Corsair Gaming, Inc. (NASDAQ:CRSR) Q4 2023 Earnings Call Transcript
Corsair Gaming, Inc. (NASDAQ:CRSR) Q4 2023 Earnings Call Transcript February 13, 2024
Corsair Gaming, Inc. misses on earnings expectations. Reported EPS is $0.22 EPS, expectations were $0.24. 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, and welcome to the Corsair’s Gaming Fourth Quarter and Full-Year 2023 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 fourth quarter and full-year ended December 31, 2023. On the call today, we have Corsair CEO Andy Paul and CFO Michael Potter. Andy will review highlights for the quarter. 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-statements are subject to are described in the earnings release and other SEC filings. Note that until our 10-K has been filed, these numbers are preliminary. 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 earnings call. For the full-year, we achieved solid revenue growth of 6% in a challenging economic market, led by continued strength in our components business and a strong rebound in peripherals towards the end of the year. The first quarter of 2023 was lapping the end of the pandemic surge in Q1 ‘22 before people generally returned to office work, making that a difficult comp. But during the last three quarters of 2023, we grew by 11%. As we noted in previous earnings calls, through much of 2023, our growth in peripherals was held back by heavy discounting from our competitors to clear up excess inventory. By the end of the year, we saw inventory is back to normal, and in addition, we saw good consumer spending during the holiday period.
This plus some good product launches from us allowed us to make much better progress in our gaming and creative peripheral segment and we grew that segment in Q4 by 16% year-on-year. Financially we bounced back well from 2022 with adjusted EBITDA doubling to $95 million and we expect further gains in 2024. Some of this will come from increased revenue, but our margins are also steadily increasing as we continue to launch compelling products in our higher growth product categories. Some of our notable new high performance products launched in 2023 include our latest PC controller, new feature-rich headsets, and multiple new mice and keyboards. We also received a positive response to our first of its kind Elgato teleprompter for content creators, which comes complete with a display and a two-way mirror, behind which you can mount either an Elgato face cam or any DLSR camera to make it easier for people to create broadcast content or do a video call.
Another area we are very excited about is our expanding Stream Deck ecosystem. In addition to launching new models, including a co-branded limited edition model with Starfield, we launched a fast growing application marketplace for our popular Stream Deck. This new marketplace allows our growing installed base of Stream Deck users to buy apps and plugins from both our in-house creators and from 100s of third-party programmers and creators who have also partnered with us. This is doing better-than-expected and already 35% of the Stream Deck installed base have opened accounts on the marketplace website. As we continue to gain a critical mass of applications, this will make our already popular Stream Deck a must-have item, driving new hardware sales, and will create a very meaningful new revenue stream from the applications.
We have made several moves to increase our operational efficiency. During the year we moved production of many of our scuff controllers to our factory in Taiwan. This allowed us to close an expensive factory located in the U.K. At the same time we expanded our Atlanta facility where SCUF is headquartered and we have added a warehouse and shipping hub there to support shipments to the East Coast. This year we will move our origin production site currently in Miami to the new facility in Atlanta. Our Atlanta facility has also undergone an expansion to add capacity for production and warehousing, which provides us with a strategic opportunity to support Corsair's long-term growth. This follows the successful completion of our state-of-the-art facility in Taiwan, which is now in full production and capable of delivering personalized gaming peripherals in the same way they can do today on the SCUF controllers.
All these changes will give us a strong competitive advantage in the marketplace. Lastly, I am pleased to report our integration of our Drop acquisition is largely complete, and our teams have begun actively collaborating to leverage Corsair's global sales and distribution channel and to maximize new development opportunities. We expect Drop to contribute more significantly to our overall revenue and profit growth moving forward. We've done about seven acquisitions over the years, so M&A is part of our growth strategy. We expect to be active in 2024, if the right opportunities exist, which is in line with our view that consolidation will continue to happen over the next few years. Looking forward to 2024, we expect that the gaming components and systems segment will be similar to last year since we are in mid cycle for new GPUs and the next big GPU launch and demand surge is likely to be 2025.
For the gamer and creator peripheral segment, we expect significant growth, especially from new products that we recently launched and more that we're about to launch. In addition, we will be entering two new product categories in 2024, sim racing and mobile controllers. We expect the overall gaming market to now enter a new growth phase as we enter a refresh cycle from the surge of consumer spending that occurred during the shelter at home years. This plus our expected market share gains should allow us in the next few years to drive our revenue to over $2 billion with double-digit percentage EBITDA margins. 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. Overall the year developed in line with our expectations. We more than doubled our adjusted EBITDA, turned profitable on a GAAP basis and tripled our EPS on a non-GAAP basis. Growth in peripherals resumed and we clearly benefited from demand for new products. As expected, we benefited from reduced promotional activities from other industry players and improved inventory levels. I'm pleased to report that with regard to inventory we've returned to target levels in both the channel and our warehouses and we're actually light in some categories including some of our more recent product launches. This should be an added tailwind for us in 2024. We expect to build on this positive momentum in 2024 with a strong demand outlook for our new products, improved profitability, and continued growth in adjusted EBITDA.
In terms of the specifics, Q4 2023 net revenue was $417.3 million, compared to $398.7 million in Q4 2022. For the full-year 2023, net revenue increased 6.2% to $1,459.9 million from $1,375.1 million in 2022. European markets contributed 38.6% of our Q4 2023 revenues, compared to 36.5% in Q3 2023, which is back to the level prior to the start of the conflict in Ukraine. While The APAC region was only 9.9% of our Q4 revenues, largely due to softness in the China market. The Asia market was weaker than we expected during the year, particularly in Q4. Turning now to our segments. The Gamer and Creator Peripheral segment contributed $136.8 million of net revenue during the fourth quarter, compared to $117.8 million in Q4 2022. For the full-year of 2023, Gamer and Creator Peripheral segment revenue was $394.9 million, compared to $437.8 million for the full-year 2022.
The Gaming Components and Systems segment contributed $280.5 million of net revenue during the quarter, which was relatively flat with $280.9 million in Q4 2022. Memory products contributed $145.5 million in Q4 2023, compared to $158.1 million in Q4 2022. For the full-year 2023, gaming components and system segment net revenue increased to $1,065 million from $937.3 million for the full-year of 2022, with revenue for memory products increasing to $517.4 million from $504.6 million. Overall gross profit in the fourth quarter was $102.7 million, compared to $97.9 million in Q4 2022, reflecting the higher revenue in the current quarter. Gross margin increased to 24.6%, compared to 24.5% in Q4 2022. We continue to benefit from further improvements in freight costs and high demand for both new product introductions and popular lines like our stream deck and webcams.
Overall, gross profit increased to $360.3 million for the full-year 2023, compared to $296.6 million for the full-year 2022. Q4 was negatively impacted by the success in new products Andy mentioned, as we had to use more than planned air freight to get those products to market. The Gamer and Creator Peripheral segment gross profit was $50.9 million, compared to $39.7 million in Q4 2022. Gross margin was 37.2%, up 350 basis points, compared to 33.7% in Q4 2022. The Gaming Components and System segment gross profit was $51.8 million, compared to $58.2 million in Q4 2022. Gross margin was 18.5%, compared to 20.7% in Q4 2022, reflecting mixed and some cost headwinds. Our memory products gross margins in this segment were 13.5% for the fourth quarter, compared to 18.1% in Q4 2022.
Fourth quarter SG&A expenses were $73.8 million, compared to $68.5 million in Q4 2022, while R&D expenses were $16.7 million, up 6%, compared to Q4 2022 as we continue to invest in support of new category leadership products in both our components and peripheral segments. GAAP operating income in the fourth quarter of 2023 was $12.1 million, compared to $13.6 million in Q4 2022. Fourth quarter adjusted operating income increased to $31.8 million from $29.6 million in Q4 2022. This was another area of significant improvement as adjusted operating income more than doubled to $85.4 million for the full-year 2023 from $34.6 million in 2022. Fourth quarter net income attributed to common shareholders was $6.2 million or $0.06 per diluted share, as compared to net income of $12.5 million or $0.12 per diluted share in Q4 2022.
On an adjusted basis, fourth quarter net income improved to $23.2 million or $0.22 per diluted share, compared to $20.7 million or $0.20 per share in Q4 2022. For the full-year 2023, adjusted net income improved to $58.3 million or $0.55 per diluted share from $18.4 million or $0.18 per diluted share in 2022. Finally, we increased fourth quarter adjusted EBITDA to $33.7 million, compared to $32 million for Q4 2022. For the full-year 2023 adjusted EBITDA more than doubled to $95.1 million from $46.5 million in 2022. Drop was about $1 million negative again in Q4, totaling about $2 million negative for the year. But with the integration behind us, , we expect to be neutral to start the year and then slowly grow. Turning now to our balance sheet.
We ended Q4 in a strong financial position with a cash balance including restricted cash of $178.6 million. We ended Q4 with $199 million of debt at face value and our $100 million working capital revolver remains fully undrawn and fully available. We further reduce debt in Q4 and plan to continue doing so over the coming quarters. Remain in an excellent position with a strong balance sheet and working capital position to support our organic growth opportunities and to pursue outside opportunities if they're a strategic fit and align with our business goals. For our outlook, in terms of the full-year 2024, our financial outlook reflects cautious optimism. We expect total revenue in a 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'd expect to have approximately $2 million of net interest expense per quarter. We're using an effective tax rate of approximately 18% to 22% for 2024 and the full-year weighted average diluted shares outstanding of approximately 107 million to 110 million shares. In terms of more specifics around a 2024 outlook, we expect 2024 to follow a typical seasonal pattern for revenue. We expect the majority of the year-over-year revenue growth at the top end of our guidance to be in the second-half of the year with the first-half only slightly up the flat, compared to 2023. We expect the margins improvements from 2023 to carry forward into 2024 and we will continue our tight control of operating expenses.
So we expect EBITDA to expand year-over-year and every quarter. Even in a flat year-over-year revenue environment, we expect EBITDA percent to improve. We expect CapEx spending to be back to its historic level of under 1% of revenues, and we expect stock-based compensation expense of approximately $36 million for the year. Drilling down to our segments, we expect the first-half growth to come from our Gamer and Creator Peripheral segment as momentum from our product lineup and strong game releases in 2023 continues. We are amid the typical hardware refresh cycle, so expect minus 5% to plus 5% revenue growth in our Components and System segment from the bottom to the top end of the range. We expect Gamer and Creator Peripheral segment year-over-year sales to grow across the entire expected revenue range.
We also saw memory prices increase for the first time in two years in Q4, which if that continues as expected, should be another positive for the coming year. Finally, we expect 2024 to be a good step to get our adjusted EBITDA margins closer to double-digits, which is our nearer term goal. With that, we're happy to open the call for questions. Operator, will you please open up the call for Q&A?
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