Yahoo Finance Corsair Gaming, Inc. (NASDAQ:CRSR) Q1 2024 Earnings Call Transcript
Corsair Gaming, Inc. (NASDAQ:CRSR) Q1 2024 Earnings Call Transcript May 7, 2024
Corsair Gaming, Inc. misses on earnings expectations. Reported EPS is $-0.12109 EPS, expectations were $0.13. Corsair Gaming, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, everyone, and welcome to Corsair Gaming's First Quarter 2024 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. [Operator Instructions] 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.
Ronald van Veen: Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's financial results conference call for the first quarter ended March 31, 2024. On the call today, we have Corsair CEO, Andy Paul and CFO, Michael Potter. Andy will review highlights from the quarter and 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 the earnings release and other SEC filings. 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.
Andy Paul: Thank you, Ronald, and welcome, everyone to our Q1 earnings call. 2024 is starting out as expected with new products driving a rebound in peripherals growth. Our Gaming and Creator Peripherals segment has continued its impressive performance, achieving 20% year-over-year revenue growth in the first quarter of 2024 after 16% year-over-year revenue growth in the fourth quarter of 2023. We are very pleased that growth is coming from all product lines. This was across Elgato with its popular Stream Deck products, SCUF Gaming with the successful recent launch of PC controllers, and Corsair peripherals with several new keyboards, headsets and mice. We were particularly pleased to see the gross margin lift to 40% with these new product launches.
We fully expect to build on this momentum over the coming quarters with an exciting lineup of planned product launches, some of which we will discuss on the call today. Demand was more subdued in the component market as is normal in this stage of the GPU cycle. In the short-term, the self-built PC market is stable with the next surge expected in late 2024 and 2025, when next-gen GPUs and CPUs are launched. We are also already seeing some benefit in the pricing of our most popular DRAM modules as gamers are using higher DRAM capacity for faster gameplay. Give you a sense of how big the memory opportunity is, it is estimated that 95% of steam gamers have less than 16-gig of memory in their systems. That represents a huge opportunity for us. We continue to have high market share in the component space, which we are focused on further growing, led by a strong planned product launch schedule, including several recent launches with our 2500 & 6500 Series Cases, iCUE Link RX Series Fans, and CORSAIR ONE platform upgrade.
As we look forward, 2024 will be an exciting year of innovation with an impressive slate of new Corsair products, as we broaden our category reach. We've done a lot of work as part of our product selection and development. As a result, we expect both our upcoming mobile gaming controller and our upcoming SIM racing product line will be two standout launches for us. Corsair Racing is set to launch at Computex in June 2024. We have developed a total experience engineered to offer a fully immersive SIM racing experience. This is a high growth category, especially as Formula One continues to gain interest in the U.S. Corsair will have a unique advantage in this market because of our ability to produce all the relevant components for a SIM racing setup combining our new racing components with our gaming PCs, curved monitors, and PC peripherals.
We are also excited for the upcoming launch of our SCUF mobile gaming controller. This is one of the market's fastest growing areas and represents a very large global opportunity for us, which we expect will become another important long-term growth driver. And we are very encouraged with our recent launch of the new Elgato Neo product family, which is targeting a different and more casual user base than our traditional prosumer Elgato customers. The response has been very positive and we expect sales to ramp through 2024 and over the coming years. This is one of the largest launches in Elgato's history. By combining high-end performance with plug-and-play simplicity, we make live video calls and livestreams easier and more professional looking.
This is another large segment of the market that we expect to be additive to our growth as we expand our market share. Our launch included the Wave Neo microphone, Facecam, Key Light, capture card and Stream Deck. We also expect this will help drive even faster growth in our expanding Stream Deck ecosystem. In addition to launching the new models, our Stream Deck application marketplace continues to rapidly add new users. As of Q1, over 40% of the estimated Stream Deck installed base have opened accounts on the marketplace website. Given the popularity of Stream Deck, we expect the marketplace will become a very meaningful new revenue stream over the coming years. On our last call, we highlighted proactive actions we were taking to increase our operational efficiency, including moving production of many of our SCUF controllers to our factory in Taiwan, closure of an expensive UK factory and expansion of our Atlanta facility.
Adding to this, our efforts in regional and retail expansion are also progressing well. We've anticipated revenue boosts in the latter half of 2024. We've successfully expanded the retail presence of Corsair's full suite of Gamer and Creator products, introduced the Drop product line to retail channels, expanded our SCUF Gaming product lines in retail, and strengthened our partnerships with several major online retailers. These initiatives solidify our position in the market and set the stage for continued growth and success in the years ahead. Finally, we remain active on the M&A front, which is a key driver in the Peripheral segment. Our recent acquisition of Drop is fully integrated and contributing. This builds on our impressive track record of success with Elgato, SCUF, and five other M&A transactions.
We are carefully evaluating opportunities as part of the regular course of business, and we will look to pursue those that fit our long-term growth plans from a product and brand standpoint and valuation. Looking forward to the balance of 2024, we did not expect growth in the gaming components and systems segment until the next family of GPU cards launched, which we expect will be late 2024 or early 2025. For the Gamer and Creator Peripherals segment, we expect significant growth, especially for new products we recently launched and more that we are about to launch. In addition, as we mentioned in our last update, we'll be entering two new product categories in 2024, SIM racing and mobile controllers. We expect the overall gaming market to now resume back to historical growth levels as the effects of the pandemic recede into history.
Let me now turn the call over to our CFO, Michael Potter for details on the financials. Michael, please go ahead.
Michael Potter: Thanks, Andy, and good afternoon, everyone. I am pleased to report a solid start to 2024, especially for a key Gamer and Creator Peripherals segment, and gross margins in general. We expect to build on the start with improved revenue growth and EBITDA expansion in the second half. The success of our new products is driving market share gains and margin expansion with notable growth in our Gamer and Creator Peripherals segment. Overall, our markets remain healthy and we continue to execute on our organic business with an eye on accelerated growth through M&A, given our track record and strong financial position. In terms of the specifics, Q1 2024 net revenue was $337.3 million compared to $354 million in Q1 2023.
European markets contributed 34.3% of our Q1 2024 revenues compared to 38.6% in Q4 2023, while the APAC region was 13.8% of our Q1 revenues compared to 9.9% in Q4 2023. Turning now to our segments. The Gamer and Creator Peripherals segment contributed $107 million of net revenue during the first quarter compared to $88.9 million in Q1 2023. The Gaming Components and Systems segment contributed $230.3 million of net revenue during the quarter compared to $265 million in the year-ago period. Memory products contributed $124.9 million in first quarter 2024 compared to $131.3 million in Q1 2023. Overall gross profit in the first quarter was $86.6 million compared to $85.4 million in Q1 2023, primarily reflecting mix. Gross margin increased 160 basis points to 25.7% compared to 24.1% in Q1 2023.
We achieved this expansion despite challenges such as increased freight costs stemming from turmoil in the Red Sea and resulting delays necessitating incremental air-shipments. The Gamer and Creator Peripherals segment gross profit was $43.6 million compared to $26.6 million in Q1 2023. Gross margin was a record 40.8%, up 1,080 basis points compared to 30% in Q1 2023. The Gaming Components and Systems segment gross profit was $43 million compared to $58.8 million in Q1 2023. Gross margin was 18.7% compared to 22.2% in Q1 2023 reflecting mix and continued cost headwinds. Our memory products gross margins in this segment were 14.5% for the first quarter compared to 15.8% in Q1 2023. First quarter SG&A expenses were $80.2 million compared to $67.5 million in Q1 2023, while R&D expenses were $16.6 million compared to $16.8 million in Q1 2023.
We continue to invest in support of new category leadership products in both our Components and Peripheral segments with recent major introductions from Elgato and SCUF Gaming and major new category launches coming in SIM racing and mobile gaming. Consumer response has been very positive and we are encouraged with the momentum we are building as we continue to take market share. As a result of our investments in SG&A, GAAP operating loss in the first quarter of 2024 was $10.2 million compared to operating income of $1 million in Q1 2023. First quarter adjusted operating income was $15.4 million compared to $18.2 million in Q1 2023. First quarter net loss attributable to common shareholders was $12.5 million or $0.12 per diluted share as compared to a net loss of $1.1 million or $0.01 per diluted share in Q1 2023 On an adjusted basis, first quarter net income was $9.5 million or $0.09 per diluted share compared to $11.9 million or $0.11 per share in Q1 2023.
First quarter 2024 adjusted EBITDA was $18 million compared to $20.6 million in Q1 2023. Drop was neutral as expected in Q1, and with the integration behind us, we continue to expect it to grow as we move through 2024. Turning now to our balance sheet. We ended Q1 in a strong financial position with a cash balance, including restricted cash of $130.2 million. We ended Q1 with $184 million of debt at face value, and our $100 million working capital revolver remains undrawn and fully available. We further reduced debt in Q1 and plan to continue doing so over the next coming quarters. Given our strong balance sheet, we have the flexibility to continue decreasing debt while also allocating resources to invest in our operations, which includes actively seeking out further M&A opportunities.
These strategic initiatives are designed to accelerate our growth and increase profitability over the long-term. In terms of our outlook, we are affirming our outlook for the full-year 2024. We continue to expect total revenue in the range of $1.45 billion to $1.6 billion, adjusted operating income in the range of $92 million to $112 million and adjusted EBITDA in the range of $105 million to $125 million. Assuming we maintain the same debt and cash balances in 2024, we would expect to have approximately $2 million in net interest expense per quarter. We are using an effective tax rate of approximately 18% to 22% for 2024 and full-year weighted average diluted shares outstanding of approximately 107 million to 110 million shares. As a reminder, we are expecting normal seasonality this year with Q2 typically being the lowest revenue quarter of the year.
We also expect year-over-year strength in our Gamer and Creator Peripherals segment throughout the year. In summary, we are pleased with our strong growth in the Gamer and Creator Peripherals segment. And with our continued strong market share, we expect to achieve increased growth in the second half of 2024, led by our new products and expansion into two major new categories. Our balance sheet is strong and we remain committed to investing in the products that will drive our growth and further market share gains across both peripherals and components. With that, we are now happy to open the call for questions. Operator, will you open up the call for Q&A?
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