Good morning, and welcome to Corsair Gaming First Quarter 2021 Earnings Conference Call. As a reminder, today’s call is being recorded. Your participation implies consent to such recordings. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. With that, I would like to turn the call over to Ronald van Veen, Corsair’s Vice President of Finance and Investor Relations. Thank you, sir. Please begin.

Thank you. Good morning, everyone, and thank you for joining us for Corsair’s financial results conference call for the first quarter ending March 31, 2021. On the call today, we have our CEO, Andy Paul; and CFO, Michael Potter. 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 of our company. 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. Today’s remarks will 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. I would also like to remind everyone that until our 10-Q is on file, Q1 2021 numbers are preliminary. This conference call will be available for replay via webcast through Corsair’s Investor Relations website at ir.corsair.com. Andy will begin with our first quarter business highlights and our updated 2021 outlook, and Michael will then take you through a review of the financials before we proceed to Q&A. With that, I’ll now turn the call over to Andy.

Thanks, Ronald, and welcome to our Q1 2021 earnings call. While we are delighted with our Q1 results, which exceeded our expectations, we continue to see elevated levels of gaming activity and the conversion of casual gamers to committed gamers who spend money on new gear. During Q1, we delivered net revenue growth of 71.6% to $529.4 million, which is our second strongest quarterly performance, surpassed only by our record Q4 2020. Adjusted EBITDA nearly tripled, growing 196.6% to a record $80.4 million and adjusted earnings of $0.58 per diluted share, which is up from $0.45 per share over Q1 2020. We saw continued growth in buying and building $2,000 plus gaming PCs, which we believe indicates expected heavy PC gaming over the next few years and subsequent accessory purchases. Q1 estimated shipments of high-margin products led to record high gross margins in both of our segments, 39.1% on the Gaming segment and 25.9% in our Components segment. While we are pleased to see evidence that we can achieve these levels, we caution not to expect these margins in every subsequent quarter. However, internally it underscores our strong conviction that margins will increase over time as we continue to bring out high-performance products and become more dominant in the market. We’re also very pleased to see that in Q1, we were the number one market share position in every gaming components category that NVD monitors in the U.S., which is our largest market. We saw massive growth year-over-year in both of our financial segments, but most notably in gaming and creator peripherals, where the market continues to grow strongly, and our Elgato branded streaming products continue to outgrow the overall segment. The Gamer and Creator Peripherals segment has more than doubled in revenue from Q1 2020 and nearly tripled from Q1 2019. In creative peripherals, we continue to be the market leader in video capture cards and lighting. Our Wave microphone launched last year has gained significant market share very quickly. Our stream deck has now become the standard for home broadcasting and sales over the last three quarters have exploded. On Gaming Peripherals, we launched several new keyboards and mice, with the most notable being our new 60% keyboard, the K65, which has been sold out ever since we launched it in March. In gaming systems and components, we continue to gain share in almost every category. Our new 4000 and 5000 series of gaming PC cases have helped us drive our market share in the U.S. to 28%, a 9% lead over our nearest competitor. Over 40% of our gaming case sales are now smart cases, meaning that they are shipped with an IQ controller installed. This further drives sales of IQ RGB accessories as gamers continue to upgrade and modify their gaming PC. Our CORSAIR ONE a200 with Liquid-Cooled Ryzen CPU and RTX 3080 graphics card received an Editors award from Tom’s Hardware. In our gaming memory sub-segment, we also have over 30% of our shipments, which are IQ enabled, again, which we believe drives additional IQ accessory purchases. We had rapid sales of pre-built systems from both ORIGIN PC as well as our CORSAIR VENGEANCE PC. We’re also thrilled to start shipping our enhanced CORSAIR ONE gaming PC with 30 series NVIDIA GPU cards and offer it with both Intel and AMD CPUs. We increased our pace of new product launches to almost two per week in Q1. We launched 29 new products, including five power supplies, eight case and related cooling products, three Elgato studio accessory products, four new keyboards, four new mouse pads, three high-speed solid state drives, and two pre-built PC models. We will continue to expand in R&D and marketing to drive and execute our roadmap. R&D was up over 31% over Q1 2020, and we expect that growth will continue at a higher pace for the rest of the year. We will continue to invest at a similar pace in product marketing, and you should expect us to continue to launch new high-performance products at a blistering pace and use these products to gain market share. During the quarter, we announced the acquisition of Visuals by Impulse, the world’s premium design platform for creators. VBI provides professional and individualized designs for creators and streamers who use VBI overlays, alerts and widgets to customize their broadcast, helping to define that online persona and grow their fan base. Based on our strong Q1 results and positive outlook for gaming gear demand, we are raising our guidance for the full year of 2021. Total revenue is now expected in the range of $1.9 billion to $2.1 billion, representing growth of 11.6% to 23.4%, up from prior guidance of $1.8 billion to $1.95 billion. Adjusted operating income is estimated to be in the range of $235 million to $255 million, and adjusted EBITDA is projected in the range of $245 million to $265 million. As discussed before, we’ll be adding significant resources to the company this year, both in marketing and R&D, as well as infrastructure as we move towards a $2 billion revenue target. Thank you for your time and continued support. I’ll now turn the call over to Michael to discuss our financial results for the quarter.

Thanks, Andy, and good morning, everyone. During the first quarter, we delivered net revenue of $529.4 million, an increase of 71.6% compared to $308.5 million in Q1 2020. The Gamer and Creator Peripheral segment more than doubled, providing $175.9 million of net revenue during the first quarter, an increase of 131.9% from $75.9 million in Q1 2020, driven by strong growth across all product categories, particularly sales of our Elgato branded streaming products. The Gamer and Creator Peripherals segment net revenue contributed 33.2% of total net revenue, an increase of 860 basis points from 24.6% in Q1 2020. The Gaming Components and Systems segment provided $353.5 million of net revenue during the first quarter, an increase of 51.9% from $232.7 million in Q1 2020, primarily driven by strong growth across all product categories as consumers continued to buy and build gaming PCs. Less than half of this revenue came from memory products, which contributed $161.9 million. Gross profit in the first quarter more than doubled to a record $160.3 million, an increase of 103.9% from $78.6 million in Q1 2020, even surpassing last quarter’s $153.8 million. The increase over Q1 2020 was primarily driven by increased revenues as well as the positive net margin impact from sales of higher margin products, including streaming gear. Gross profit margin increased by 480 basis points to 30.3% from 25.5% in Q1 2020. The Gamer and Creator Peripherals segment gross profit was $68.9 million, an increase of $46.7 million from $22.1 million in Q1 2020, primarily driven by increased revenue in the same periods. Gross profit margin was 39.1% compared to 29.2% in Q1 2020. The increase in gross margin was driven largely by product mix related to strong growth in sales of higher margin streaming products, coupled with fewer promotional activities. We continue to see a mix shift as Gamer and Creator Peripherals contributed 43% of total gross profit in Q1 2021 as compared to 28.2% in Q1 2020. This is a great overall story and formula for continued overall margin expansion as our fastest growing and highest margin segment also sits in our largest market. The Gaming Components and Systems segment gross profit was $91.5 million, an increase of $35 million from $56.5 million in Q1 2020, primarily driven by increased revenue in the same periods. Gross profit margin was 25.9% compared to 24.3% in Q1 2020, primarily due to product mix. Gaming Components and Systems contributed 57% of the total gross profit in Q1 2021 as compared to 71.8% in Q1 2020. Our memory products margin in this segment was 21% for the quarter. First quarter SG&A expenses were $77.9 million, an increase of $24.1 million or 44.9% compared to $53.7 million in Q1 2020, primarily driven by increased outbound freight costs due to revenue growth, expenses related to being a public company, and increased personnel-related expenses. First quarter product development expenses were $15.2 million, an increase of $3.6 million or 31.4% compared to $11.6 million in Q1 2020, primarily driven by increased personnel-related expenses as we continue to focus on bringing an increasing number of products to market. Operating income in the first quarter of 2021 was $67.3 million, an increase of $54 million from $13.3 million in Q1 2020. Adjusted operating income in the first quarter of 2021 was $80.4 million, an increase of $55.4 million or 221.4% from $25 million in Q1 2020. First quarter net income was $46.7 million or $0.47 per diluted share as compared to net income of $1.2 million or $0.01 per diluted share in Q1 2020. First quarter adjusted net income was $58.2 million or $0.58 per diluted share compared to adjusted net income of $11.2 million or $0.13 per diluted share in Q1 2020. Adjusted EBITDA for Q1 2021 was $80.4 million, an increase of $53.3 million or 196.6% compared to $27.1 million for Q1 2020, bringing adjusted EBITDA margin to 15.2%, an increase of 640 basis points year-over-year. Turning now to our balance sheet. We were able to convert our strong financial performance in the first quarter into an opportunity to further strengthen our balance sheet. We reduced debt by an additional $28 million with a face value now at $299 million and net debt of $177.3 million, resulting in a net leverage ratio well below 1. We did this while growing quickly and leaving sufficient resources to further accelerate growth in the future. We expect to continue to reduce debt in 2021, subject to business conditions and any need for additional growth capital. The $28 million debt payoff will result in approximately $1 million in interest expense savings during the year. As of March 31, 2021, we had $48.1 million capacity under our revolving credit facility, total GAAP long-term debt of $294.3 million, and cash excluding restricted cash of $121.6 million. Our strong financial performance in 2020 and the debt pay down plans for 2021 resulted in S&P increasing our corporate rating from B+ to BB- on February 25, 2021. That reduction is not as exciting as the new products Andy just discussed, but it does give increased confidence to our suppliers and customers that Corsair Gaming continues to be a strong and reliable company to do business with. It helps what our supply chain teams are working to overcome the different shortage and logistics challenges we face today. The additional modeling details underlying our outlook remain the same as we discussed in our fourth quarter earnings call with the exception of now reduced interest expense. For ease, I’ll repeat them. We expect gross margins to slightly improve year-over-year and operating expenses to increase to support our higher revenue level, the need to continue to innovate at a larger scale, and a full year of public company costs. Assuming no further debt pay down, we now expect interest expense of approximately $4.6 million per quarter. As noted, we’ve already paid down $28 million of our debt this year and expect to pay down approximately an additional $72 million for a total of $100 million of debt reduction in 2021, subject to business conditions and any need for additional capital. The $4 million patent trial win in Q1 2021 is not in our outlook. This amount could vary depending on what the judge rules, is subject to appeal, and the timing of recognition of a gain, if any, is uncertain at this time. An effective tax rate of approximately 21% to 23% for 2021 and a full-year weighted average diluted shares outstanding of approximately 100 million to 102 million shares. Overall, we’re pleased with the continued progress we’ve made on our strategic initiatives and performance of the business. We grew more than we expected in Q1 2021, and we expect growth in revenue and adjusted operating income for 2021, while our competitors are expecting decreases compared to 2020. We believe that as supply and logistics constraints ease, we’ll be able to increase market share as we are more fully stocked in the channel with the full range of our products. With that, we’re now happy to open the call for questions. Operator, will you please open the line for Q&A.

Yes. Thank you. Our first question is from Matt Cabral with Credit Suisse. Please proceed.

Yes. Thank you. Andy, you talked 90 days ago about a stronger first half than second half during this year. Wondering if you could just update us on how we should think about trends compared to typical seasonalities we had into the second quarter. And then thinking about sort of the transition that has moved from the first half into the back half of the year, just your latest thoughts.

Yes. Well, we’ve provided guidance on what we think is going to happen, based on my best estimates. All the signs we see indicate that people are still spending a lot of time gaming, and more importantly, more people are starting to play games in a more committed fashion and buy gear. We expect that to continue. In fact, we’re focusing on looking past COVID and comparing the numbers we’re seeing now with 2019 to truly see the sector’s growth. It’s encouraging. Obviously, we don’t know for sure what’s going to happen in the second half; however, we’ve been somewhat conservative in our outlook, expecting relatively low growth in the second half, but so far, we’re seeing a lot higher acceleration than we planned.

Got it. And then from the prepared remarks, it sounds like supply constraints are still an issue that you’re seeing. I’m wondering if you can update us on where you’re feeling those the most across the portfolio and how the constraints look today versus where they were 90 days ago? And I don’t know if you just have a guess on when you think you’ll finally be able to catch up to demand from a supply chain standpoint?

Well, the last part of the question depends on supply and demand. Currently, demand for consumer electronics goods is outpacing the supply capability of the semiconductor industry. If you listen to different parts of the industry, the big players, TSMC and Intel, they indicate that this is a short-term situation. The good news for us is we could have shipped even more—Q1 results, as good as they are, could have been higher if we had more supply. We have enough supply to meet our plans and forecast, but we’d like to get more. Whether demand in the second half will ease up is uncertain. This isn’t a short-term issue. We’re trying to prioritize high-feature products that we know the most committed gamers want. For those products with entry-level features, we’re easing off on those, which helps us with product mix.

Got it. Thank you.

Our next question is from Mario Lu with Barclays. Please proceed.

Thanks very much for taking the questions. I have one, the first one on new products. So you mentioned in your slides that 33 million units sold in the past 12 months as well as 84 product launches. How important are these new launches each year in terms of revenue compared to existing? And what would you say are the main gaps you’re still hoping to fill in your product portfolio?

Well, new products are important. We haven’t looked yet at how many of those launches were refreshes versus brand-new segments, but there were quite a few new segments last year. For example, microphones and some lighting products we had not offered before. Those represent incremental growth and revenue. We tend to refresh most of our product lines every 18 months—this is faster than the standard consumer refresh rate, but we want to ensure we’re ahead of that curve. As soon as consumers are looking to refresh or upgrade, we want the latest and greatest products available.

Got it. Thank you. And then just one on SCUF. You mentioned that SCUF was one of the drivers of peripherals outperforming. I believe the Xbox controller is compatible with the Xbox Series console, but the PlayStation controller isn’t fully compatible with the PlayStation 5 yet. Any updates you can provide on the PlayStation 5 controller and a high-level overview of that segment? Thanks.

Yes. We have a license agreement with Microsoft for the Xbox, and it’s a different split between Xbox and PS4. PS4 still constitutes the majority of our revenue from SCUF. The installed base of PS4 is well over 100 million units versus a few million for PS5, so most of the demand still comes from PS4. We are working as quickly as possible to release the PS5 controller but don’t have a release date yet. I suspect we’ll be among the first in the market compared to competitors.

That makes sense. Thank you.

Our next question is from Rod Hall with Goldman Sachs. Please proceed.

Yes. Hi, guys. Thanks for the question. I wanted to come back to the guidance because when we calculate the implied Q2 through Q4 revenue guide, it comes in line with consensus, which seems pretty conservative, considering how significantly you beat in Q1. Is supply the main reason you’re being so conservative there? Or are you seeing any early signs that demand is tailing off, or what’s coloring that guidance? Also, could you provide details on performance memory for us? How big was that segment in the quarter, and what about the margins there? Is the supply issue helping or hurting margins?

In general, we’re not suggesting that there will be massive growth as we approach the rest of 2021 due to prior surges in the demand, which can fluctuate. 2018 witnessed the Fortnite surge, while 2020 was driven by shelter-at-home trends. We don’t have any new information right now suggesting that 2021 will be different from this pattern. Clearly, we had a fantastic Q1 result. The second point on memory pricing went up starting at the end of last year through Q1, which generally helps our margins when chip prices rise. It hasn’t yet affected consumers buying behavior, but if prices rise too high, it will affect budgets for memory purchases. Overall, Q1 was a good quarter for us in memory margins, yet our Gamer and Creator Peripherals are outpacing memory growth.

The gross margin of memory was, as I mentioned in my remarks, 21%. This is higher than our average margin over the last few years, but it’s consistent with our performance from last year. Memory chip prices have increased over time, which tends to help our margins. They haven’t hit a point where they are impacting memory sales yet, but if they rise too much, that becomes a consideration since people usually have a set budget for memory in their systems. It was a good quarter for both margin and performance, but our Gamer and Creator Peripherals outgrew memory in Q1.

Okay, thank you.

From a supply standpoint, we are starting to become more dominant, with well over half the U.S. memory market belonging to Corsair. As you probably know, HyperX was sold to HP, which means that brand will exit the market for memory. Corsair's market position has improved as around 35% of shipments are now RGB or IQ-enabled memory, which is a different product type, enabling higher margin opportunities.

Great. Thanks a lot.

Our next question is from Drew Crum with Stifel. Please proceed.

Okay, thanks. Hey, guys, good morning. Andy, in past calls, you’ve noted an influx of new gamers to the business. Can you comment on what you observed in Q1? There have been concerns that as economies reopen, growth in new gamers may slow. Based on your observations, has the velocity of new customers continued, or has it decelerated? Additionally, could you comment on M&A and your decision to accelerate debt paydown? What does this suggest regarding potential M&A opportunities?

In terms of gaming consumers, there’s research from Nezu, JPR, etc., indicating that while the number of gamers continues to increase, more important is how many of those are paying for games or gear. The number of players investing in high-level gaming gear remains low; hence, we see significant untapped market potential. More importantly, we're observing existing gamers playing and purchasing high-end gear more frequently. For example, the surge in sales of $2,000-plus gaming PCs suggests that these consumers will be heavily investing in gaming for the long-term. We recorded unprecedented sales in Q1 for all our pre-built gaming systems, and our components business is growing significantly.

Regarding M&A and debt paydowns, we have enough capital for our average smaller product-focused acquisitions done over the last two years, while still reducing debt. We find it a priority to pay down debt with higher interest rates, as this leads to immediate returns via lower interest expenses. As for larger acquisitions, we remain subject to business conditions. There are no immediate plans for large debt paydowns; however, we have a healthy pipeline for potential smaller acquisitions.

Okay, thanks, guys.

Our next question is from Thomas Forte with D.A. Davidson. Please proceed.

Great. Thanks for taking my question. First of all, congrats on an excellent quarter. I have one question and one follow-up. For my first question, I wanted to discuss geographic demand for gaming. Are you seeing any variance in demand for gaming globally, particularly in locations that are facing greater pandemic challenges compared to the U.S.?

Yes, we are seeing geographic differences. In general, seasonal patterns have been noticeable. Towards the end of the quarter, Europe started to slow down a bit, which is somewhat normal. The U.S. is ahead in terms of reopening, and we haven’t seen a slowdown here. People are out in restaurants, and we haven’t observed any significant demand drops outside of usual seasonal patterns. However, it’s too early to make definitive conclusions about Q2 activity. Last year, the lockdowns began in late March and early April, so there’s little comparative data.

Excellent. And Andy, I wanted to ask you about your thoughts on the Epic Games versus Apple court battles from your experience in the gaming industry.

Yes, we’ll let them fight that out. That’s a complicated question about distribution, but I’m not going to comment further.

All right. Thank you.

Our next question is from Sean Kumar with Macquarie. Please proceed.

Hey guys, thanks. This is Sean on for Tim. My question is on DTC. Could you give us an update? You mentioned the goal of achieving 15% DTC revenue by 2023. Could you tell us where that stands now? Any trends you’re observing in that area?

We’re well north of 10% now. That’s the first point across our portfolio companies. Almost every acquisition we’ve made over the past year has involved a DTC component. In our own business, we’ve really committed to this by hiring a dedicated team in Q4 last year, which has been ramping up quickly. We’ve made significant infrastructure investments to track customers better and facilitate up-sell and cross-sell efforts. Therefore, we believe the target is reasonable and will likely be achieved before 2023.

Got it. Thanks.

And our final question is from Doug Creutz with Cowen and Company. Please proceed.

Hey, thanks. Maybe comment on how the Gamer Sensei acquisition is going? You’ve had it now for several months, and I wanted to know how that's progressing relative to your expectations?

Yes. It’s still early days. We’ve had a few months to integrate the team and brainstorm future direction. This acquisition necessitates reevaluating the coaching roster and updating all pricing structures. Gamer Sensei was initially operating with an open-table structure where gamers and coaches connected, setting their prices. We’re shifting toward a studio model similar to a health club, where we set the prices, reducing the number of coaches but leveraging our influencer network for access to outstanding coaches. We anticipate offering not just one-on-one training but also camps, master classes, and other comprehensive services. By mid-year, we expect Gamer Sensei to look significantly different from when we acquired it.

Great. Thank you.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Andy for closing comments.

Thank you. Well, we’ve stated this before; we’re at the forefront of a massively growing market centered around gaming, e-sports, and streaming. We can see a clear path to strong growth in revenue and margins over the next few years. While we’ve been helped in 2020 by shelter-in-place measures, which allowed gamers more time to play games and realize how equipment can enhance gameplay, we’re not seeing signs of this trend reversing as shelter measures ease in different parts of the world. In fact, in the U.S., where most shops, bars, and restaurants are open, we’ve seen no significant drop in demand beyond typical seasonal fluctuations. We continue to see demand exceeding our supply ability in many product lines due to worldwide semiconductor shortages. We remain focused and committed to providing gamers and streamers with the tools they need to optimize their gameplay and content creation while enjoying the experience. Thank you for your interest in Corsair, and thanks for joining us on the call today.

Thank you. This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation.