Corsair Gaming, Inc. 2021 Form 10-K Summary
Business context and reporting period
Corsair Gaming, Inc. designs and sells gaming, streaming and content-creation products globally under the Corsair, Elgato, Origin and SCUF brands. Its two reportable segments are Gamer and Creator Peripherals and Gaming Components and Systems. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The company sells in more than 85 countries through retailers, distributors and direct-to-consumer channels.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenue | $1,904.1 million | $1,702.4 million | Up 11.8% |
| Gross profit | $513.9 million | $465.4 million | Up 10.4% |
| Gross margin | 27.0% | 27.3% | Down 30 basis points |
| Operating income | $137.9 million | $158.4 million | Down 12.9% |
| Net income | $101.0 million | $103.2 million | Down 2.2% |
| Diluted EPS | $1.01 | $1.14 | Down 11.4% |
| Operating cash flow | $20.2 million | $169.0 million | Down $148.8 million |
Revenue growth was led by Gamer and Creator Peripherals, which increased 20.0% to $647.2 million and represented 34.0% of revenue. Gaming Components and Systems increased 8.1% to $1,256.9 million and represented 66.0% of revenue. Within the latter segment, Memory Products generated $613.0 million, or 32.2% of total revenue, while other component products generated $643.9 million.
Gamer and Creator Peripherals gross margin was 34.8%, compared with 35.2% in 2020. Gaming Components and Systems gross margin was 23.0%, compared with 23.7%. Product mix improved as higher-margin peripherals grew, but elevated freight and logistics costs, competitive pricing pressure on memory products and increased promotional activity reduced consolidated margin.
Sales, general and administrative expense increased 22.8% to $315.7 million, driven by higher distribution and freight costs, headcount and stock-based compensation, marketing, insurance and webstore credit-card fees. Product development expense increased 20.4% to $60.3 million, or 3.2% of revenue. Stock-based compensation increased to $17.2 million from $5.8 million.
Balance sheet, cash flow, debt and liquidity
- Cash and restricted cash totaled $65.4 million at December 31, 2021, compared with $133.6 million at year-end 2020.
- Inventories increased to $298.3 million from $226.0 million, reflecting inventory buffering and supply-chain management.
- Total debt was $247.7 million, consisting primarily of a $248.8 million variable-rate term loan, compared with $321.4 million at year-end 2020.
- The September 2021 refinancing established a $250.0 million term loan and a $100.0 million revolving facility, both maturing in September 2026. No revolving facility balance was outstanding at year-end, and $99.5 million of capacity was available and uncommitted.
- The company was in compliance with its debt covenants. Its total net leverage ratio was 1.1-to-1.0 versus a maximum of 3.0-to-1.0, and its interest coverage ratio was 11.5-to-1.0 versus a minimum of 3.0-to-1.0.
- Operating cash flow fell sharply because of increased inventory purchases, income-tax prepayments and lower accounts payable. Investing cash use was $20.5 million, including capital expenditures, acquisition payments and deferred consideration. Financing cash use was $65.4 million, primarily reflecting $328.2 million of debt repayments partly offset by $248.5 million of new term-loan proceeds.
- Management stated that expected operating cash flow, existing cash and revolver availability should fund principal cash needs for at least the next twelve months under its current outlook.
Material changes versus the prior comparable period
- Revenue growth slowed from 55.2% in 2020 to 11.8% in 2021 as pandemic-related demand moderated, shelter-in-place restrictions eased and supply-chain constraints intensified.
- Second-half 2021 sales were negatively affected by logistics disruptions and shortages of reasonably priced GPUs, which reduced demand for self-built gaming PCs and related components.
- Gross margin declined modestly despite a more favorable mix, primarily because of elevated ocean freight and other logistics costs and increased promotions. Management expects logistics costs to continue pressuring 2022 gross margins.
- Operating income and diluted EPS declined despite higher revenue because operating expenses grew faster than gross profit.
- Direct-to-consumer revenue increased to 10.7% of total revenue from 8.6% in 2020 and 2.7% in 2019.
- The company launched 141 products in 2021 and entered or expanded in microphones, cameras and gaming monitors. New products included Facecam, DDR5 memory, K65 Mini RGB and SCUF Reflex controllers.
- In January 2022, Corsair acquired a 51% interest in iDisplay Technology for $25.3 million in cash and 690,333 common shares valued at $14.5 million. Purchase accounting was incomplete when the Form 10-K was filed.
Guidance, outlook, commentary and risks
The filing does not provide specific 2022 revenue or earnings guidance. Management expects logistics and supply-chain challenges to continue into 2022 and anticipates continued gross-margin pressure from elevated freight costs. Management also expects product-development and SG&A expenses to increase in absolute dollars as the company invests in innovation, marketing, distribution and infrastructure.
Key business risks include normalization of pandemic-driven demand, GPU and other component shortages, freight inflation, inventory obsolescence, DRAM price volatility, aggressive competition, rapid product cycles, reliance on third-party manufacturers and suppliers, and dependence on major retailers. Amazon accounted for 26.7% of 2021 revenue, while the ten largest customers accounted for 51.7%. Approximately 61.7% of revenue came from customers outside the United States.
Additional risks include variable-rate debt and covenant compliance, foreign-exchange volatility, political and military tensions involving Russia and Ukraine and their potential effect on Corsair’s Ukrainian research and development operations, concentrated Asian manufacturing, cybersecurity and privacy incidents, intellectual-property claims, product recalls and warranty obligations. The company disclosed a prior voluntary recall of SF-series power supplies and stated that it was involved in an intellectual-property infringement claim that it did not believe would materially affect the business.
EagleTree beneficially owned approximately 57.3% of the common stock at December 31, 2021. Corsair is therefore a Nasdaq “controlled company” and relies on exemptions from certain corporate-governance requirements. The company does not anticipate paying cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether supply-chain, freight and GPU availability improve enough to support revenue growth and restore gross margins.
- Inventory levels, inventory turns and any subsequent excess or obsolete inventory charges.
- Operating cash conversion, accounts payable trends and working-capital requirements after the sharp decline in 2021 operating cash flow.
- Variable-rate debt exposure, refinancing terms, covenant headroom and the effect of interest-rate increases.
- Revenue concentration with Amazon and the ten largest customers, including changes in customer orders or payment risk.
- Demand normalization after pandemic-related growth and the performance of the peripherals, streaming, gaming-monitor and new-product categories.
- The finalized purchase accounting and operating contribution of the January 2022 iDisplay acquisition.
- Exposure to Russia-Ukraine developments, Asian manufacturing and supply-chain concentration, cybersecurity incidents and intellectual-property or product-quality claims.
- The filing’s audited financial statements and KPMG’s conclusion that financial statements and internal control over financial reporting were effective as of December 31, 2021.