Corsair Gaming, Inc. (CRSR) Earnings Call Transcript

Good afternoon. and welcome to Corsair Gaming's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's prepared remarks, we will conduct a question and answer session. To ask a question at that time, please press star, then 1 on your telephone keypad. I would now like to turn the call over to David Pascal, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Tila, our Chief Executive Officer, and Gordon Mattingly, our Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion contains forward-looking statements, including but not limited to our guidance for the third quarter and full year 2026, potential future growth in certain product categories, and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions. These forward-looking statements are based on our current assumptions and expectations. Actual results could differ materially. Please refer to the risk factors in our most recent annual report on Form 10-K filed with the SEC, our subsequent SEC filings, and today's earnings press release for full discussion of the factors that could cause our actual results to differ. We undertake no obligation to update these forward-looking statements. Additionally, we will discuss certain non-GAAP financial measures today. Definitions and reconciliations to the most comparable GAAP measures are included in our earnings press release and the investor presentation posted to our investor relations website at ir.corsair.com. With that, I'd like to now turn the call over to Corsair's CEO, Ti La. Ti, please go ahead. Thank you.

Thank you, David, and good afternoon, everyone. We are pleased to report strong results for Q2. Our core business outperformed expectations, and we are raising our outlook for the rest of the year. Based on our recent performance, Corsair is becoming a more profitable, more cash-generative company. We are improving the quality of our revenue, gaining share in the right categories, and building platforms for growth beyond the traditional PC cycle. I want to share the five numbers that tell the story. Gross profit for the quarter grew 21% year-over-year. Gross margin hit a company record of 33.2%. Gamer and creator peripherals revenue for the quarter grew 13% year-over-year. Gross profit in that segment grew 27% year-over-year, and gross margin reached 44.9%. We cut operating expenses for the quarter by 6.1 million year over year. more of our gross profit gains reached the bottom line. Operating cash flow for the quarter grew 148% year-over-year to $74.8 million and we are raising our full year 2026 outlook which Gordon will review in a few minutes. Let's talk about Gamer and Creator Peripheral Segment. This segment was again, I'll stand out. Revenue grew 13% year-over-year to $115.9 million. Gross profit grew 27% year-over-year to $52 million. margin expanded to 44.9%. This is the mixed shift we've been working toward, faster growth in categories that carry stronger margins and deeper customer relationships. Phenatech remained a key driver, supported by new products, wider distribution, and strong direct-to-consumer sales. Phenatech has also carried gross margins above the segment average, so its growth improved both scale and quality. But building on that with the acquisition of TrackRacer, a complementary sim racing hardware brand with a strong direct-to-consumer model, it broadens our product range, extends our distribution, and brings experienced leadership into our SIEM solution group. Our licensing strategy is also growing the Fanatec platform. We recently announced a partnership with Nissan, adding another global automotive brand alongside our existing motorsport relationships. These partnerships reinforce Fanatec as the premium platform for sim racing. Elgato, Stream Deck, and Marketplace are evolving from creative tools into a broader workflow platform. In the first half of 2026, Elgato Marketplace revenue and transactions each more than doubled year over year. submissions grew more than 300%. The marketplace added more than 500,000 new accounts, which is impressive growth on all metrics. The flywheel is working. More users attract more developers, more products increase the value of Stream Deck, and that value drives the growth of Stream Deck. both hardware demand and recurring revenue. AI-assisted development is making it easier to build new profiles and plug-ins, which we believe should speed this up further. This quarter, we made a minority investment in Bitfocus, a professional show control software company already integrated with Stream Deck. This extends Elgato from the creator desktop into broadcast, live events, and control rooms. These are all higher-value professional environments with a coordinated go-to-market path. As part of the agreement, Corsair and BitFocus also established a partnership under which Stream Deck Studio and the broader Stream Deck range will serve as preferred and primary control services across BitFocus customer deployments. We are excited to build on our relationship and expand our growth opportunities. In the gaming components and systems segment, revenue in this segment declined 9% year-over-year to $198.5 million as elevated memory pricing continues to delay DIY PC builds. We believe this demand is deferred, not lost. When builders have historically delayed an an upgrade, the need didn't disappear. It built up and it returned as pricing and the product cycle normalized. Even so, segment gross profit grew 17% year-over-year to $52.2 million, and gross margin expanded 570 basis points year-over-year to 26.3%. Memory net revenue grew 17% year-over-year on strong supply chain execution and share gains in North America. Our memory inventory is now properly sized and supply availability remains adequate. System was a bright spot too, with solid year-over-year growth in AI workstations. This isn't a pivot. It's a natural extension of capabilities we've built over decades in high-performance system design, customization, overclocked memory, advanced water cooling, and power delivery to support the system. the hottest GPUs. We are targeting the roughly $22 billion desktop AI PC market, focused first on prosumers and small and medium businesses that want local compute, data security, and lower cloud cost. The significance of this opportunity to the company's operation remains early, and GPU allocation is tight. Accordingly, we believe revenue contribution will pick up in the latter part of 2027 and beyond. Looking ahead, our investments remain focused on strategic revenue growth with accretive margin. ecosystem value with recurring revenue, and workstation market opportunity. This is why we chose to direct capital toward M&A and strategic partnerships this quarter, including TrackRacer and BitFocus, which we believe will extend our platforms and further diversify our business. We will continue to prioritize these opportunities where we see the clearest path to durable, higher margin growth while remaining disciplined on price and integration risk. With GTA 6 expected to launch in Q4 2026, we see a meaningful tailwind for console products and are positioned to capture demand around one of the industry's most anticipated releases. With that, I will turn it over to Gordon to take you through the financials. Gordon? Thank you.

Thank you, T, and good afternoon, everyone. The second quarter showed strong conversion of gross profit improvement into earnings and cash generation. We're excited about our progress and the momentum we are building in our business as we continue to execute and build shareholder value. I'll provide some additional color on the quarter in our outlook before opening the call for any questions. Revenue for the second quarter was $314.3 million, above the assumed midpoint of our guidance range and down 2% year-over-year. Growth profit increased 21% year-over-year to $104.3 million, and growth margin expanded 640 basis points year-over-year and 50 basis points sequentially to a company record of 33.2%. GAAP operating income improved to $7.6 million from an operating loss of $16.9 million a year ago. Gap net income was $9.1 million, compared with a net loss of $20.3 million in the prior year quarter. Gap diluted EPS was $0.06 compared with a loss of $0.16 a year ago. Adjusted EBITDA increased to $30.8 million from $8.1 million a year ago, and adjusted EBITDA margin expanded to 9.8% from 2.5%. Non-gap diluted EPS increased to 23 cents from 1 cent. During the second quarter of 2026, the company recognized the benefit of approximately $15.6 million to GAAP gross profit from refunds of tariffs previously paid under the International Emergency Economic Powers Act. This delivered approximately 500 basis points of benefit to gross margin. Net income benefited by approximately $14.9 million. Adjusted EBITDA by approximately $14.3 million. And non-GAAP diluted earnings per share by 13 cents. Excluding this benefit, GAAP net loss would have been $5.7 million. And GAAP diluted loss per share would have been 7 cents. Adjusted EBITDA would have been 16.7 cents. million and non-GAAP diluted earnings per share would have been nine cents, both above the high end of the company's guided ranges at $15.5 million and seven cents respectively. Following receipt of these amounts, the company is materially complete with the tariff refund process, although it may receive immaterial administrative adjustments or interest in future periods. Gamer and creator peripherals revenue grew 13% year-over-year to $115.9 million. Segment gross profit increased 27% to $52 million, and gross margin expanded to 44.9% from 40%. The improvement reflects growth in higher margin categories, including sim racing, and continued momentum across gaming peripherals and streaming products, as well as the tariff refund. Gaming components and systems revenue declined 9% year-over-year to $198.5 million, reflecting the market-wide pressure from elevated memory pricing on DIY builds and standalone components. Despite the lower revenue, we were still able to increase segment gross profit by 17% to $52.2 million, and gross margin expanded 26.3% from 20.6%. Strong performance in memory, led by strong demand, market share gains, and continued strong supply chain management helped drive this improvement, along with the refund benefits. Systems also show year-over-year momentum led by AI workstation demand. Direct consumer or D2C represented 20% of revenue in the quarter. B2C is a priority for us because it carries better unit economics, gives us richer end-user data, and creates a deeper relationship with our customers while benefiting our cash conversion. Fanatec and Track Racer also increased our presence in this structurally attractive channel. Operating expenses declined $6.1 million year over year to $96.7 million. That discipline allowed more of the gross profit improvement to reach operating income and adjusted EBITDA. Cash provided by operating activities increased 148% year-over-year to $74.8 million, reflecting both strong earnings and disciplined working capital management across inventory, receivables, and vendor terms. Notably, in the first six months of the year alone, we generated more operating cash flow than in all of 2025 and 2024 combined. This is a clear sign of the traction we are gaining in this area and one we plan to build on. Cash and restricted cash increased $74.1 million sequentially to $193.9 million at the end of the second quarter. And with total debt balance of $118.7 million, we ended the quarter with a net cash position of approximately $75.1 million. Our stronger balance sheet increases our flexibility to invest in organic growth, pursue disciplined strategic acquisition, purchase shares when attractive and manage leverage appropriately. We will continue to pursue a combination of those levers as we work to expand growth and profitability and drive shareholder value. I will now turn to the guidance. For the third quarter of 2026, we expect net revenue to be in the range of $320 to $350 million. Adjusted EBITDA to be in the range of $18 to $21 million. And non-GAAP diluted EPS to be in the range of $0.09 to $0.12. The outlook assumes continued low double-digit year-over-year growth in gamer and creator peripherals, led by Fanatec, Elgato, and Stream Deck, with the a higher margin mix and continue direct consumer progress supporting consolidated gross margin. Gaming components and systems are expected to be down low double digits year over year and will remain pressured by elevated memory pricing and delayed DIY demand, although supply availability is expected to remain adequate. For the full year 2026, we are raising our outlook. We now expect net revenue to be in the range of 1.4 to 1.47 billion dollars Adjusted EBITDA to be in the range of 121 to $131 million. and non-GAAP diluted EPS to be in the range of 85 to 94 cents. Our full year 2026 outlook for net revenue represents an increase of approximately $35 million at the assumed midpoint of our updated guidance range, compared to our prior guidance range of $1.33 billion to $1.47 billion. The assumed midpoint of our adjusted EBITDA range is also up approximately $19 million compared to the assumed midpoint of our prior guidance range of $100 to $115 million. To close, we are encouraged with our continued business momentum and the progress we are making to increase the quality of Corsair's earnings. diversified portfolio of leading brands continues to perform strongly. We are entering the second half with stronger financial capacity, improving mix, and a broader set of growth opportunities. We believe that combination positions us well to compound earnings and cash flow and create long-term shareholder value. Operator, that concludes our formal remarks. You can now open the call up for Q&A.

Thank you. We will now open the line for questions. To ask a question, please press star and then 1 on your telephone keypad. To withdraw your question, please press star and then 2. Please limit yourself to one question and one follow-up. pause for a moment to compile the Q&A roster. Our first question is from Erin Lee of Macquarie. Please go ahead.

Hey, good afternoon. Thanks for taking the question. I wanted to start with guidance. The midpoint of the 2026 EBITDA guidance range went up by about $19 million, which is more than the $14 million tariff benefit and the TQ beat versus the midpoint of the guide, which would imply a strengthening of the back half outlook. So can you just talk about what's changed in your expectations for the second half and what the major drivers are?.

Yes, sure, you're absolutely right, Aaron. This is Gordon speaking. the guidance of about $90 million. If we look at the midpoints, the Q2, the beat was roughly $17 million, of which $14 million was attributable to the tariff, so roughly about $2.5 million from Q2. And then for the rest of the year, the updated guidance is a reflection of the combination of the improved business performance we're seeing with our organic business. a small amount from the track racer acquisition, but pretty immaterial there. But it's those things really combining that make up the $19 million increase at the midpoint.

Okay, got you, that's helpful. And then with regard to the track racer acquisition, Can you just talk a bit about the growth potential, the integration timeline, and any synergy benefits with Fanatec or the broader organization? Sure.

Yes, so with regards to, hey Erin, good to hear from you. With regards to the integration phase, it should be a pretty quick one. We think it's going to take about three to six months to integrate our system infrastructure. What's going to be really meaningful is just really getting the roadmap alignments between the two business units. We've folded SimRacing into one unit. if you want to call it that way. And the track racer products will fold underneath the Fanatec brand umbrella Benetech is known for all of the electronics, like wheel, wheelbase, pedals, anything that requires software. And TrackRacer is all mechanicals, cockpit, and accessories. So it's rare that we are able to find two very complementary product lines. and combined together into a very meaningful range for us. and really increase our presence in the market. continue to be growing very nicely and this is a very good acceleration for us.

Okay, awesome. Thank you very much and really nice quarter.

Thank you. Ladies and gentlemen, just a reminder to ask a question. Please press start. and then 1 on your telephone keypad. The next question we have is from Drew Crum of B Reilly Securities. Please go ahead.