Corsair Gaming, Inc. Q3 FY2021 Earnings Call

Good morning, and welcome to Corsair Gaming's Third Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. 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.

Thank you. Good morning, everyone, and thank you for joining us for Corsair's financial results conference call for the third quarter ending September 30, 2021. On the call today, we have Corsair's CEO, Andy Paul; CFO, Michael Potter. 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 our 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. I would also like to remind everyone that until our 10-Q is on file, the Q3 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 third quarter business highlights and discussion on what we are seeing in the market, and Michael will then take you through a review of the financials and outlook before we proceed to Q&A. With that, I'll now turn the call over to Andy.

Thank you, Ronald, and welcome to our Q3 2021 earnings call. During the third quarter, we delivered revenues of $391 million and gross profit of $101 million, resulting in a gross margin of 25.9%. While we continue to see solid demand for our products, our performance was impacted by a very difficult logistics and supply chain environment, particularly the availability of reasonably priced GPUs. And we believe it is prudent to reset expectations for the year. Michael will walk through our financial results in greater detail later in our discussion. I'd like to spend a few minutes to provide an update on what we're seeing in the market and why we remain confident that Corsair is well positioned to navigate the current industry headwinds to deliver sustainable shareholder value creation over the long term. First, Corsair is the leading global provider and innovator of high-performance gear for gamers and content creators. Our gaming gear helps gamers perform at their peak across PC or console platforms. And our streaming gear enables creators to produce studio-quality content to share with friends or broadcast to millions of fans. As gaming and streaming continue to become more mainstream, we believe Corsair is uniquely positioned with our comprehensive product suite to meet the needs of this rapidly growing market. We have maintained our market leadership across most of our product lines, with our relentless focus on enhancing the customer experience by delivering cutting-edge technology and creating innovative gaming and streaming gear and related software. Based on outside data, we believe that we gained market share in most categories in Q3. Since the start of 2021, we've maintained an astounding pace of innovation, launching 113 new products, including the addition of several entirely new product lines, which we believe has greatly expanded our total addressable market opportunity. In July, we launched a new Elgato camera called FaceCam, designed specifically for streamers and content creators. We are encouraged by the great momentum that we've seen so far and we are gaining market share very quickly. The global TAM for USB cameras is over $1 billion. In September, we debuted the Xeneon gaming monitor, which features an ultra-slim 32-inch QHD screen with the combination of powerful specs, small features, and thoughtful design that power users need. We're excited to enter this new and large market for gaming monitors which we believe to be approximately $4.5 billion globally. Finally, last week, we announced our new DDR5 memory products. DDR5 is the latest technology standard for DRAM, which allows speeds of over 6,000 megahertz, a huge performance increase compared to DDR4, the previous standard. And both Intel and AMD are supporting this interface on their latest processors. We expect that this will encourage many gaming enthusiasts to build new PCs around this platform. We believe new product innovation remains an important driver of our future growth, and we will continue to invest to increase value for our customers. Overall, demand has remained strong for gaming and components and gaming peripherals. In fact, recent market data shows consumer demand for peripherals at close to the elevated 2020 work-from-home levels. We also recently conducted a survey of the PC gaming hardware market with DFC Intelligence, and we found that the refresh cycle for building and upgrading PCs is shorter than previously thought, closer to one to two years rather than two to three years. The semiconductor shortage has caused graphics cards to be in very short supply compared to demand and has driven market prices of certain graphics cards through 150% to 200% of normal MSRP. This has caused gaming enthusiasts to hold back on building new high-end gaming PCs that use our components. By our estimate, approximately 10% of our natural demand for our components and memory products in our gaming components segment was held back in 2021. We believe this should cause a bubble of pent-up demand which will be released as GPUs return to normal MSRPs in 2022. We estimate the impact of the semiconductor shortage on our components business for 2021 is at least $100 million revenue issue and has made growth in the components market difficult in 2021. Although, we still expect some growth, mainly from the fact that we have gained market share in components. Finally, we remain focused on strengthening our relationship with end-users by increasing direct-to-consumer sales. We acquired ORIGIN and SCUF in 2019, which are both direct-to-consumer and we have continued to expand our direct-to-consumer channel with other product lines. During the third quarter, direct-to-consumer was 13.1% of sales, up from 10% in Q3 2020. And we expect this trend to continue. We truly believe direct-to-consumer sales represent a significant avenue to drive growth by facilitating increased engagement with our consumers. In closing, our third quarter results reflect a good demand environment against challenging logistics and supply chain conditions. We believe that as these constraints ease and GPUs become more available, we will turn to our revenue and margin targets. While Q3 was only our second-highest ever third quarter, it is notable that our revised full-year outlook is in line with our initial expectations for the year, which we'd outlined during our Q4 earnings call, and well above our expectations at the time of our IPO. We firmly believe that Corsair remains uniquely positioned to capitalize on the underlying secular growth trends around gaming, esports, and streaming. We feel good about our continued investments in R&D and marketing and the market reception of our new product introductions so far this year. We plan on having an Analyst Day very early in 2022, where we will discuss our product lines in more detail, including the new products we released since the IPO that have opened up a much larger TAM for us. We'll discuss our 2022 expectations then as well. 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 third quarter, we delivered net revenue of $391.1 million, a decrease of 14.4% compared to $457.1 million in Q3 2020, but well above Q3 2019's pre-pandemic level of $284.4 million. Net revenue for the nine months ended September 30, 2021, was $1,293 million, an increase of 21.6% year-over-year. As Andy mentioned earlier, our third quarter results were challenged by a very difficult logistics and supply chain environment. Logistics is slower than usual with many shipping lanes taking over double the normal shipping times and at a much higher cost. At times, we're not able to purchase all of the certain semiconductors that we need. Finally, GPUs are difficult to find at or near MSRP, and we believe that many of our customers are waiting to build new systems for the upgrade until pricing returns to more normal levels. We're trying to mitigate delays by getting our inventory and our hubs closer to our markets; it has been difficult to pass costs onto our customers. We estimate the effects of increased supply costs have had a 2% to 3% headwind on our gross margin and resulting EBITDA percentage during the third quarter and expect us to continue in the fourth quarter. Ocean freight for 40-foot containers, which historically would have been in the $3,000 to $5,000 range, have gone up three, four, even five-fold. So we're seeing a slight easing in early October, but we expect continued elevated freight costs for Q4. Because of this, our adjusted EBITDA in the second half of the year is expected to be 7% to 9% and 10% to 11% for the full year compared to our planned 11% to 12%. Turning now to our segments, the gamer and creator peripheral segment provided $139.3 million of net revenue during the third quarter, a decrease of 13.8% from $161.6 million in Q3 2020, impacted by supply and logistics constraints. The gamer and creator peripheral segment net revenue contributed 35.6% of net revenue, an increase of 30 basis points from 35.3% in Q3 2020. For the nine month period, gamer and creator peripheral segment net revenue was $470.3 million, an increase of 35.3% year-over-year. We expect our gamer and creator peripheral segment to grow by about 20% this year compared to 83% in 2020. We believe that our supply chain delays in 2021 have caused some loss of sales and growth could have been higher, perhaps by $50 million or an additional 10%. The gaming components and systems segment provided $251.9 million of net revenue during the third quarter, a decrease of 14.8% from $295.5 million in Q3 2020, primarily driven by a shortage of reasonably priced GPUs and supply and logistics constraints. Less than half of this revenue came from memory products, which contributed $115.5 million. For the nine month period, gaming components and systems segment net revenue was $923.1 million, an increase of 15.6% year-over-year. Gross profit in the third quarter decreased by 20.8% to $101.4 million from $127.9 million in Q3 2020, which, as you recall, was a record third quarter result and well above the Q3 2019 pre-pandemic level of $60.2 million. The decrease over Q3 2020 was primarily driven by increased logistics costs and reduced revenues. Gross profit margin was 25.9%, a decrease of 210 basis points from 28% in Q3 2020, mainly due to significant increases in logistics costs, especially ocean freight. For the nine-month period, this was $392 million, an increase of 25.8%. The gamer and creator peripheral segment gross profit was $48.6 million, a decrease of 19% from $60 million in Q3 2020, primarily driven by a decrease in revenue in the same period and increased supply chain and logistics costs. Gross profit margin was 34.9%, a decrease of 220 basis points from 37.1% in Q3 2020. We continue to see an overall mix shift as gamer and creator peripherals contributed a record 47.9% of gross profit in Q3 2021 compared to 46.9% in Q3 2020. This remains a great overall story and formula for continued overall margin expansion as our fastest-growing and highest-margin segment also fits into our largest market. For the nine months ended September 2021, gamer and creator peripherals segment gross profit was $172.1 million, an increase of 42.3%. The gaming components and systems segment gross profit was $52.8 million, a decrease of 22.3% from $67.9 million in Q3 2020, primarily driven by the decrease in revenues in the same periods and increased logistics cost. Gross profit margin was 21%, a decrease of 200 basis points from 23% in Q3 2020, primarily due to freight costs. Gaming components and systems contributed 52.1% of the total gross profit in Q3 2021 compared to 53.1% in Q3 2020. Our memory products margin in the segment was 13.8% for the quarter. For the nine-month period, gaming components and systems segment gross profit was $220 million, an increase of 15.3%. Third quarter SG&A expenses were $76.1 million, an increase of 16.5% compared to $65.3 million in Q3 2020, primarily driven by an increase in outbound freight costs due to increases in ocean and air freight, offset by a decrease in volumes due to lower revenue and an increase due to expenses related to being a public company and an increase in personnel-related expenses. Third quarter product development expenses were $14.5 million, an increase of 12.3% compared to $12.9 million in Q3 2020, primarily driven by an increase in personnel-related expenses as we continue to focus on bringing an increasing number of products to the market. Operating income in the third quarter of 2021 was $10.8 million, a decrease of $39 million from $49.7 million in Q3 2020. For the nine month period, this was $112.8 million, an increase of 13.4%. Adjusted operating income in the third quarter of 2021 was $26.4 million, a decrease of 57% from $61.4 million in Q3 2020. For the nine-month period, this was $156 million, an increase of 16.6%. Third quarter net income was $1.8 million, or $0.02 per diluted share, as compared to net income of $36.4 million, or $0.40 per diluted share in Q3 2020. For the nine-month period, net income was $76.3 million, an increase of 26.7%. Third quarter adjusted net income was $16.3 million, or $0.16 per diluted share, as compared to adjusted net income of $48.5 million or $0.54 per diluted share in Q3 2020. For the nine-month period, this was $110.2 million, an increase of $18.2 million or 19.8%. Adjusted EBITDA for Q3, 2021 was $27.6 million, a decrease of 56.6% compared to $63.7 million for Q3, 2020 resulting in an adjusted EBITDA margin of 7.1%, a decrease of 680 basis points from 13.9% in Q3, 2020. Adjusted EBITDA for the nine months ended September 30, 2021 was $159.6 million, an increase of 13.6% year-over-year. Turning now to our balance sheet; we continue to convert our strong financial performance into an opportunity to further strengthen our balance sheet. In Q3 2021, we refinanced our long-term debt, substantially reducing the interest rate, doubled the available revolver to $100 million, increased the term, and reduced the total outstanding debt by $24 million to $250 million of face value. Our strong financial position has allowed us to adjust to the current environment by strategically increasing inventory and making longer-term supply chain commitments where needed. With this refinancing completed, we expect to continue to reduce debt over time on a more opportunistic basis, subject to business conditions and any need for additional growth capital. We expect the refinancing to save us approximately $2 million per quarter in cash interest expense. As of September 30, 2021, we had $100 million capacity under our revolving credit facility, total GAAP debt of $248.8 million, of which $244.1 million is long-term, and cash excluding restricted cash of $71.9 million. Turning now to our outlook for the year, the actual demand environment remains quite good. We believe that as supply and logistics constraints ease and GPUs become more available, we will be able to return to our revenue and margin targets. Wherever the various challenges we discussed earlier are constraining our performance. Therefore, we now expect our full-year performance to track more closely to the initial expectations we outlined during our Q4 2020 earnings call. For 2021, we expect total revenue in the range of $1.825 billion to $1.925 billion, representing growth of 7.2% to 13.1%. Adjusted operating income in the range of $180 million to $195 million and adjusted EBITDA in the range of $190 million to $205 million. The additional modeling details underlying our outlook remain largely the same as we discussed in our prior earnings call, with the exception of a now reduced interest expense. For ease, I'll repeat them. We expect gross margin to slightly decrease year-over-year and operating expenses to increase as well to support a 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 $1 million per quarter. 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 game, if any, is uncertain at this time. The effective tax rate of approximately 21% to 23% for 2021 and full year weighted average diluted shares outstanding of approximately $100 million to $102 million. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q&A?

The first question comes from Mario Lu from Barclays.

Great, thanks for taking the questions. The first one's on the fourth quarter revenue guide. I believe that the midpoint suggests down 13% growth year-on-year. So just wondering if you could provide some color in terms of the year-on-year growth rate you saw exiting the third quarter in September or any early trends in October that you are seeing that adjust 4Q revenue could accelerate slightly versus the third quarter?

Well, let me answer that question a couple different ways, Mario. So and good to hear from you, by the way, I'm tracking the velocity of performance gaming products pretty carefully. And we use as a bellwether for that keyboards and mice. We don't use headsets, because a lot of headsets are bought for the purpose of increasing your skills in gaming. And what we're finding there is the sales both in Europe and in the US are tracking to last year. So that gives us a good indication of the base demand for performance gaming gear. Now, as we mentioned in the release and the remarks earlier, the biggest issue we have at the moment other than the supply chain is that GPU cards are very expensive and very short. And so gamers that want to build a high-performance gaming PC are holding back somewhat because they don't want to spend $1,500 or $2,000 for a high-end graphics card. So that's really what's causing and it's much worse today than it was in Q4 last year. So that's really what's causing the revenue outlook to be a little soft. It's not really related to the underlying demand; it's just the fact that people can't get cards or they can't get cards and won't be able to build PCs and buy cases and power supplies and memory and cooling products.

Got it, thanks Andy. And then just one on the DDR5 memory. Do we have any color in terms of the timing of that release in 2022? And if there is an increase in ASP, is there a range of magnitude of that increase? And how that should flow to the memory cost margins? Thanks.

I believe it will be a slow start. We've spoken to the memory manufacturers, and they won't be in high production until the second half of next year. So we anticipate a few early adopters wanting to use DDR5, but the availability will be quite limited. Therefore, I don't expect to see much until next year, and we'll evaluate how it develops from there. There's no reason to assume that average selling prices won't increase, but this could be overshadowed by the total amount of memory included in systems. I expect that as consumers allocate their budgets, there might be a slight increase in memory due to the added performance benefits it can provide.

Got it, thank you.

But I just to sort of conclude that last question, I wouldn't expect to see any meaningful effect on margins until very late in '22 from DDR5.

The next question comes from Doug Creutz from Cowen.

Hey. Can you talk about what you're seeing as far as the level of discounting in the market right now? And are there areas, other product areas that are more aggressive or areas that are less aggressive? Thanks.

Yes, I'd say it really depends on the category, but we're not seeing in general, a lot of discounting. And where we are, we are not necessarily reacting to it. I mean, in general, we're just coming off of a short supply situation, and starting to have the channel filled up. So we don't see any need to discount heavily. There are some categories where the demand is softer, post work from home; now we're seeing people come back to work. But we don't really, that's a pretty small percentage of our sales. So, I'd say on an overall basis, yes. I haven't seen too much discounting going on so far.

The next question comes from Drew Crum from Stifel.

Okay, thanks. Hey, guys. Good morning, a lot of discussion around new products in your preamble, given the supply chain disruptions and logistics issues you're dealing with, how's that affecting the cadence of new product launches? Are you slowing the pace? And then I have a follow up.

No, in fact, we have increased our spending on R&D, and we are producing products at an impressive rate. So far this year, we are well ahead of our expectations and continuing to move forward. While supply chain delays require us to plan further in advance, they have not hindered our innovation or the rollout of new products.

Got it. Okay. And then, Michael, the adjusted EBITDA guidance would imply an uptick in margin for 4Q versus 3Q, anything noteworthy to call out to explain that improvement?

I think the two main things are higher volumes, so we get a little bit better absorption and a little bit better coverage to the operating expenses and a slight easing in some of the logistics costs with the beginning of the quarter is probably the two things.

The next question comes from Tim Nollen from Macquarie.

Great. Hi, thanks. I just like to ask again about the supply chain issues. It sounds like you're saying the same thing you said last quarter, which was the issue is really that the shipping prices have gone way up. And also consumers are holding back on buying things. But just to be clear, it's not a matter of your inability to actually source the products and make them just to be clear on that.

Well, that's 95% accurate. What we found over the last year is the products that have the highest semiconductor content, which of course, the highest ASP products, things like our flagship keyboards and wireless headsets with Bluetooth and standard wireless, those have been a struggle to keep on the shelves. We are now in pretty good shape, and that's been a fairly recent development. So yes, in general, we're feeling in reasonable shape, we've increased inventory to take care of the delays. The costs, obviously, are still a big issue and they're probably now as worse as they've been, we do hope to see some of this ease, and we're certainly doing less effort. But yes, that's a situation. So it's not necessarily stopping us at retail, other than a few products that are still a bit tight.

Okay, I understand, you mentioned that previously.

Yes, all of this is really dwarfed by the amount of PCs that are getting built. And that's really a situation of the graphics card. So I mean, that's two-thirds of our revenue, right, is from components in memory that go into gaming PCs.

Yes, no, I know you've caught up before. You were in pretty good shape, supply chain-wise, coming in. So just want to make sure how things sit now, and then follow up, you call that $100 million of missed revenues basically, and some pent-up demand it's building, and I know you're not talking '22 numbers yet. But it sounds like we can't really call the timing of this supply chain getting back to normal, but I guess it spills into next year? How should we start to think about what demand looks like into next year? I mean, if underlying growth is x, and then you add $100 million to that, is that the right way to think about where your real growth trend is going?

Yes, I think so. I mean, it's very difficult to know exactly what's in consumers' minds. I mean, we, like I said, we think that we saw the growth last year, right, so about a 70% increase in gaming hardware activity in the US, and that was across all product lines. And talking market numbers now. And then this year the PC builds are about level with 2019. So drop back. So you could argue that if there had been plenty of GPU cards available, the builds could have been 50%, 70% higher if they matched last year. So we were using a pretty conservative number, where we think 10% is about the right of that number that we missed. And what we also don't know, of course, is how quickly graphics cards will get back to normal supply. There are two things going on there, right. One is a semiconductor issue, because there are obviously a lot of semiconductors on those cards, and also the fact we've got Bitcoin mining that's absorbing a lot of the supply. So hopefully both those things release next year, and we'll see a pretty healthy market. But it's very difficult to say. I think the only way to think about it for a fact basis is the fact that with cards of $1,000 to $1,500, people are still building PCs at the same rate as they were in 2019. So how we model that for next year? We'll have to wait and see how we get there. But we do expect there to be a big surge of demand, yes.

Okay, cool. Can I just squeeze in one more, please? And that's you've had some interesting new product releases in categories you haven't necessarily been in before. Could you just give a little bit of color on how these are different and better than competitors? So I'm thinking about the memory gaming monitor that you just mentioned, and like the Elgato FaceCam. How are these different and better than your competitors' products?

Well, so let's take the Elgato camera first, FaceCam that has been designed from the ground up for streamers. Whereas, as you probably know, most of the webcams on the market were designed for pretty casual videoconferencing. And that means because the people at the high end of the market were using pretty expensive DSLR cameras. And with that, you get a whole bunch of different settings; you can adjust white balance, you can adjust exposure, etc. We built all of that into the FaceCam. And the settings are stored inside the FaceCam, so you can basically treat it like a DSLR camera; it's got a very, very fast refresh to it. So if you wave your hand in front of FaceCam, you can see your hand moving. If you wave it in front of a standard webcam, you see a blur. So yes, it's been very well-reviewed, 4.5 stars on Amazon. So people are really liking it. And we're basically making as many as we can, gaining quite a bit of market share already on that product. So pretty happy with that. The monitor is very new; we've just launched it, just starting to sell it. Obviously, that's a big, heavy product. So we had to make a decision early on how many we were going to load into the channel, and we didn't want to get too aggressive. So that's really too early to say how that's going to go. But it's basically we picked the high end of the monitor market. So very high refresh rate, 32-inch monitor, built some really nice features into the mechanical parts of it for cable routing and camera mounts. So it's really designed for high-end enthusiasts. And then the DDR5, we've basically taken all the standard technologies that we put into our normal modules in terms of overclocking and RGB control, and we've added those for the DDR5 platform. That DDR5, the chips themselves are very, very fast and got a huge amount of room for overclocking. So we do expect that's going to excite all enthusiasts. In terms of differential, the main differential that we offer is enhanced speed and really nice IQ control, which means the RGB lights synced with everything else. As you probably know, we have a massive market share now on memory, so we are almost at 60% market share. So we're not necessarily looking to differentiate any more than we already do.

The next question comes from Thomas Forte from D.A. Davidson.

Great. So one question and a follow-up. My first question, I wanted to hear your current thoughts on the progression of your core gamer. Are you still seeing acceleration in the timeline from mobile to consoles to build your own?

Well, it certainly looks like it. I think we've mentioned before that gaming hardware is growing faster than software, which is growing faster than the number of gamers. So there's a steady acceleration of people that game moving into ChronoTab and building gaming PCs. So we didn't see anything different. And it's roughly three to one in terms of the pace of growth. So yes, we're seeing a steady movement. One of the things we just did recently was a survey among PC gamers. The interesting thing is that almost 90% of PC gamers also play on console and also play on mobile. So I don't think it's not quite the situation of people migrating from one to another. They're just doing more things. But as far as we can see, once people can afford to build a gaming PC, they'll go ahead and do it.

Great. And then my follow-up question is I think in the press release, you talked about the ability to take price or times reviews felt like you couldn't take price to adjust for some of this inflation. Can you talk about your product portfolio and your ability to take price within different segments?

Are you asking whether we were able to pass on cost increases through price increases?

Yes, and if you think that there are certain segments you operate in where you feel like you can take price versus others really feel like you can't take price.

Yes, I think it's quite simple. In categories where we have strong competitors, most people are waiting on prices. For keyboards, mice, and headsets, we are not seeing prices increase; companies are absorbing the costs. However, with smaller competitors, particularly regarding items like chairs, prices must be raised to avoid going out of business. We are observing some price increases among smaller competitors, but in peripheral and streaming areas, costs have not been significantly passed on yet. Everyone seems to be waiting to see if shipping costs will decline. It's hard to imagine that container prices will stay at $15,000 indefinitely, so I believe that situation will change relatively soon.

The next question comes from Rod Hall with Goldman Sachs.

Hi, this is RK on behalf of the author of fraud. Thanks for my question. Andy, I wanted to follow up on underlying demand. Could you give us more color on how you track that? Which areas were strong? And I think you also mentioned some categories were softer. And, Michael, to follow up on the pricing question, why is it harder to pass on the price increases, given the demand is too strong?

So let's take the second one first. I think that it's not necessarily hard to pass on price increases mechanically. But in a competitive environment, like I said, just now you've got larger competitors that have healthy balance sheets. And the notion is that the shipping cost will ease within a year. A lot of times where you've got products that are very heavily entrenched in retail, there's no point asking the retailer to raise MSRP by $10, and then taking it down again in six months. So that's where we tend to not see price increases. The other products, things like cases and pacifies and chairs; yes, in general, those prices have been rising up. In many cases, we've got situations where our retailers buy containers from us FOB in China, and they're incurring the costs themselves. So that naturally tends to lift prices up. And the first part of the question, I missed, I'm sorry.

Oh, I wanted to ask on underlying demand. So how do you track that and which areas were stronger and softer?

We collect NPD data in the US and GFK data in Europe and other regions, along with conducting various surveys and monitoring point of sale activity. This gives us a good understanding of the market. I focus primarily on performance products that enhance gaming experiences, which saw a 70% increase in sales from 2019 to 2020. Sales have remained stable at those levels in 2020, which is surprising considering the initial concern that the surge might decline once people returned to work. We still lack clarity on the actual demand for gaming PCs and custom builds. However, high prices, rising by 50% to 100% over the standard MSRP, suggest that demand exceeds supply. The current build rates in the US and Europe are comparable to those of 2019. It appears we're operating somewhere between the levels of 2019 and 2020, and while it might be higher than 2020, I would anticipate it's closer to the 2020 figures if graphics cards were priced normally. This summarizes our analysis. And you mentioned that some categories were softer in underlying demand.

I thought you mentioned that some categories were softer in underlying demand.

So I think that yes, sorry. It's been muffled. Yes, no, I understand the question. Yes, when we look across all of the different categories that we're in, you can see that products that were used for work from home and perhaps not gaming, so webcams for example. Those were a bit softer. We're not really in that market, but we're looking at it because we just launched the camera right. And some of the streaming products like lights and things that were bought by people, not just gaming. So we've seen that ease a little bit. But in general, all the things that are related to performance gaming have remained steady.

The next question comes from Colin Sebastian from Baird.

Great, thanks. This is Dalton on for Colin. I had two questions, if I may. The first, can you talk a bit about how the supply chain constraints are impacting the gaming components and the gamer and creator peripherals differently? So it sounds like there's no more of a connection to PC build cycles. And that demand is getting pushed back for the component side. But how much of the gamer and creator peripherals demand is tied to that kind of new PC builds cycle? And are you seeing, is it a matter of inventory constraints in both segments there or just kind of wondering why we're seeing the same declines in gamer and creator peripherals as the components if underlying demand trends are still healthy there?

Yes, so I think it's a complicated question. So firstly, those two segments are disconnected, right? I mean, people don't tend to build a gaming PC, and then at the same moment, buy a new keyboard and mouse. So those things are asynchronous. And, yes, the component we got, I mean, there's no problem with supply in, let's say, 95% of our components. We are still short on things like very high wattage power supplies, but in general, we're in pretty good shape. And it's more of an issue of graphics card prices that dictates that, but that has no effect on the volume of gaming peripherals. So as I said some other categories that are a little bit lighter in demand, we've also got SCUF subsidiary that we bought a couple of years ago, we're still going through the transition from PS4 to PS5. And so that's a little bit held back sales with that, but that should rebound in 2022.

Okay, great. Thanks. And then you previously commented on some of your supply chain lead times. I know we talked about the shipping cost increases recently, but what are you seeing in terms of lead times versus normal? And as you're looking ahead to planning the 2022, and this increase in demand? How are you thinking about kind of planning inventory ahead of that? And are you stocking up ahead of that in order to be prepared for when GPU supply things normalize a bit?

Yes, well, we think about it two ways. In terms of finished goods, we increased inventory two different ways. One is you calculate your inventory needs on the refresh, reload time. So that's had to go off a little bit. We also have probably six weeks of inventory in containers on the water extra compared to last year because lead times have generally gone from 6 to 12 weeks in terms of container shipments. So that's how we deal with it, in terms of raw materials with our subcontractors; yes, we have many situations where microcontroller; a lot of semiconductors we use are anywhere from 6 to 12 months lead time. So, in those cases, we've just bought ahead. So I'd say we've got, you know, a pretty good handle on the supply chain in this case. It does mean that, like I said earlier, was a question on new products. We have to plan a little bit further ahead for volume, but at least we know where we stand now. This concludes the question-and-answer session. I would like to turn the conference back over to Andy Paul for any closing remarks. Okay, well, I'd like to thank everybody for attending the call. Thanks very much for your interest, we are obviously looking forward to a very exciting next 12 months, and we look forward to seeing you again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.