Corsair Gaming, Inc. Q3 FY2024 earnings call

Ecosystem - Recent Call of Duty: Black Ops 6 launch was a hit. NVIDIA GPU launch expected in early 2025, which could drive high-end gaming component sales. Peripheral sales grew 17% YTD, with gaming peripheral market showing positive growth post-COVID. ### Products - Launched VIRTUOSO MAX headset, small form factor keyboards, Corsair Custom Lab, Stream Deck Studio, and acquired Fanatec. ### Partnerships - Exclusive launch partner for Call of Duty: Black Ops 6, products in Apple stores, strong partnerships with retailers. ### Fanatec Acquisition - Acquired Fanatec, expect to add $20 million to Q4 2024 revenue, integrate over two quarters, aim to grow via channel expansion, new products, and complementary solutions.

The Gamer and Creator Peripheral segment contributed $102 million in net revenue during Q3 2024, compared to $90.4 million in Q3 2023. YTD 2024, this segment's revenue was $303.2 million vs $258.1 million in YTD 2023. Gross profit in Q3 2024 was $39 million (vs $29.9 million in Q3 2023) with a gross margin of 38.3% (vs 33.1% in Q3 2023). The Gaming Components and Systems segment had net revenue of $202.2 million in Q3 2024 vs $272.8 million in Q3 2023. YTD 2024, this segment's revenue was $599.6 million vs $784.5 million in YTD 2023. Memory products in Q3 2024 were $97 million vs $131.7 million in Q3 2023. YTD 2024, memory products revenue was $303.6 million vs $371.9 million in YTD 2023. Gross profit in the Gaming Components and Systems segment in Q3 2024 was $30.6 million vs $59.4 million in Q3 2023 with a gross margin of 15.1% (vs 21.8% in Q3 2023). Memory products had a gross margin of 10.7% in Q3 2024 vs 16% in Q3 2023.

Full-year 2024 revenue expected $1.25B - $1.35B, including ~$20M EBITDA-neutral from Fanatec. Adjusted operating income $28M - $43M (previously $48M - $63M), adjusted EBITDA $40M - $55M (previously $60M - $75M). 2025 expected EBITDA levels to double from 2024, driven by higher margin products, growth in Peripheral business, and expected GPU launch driving higher ASP and margin components.

Uncertainty around NVIDIA GPU launch timing and details as it's industry speculation and under NDA. Economic uncertainties and consumer spending fluctuations that could impact sales of high-end gaming PCs. Integration challenges with Fanatec, though expected to be managed over two quarters.

Q: Double-click on EBITDA margin improvement plan.

A: Well, George, there's a couple of things, right? We've got a big year coming up for us with game launches and technology launches. That will drive sales of higher margin, higher ASP products. So that's the first thing. The second thing is that we're continuing to grow our Peripheral business, and we expect that to continue next year. Now our Peripheral business, as you know, is much higher 40% gross margin product lines compared to our much lower margin memory and components. That has continued to grow over the years. In fact, we are now for this year, making more gross margin from our Peripherals group than our Components and Memory. And we actually -- even with the rebound of the Memory and Components group next year, we expect that to continue. So that is the biggest leverage because that mix will drive our overall margin up. Do you want to make any comments on some costs and things? Michael Potter: The only other thing is just we've already covered our operating expenses at the lower revenue level this year. So as our revenue goes up and we generate more total gross profit dollars more of that will fall to the bottom line as well.

Q: Just kind of general consumer demand versus the three months ago. Just any notable changes? And also kind of as it relates to GPU refresh kind of early next year, just additional data point we could be looking out for kind of in the interim. Just any kind of high-level thoughts on the industry trends there.

A: Well, I think there’s a couple of things to talk about. One is short-term, one is long-term. So short-term, you probably heard from Amazon, they announced record Prime Day. We also had record Prime Day, and I think we were the leader in the gaming space in terms of growth. So what does that mean? We saw leading up to Prime Day, resale data that was slightly under last year immediately popped above in Prime, and we’re seeing that continue to go up. Now I think what that means is that shoppers are there and they want to buy gaming gear. They’re a little bit more price conscious, and that’s what you’d expect in an inflationary environment. But as that eases, I think people are now getting more able to shop. And I think we also saw, as I mentioned in my notes that since Prime Day, the retail channel has been very much more confident. And so we’re seeing really good bookings as they get ready for the holiday season and for Q1. So I think the whole retail channel in general is feeling good about consumer sentiment. The other thing I'd say at a much more macro level is that we are now 4.5 years from lockdown. And so we’re over the historical refresh periods. And I’m pretty sure that we’re going to see a lot of refreshes going on where now people have peripherals and graphics cards that are just too old to keep up with current requirements.