuring plan[55][143] - As of June 30, 2022, the company had $38.7 million in cash and restricted cash and $246.3 million in outstanding Term Loan debt[130][184] Results of Operations Net revenue declined sharply across both segments in Q2 2022, with gross margin falling due to inventory charges and higher costs Net Revenue by Segment (in thousands) | Segment | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Gamer and Creator Peripherals | $88,989 | $155,157 | (42.6)% | | Gaming Components and Systems | $194,919 | $317,746 | (38.7)% | | Total | $283,908 | $472,903 | (40.0)% | Gross Profit and Margin by Segment | Segment | Q2 2022 Gross Profit | Q2 2022 Gross Margin | Q2 2021 Gross Profit | Q2 2021 Gross Margin | | :--- | :--- | :--- | :--- | :--- | | Gamer and Creator Peripherals | $10,558 | 11.9% | $54,634 | 35.2% | | Gaming Components and Systems | $25,901 | 13.3% | $75,717 | 23.8% | | Total | $36,459 | 12.8% | $130,351 | 27.6% | - SG&A expenses decreased by $6.8 million (8.5%) in Q2 2022 YoY, mainly due to lower distribution and personnel-related costs[166] - Product development expenses increased by $2.6 million (16.5%) in Q2 2022 YoY, driven by amortization from the iDisplay acquisition[168] Liquidity and Capital Resources The company's operating cash flow decreased significantly, while debt levels remained stable with sufficient liquidity for operations Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating Activities | $10,051 | $59,397 | | Investing Activities | $(32,550) | $(10,931) | | Financing Activities | $(677) | $(43,541) | - The company's Credit Agreement provides for a $250 million term loan and a $100 million revolving credit facility[192][198] - The Credit Agreement was amended to replace LIBOR with BSBY and temporarily increase the maximum permitted leverage ratio[197] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rate fluctuations on its debt and foreign currency exchange rates - The company's $246.3 million Term Loan has a variable interest rate; a 100 basis point change would alter annual interest expense by $2.5 million[206] - In H1 2022, 16.2% of net revenue was denominated in foreign currencies, with risks partially hedged by forward contracts[207][208] Controls and Procedures Management concluded that the company's disclosure controls and internal controls over financial reporting were effective - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[212] - No material changes occurred during the quarter that are reasonably likely to materially affect internal controls[213] PART II. OTHER INFORMATION Legal Proceedings The company reports no current legal proceedings that are expected to have a material adverse effect on its business - The company does not expect any pending legal proceedings to have a material adverse effect on its business or financial condition[216] Risk Factors Key risks include brand dependence, competition, supply chain disruptions, and its status as a "controlled company" - The business is highly dependent on its ability to maintain brand strength and innovate due to short product life cycles[220][222] - Sales are driven by new third-party hardware like GPUs and CPUs, and shortages can seriously harm business[226] - The company faces intense competition from established players like Logitech, Razer, Dell (Alienware), and HP (HyperX/Omen)[228][231][232] - The war in Ukraine and the COVID-19 pandemic could continue to cause significant supply chain disruptions and affect financial results[217][266][272] - EagleTree's 56.6% ownership makes Corsair a "controlled company," exempting it from certain corporate governance requirements[367][368] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[404] Defaults Upon Senior Securities This section is not applicable as there were no defaults upon senior securities - Not applicable[405] Mine Safety Disclosures This section is not applicable as the company is not involved in mining operations - Not applicable[406] Other Information The company reported no other material information for the period - None[407] Exhibits This section lists exhibits filed with the report, including credit agreements and required officer certifications - Key exhibits filed include the First Amendment to the Credit Agreement, the Non-Employee Director Compensation Policy, and CEO/CFO certifications[410][411]