Good afternoon, and welcome to the Corsair Gaming's First Quarter 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'd now like to turn the call over to Ronald Van Veen, Corsair's Vice President of Finance and Investor Relations. Thank you, sir. You may begin.

Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's financial results conference call for the first quarter ended March 31, 2023. On the call today, we have Corsair's CEO, Andy Paul; and CFO, Michael Potter. Andy will review highlights from 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-looking statements are subject to are described in our earnings release and on our 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 we issued after the market close today. With that, I'll now turn the call over to Andy.

Thank you, Ronald, and welcome, everyone, to our earnings call. We are pleased to be off to a strong start in 2023, with a 33% improvement in adjusted EBITDA compared to the year-ago period. We are also pleased to see that enthusiast-level consumers continue to build new gaming PCs at a rate significantly above pre-pandemic levels. Recent third-party data shows that Corsair continues to gain and hold market share positions in most of our categories of components used in those gaming builds. The broader market for gaming peripherals is also holding up at a level significantly above pre-pandemic levels, although slightly behind 2022, most notably in Europe, while the U.S. market has largely recovered. This is in line with what we have talked about on prior quarters where Europe was impacted by the Russia-Ukraine conflict and economic weakness. From a product standpoint, we continue to drive the high level of innovation and premium quality products that enthusiast turn to Corsair for. During Q1 2023, we started to ship our 45-inch Flex OLED bendable monitor, engineered in partnership with LG. We also expanded our industry-leading gaming headset lineup with the new wireless HS65 and HS55 models. These are lightweight headsets with great gaming audio and multi-platform compatibility. We launched Corsair Build Kits, a new initiative, allowing customers to skip the research and hunting for parts when building a new PC. This should grow our self-built TAM by providing an easy out of the box solution for people that are interested in building a PC, but without the experience to do it alone. With six different kits to start off with, the enthusiast can get everything they need to build a high-performance gaming PC, including CPU, graphics card, motherboards, and all the other components of memory made by Corsair. These kits are…

Thanks, Andy, and good afternoon, everyone. We were able to build off the good start to the year and continue to improve our financial strength and flexibility, with momentum expected to continue into Q2 2023. Revenue and gross margin were in line to slightly above our expectations as we benefited from strong demand for our components used to build gaming PCs. In terms of specifics, Q1 2023 net revenue was $354 million compared to $380.7 million in Q1 2022. European markets continue to be softer than Americas, but are improving and contributed about 32% of our revenues, below the historic average in the high 30 percentile, but up from 30% in Q4 2022. Turning now to our segments. The Gamer and Creator Peripherals segment contributed $88.9 million of net revenue during the first quarter compared to $134.1 million in Q1 2022. The Gaming Components and Systems segment contributed $265 million of net revenue during the quarter, an increase of 7.5% from $246.5 million in Q1 2022. Memory Products contributed $131.3 million in 1Q 2023 compared to $132.2 million in 1Q 2022. Overall gross profit in the first quarter was $85.4 million compared to $90.8 million in Q1 2022. The decrease was primarily driven by reduced revenues. Gross profit margin increased 30 basis points to 24.1% compared to 23.8% in Q1 2022. The Gamer and Creator Peripherals segment gross profit was $26.6 million compared to $43.1 million in Q1 2022, the decrease primarily driven by reduced revenues. Gross profit margin was 30% compared to 32.1% in Q1 2022. We believe that excess promotions by some leading competitors on gaming peripherals showed signs of easing near the end of the first quarter, which we hope will lead to further improvements in margins later in 2023. The Gaming Components and Systems segment gross…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking the question. I would love to ask maybe a big picture one to kick us off. So now, you talked a little bit about bringing more enthusiast gamers and widening out the addressable market for the Gaming Components and Systems market. How do you think about elements of where you can control sort of continuing to widen the addressable market and lowering friction to bringing more people into the category as folks who can build their own gear for the medium to long-term against the broader secular tailwinds we’re seeing in gaming more broadly? We’d love to get your perspective on that. Thanks so much.

That’s a very long question, Eric, and welcome by the way. This is the first earnings call for you to be on. So I think the general question is about how to expand the self-built PC market. The good news is it is expanding. And the way we can help is by making PCs easier to build. Clearly, the driving forces between building a PC in the first place is whether there’s a compelling reason to game with a new GPU and CPU and that’s been made a lot easier this year with availability in prices at a slightly better cost than they were the last couple of years. But our job is to make it easier and that involves the way we put together cases and power supplies or the different connections between them, fans, making it easy to put those together. And so that’s what we try and do and we’ve got a lot of things in the works that are going to make it easier moving forward as well. So most people in terms of building a PC versus buying it, the question is, can they actually get the PC built? And if they don’t know anybody that can help them, it can be a bit of a daunting task. So the easier we make it, the better. That’s why these build kits that we launched comes with a whole build kit details of how to put the thing together in easy one, two, three steps. So that’s really the idea. We think most people would rather build their own PC than buy one if they felt they could do it easily.

Great. Thanks for the color and thanks for the welcome.

Next question, Drew Crum with Stifel. Please go ahead.

Okay, thanks. Hey guys, good afternoon. So Andy, the declines in the Peripheral segment appear to be a function of excessive inventory by your competitors and thus unwillingness on the part of retailers to restock if I’m understanding your comments correctly. In light of that, what have you seen in terms of course their share performance across the segment? And then more broadly speaking, what is your confidence level that that business rebounds in the second half and you can outperform the market?

Yes. Well, this is complex question there. We – because we’ve got a core business that is quite profitable and we have very high market share in it and that’s the Memory business and the Components business. We don’t need to ship parts of the loss, I mean, in categories that are a bit soft in the market. So for example, there’s no reason for us to just hold market share in keyboards or headsets if certain price points are running at a loss in the market. And that’s what’s been happening. Once you – once the market in general has excess inventory, then everybody tries to discount their way into holding share or selling the inventory. It’s a good deal for consumers. But it just means that things often become half off and we saw that through most of the second half of last year. Once we had cleared the majority of our excess inventory, then we decided there’s no point in shipping certain categories. And when I say certain categories, what I mean is the price points between sort of $50 to $100 tends to be the casual entry level. Price points more in the $100 to $250 level tends to be more, I suppose you could say prosumer or enthusiast purchases and that wasn’t under so much of a problem. So yes, that’s basically what we did. We stepped away from that market. Now we think that this is generally being – the markets are coming back. So we see this in U.S. already. And in Europe, it’s starting to happen in certain countries. So as the market strengthened and also our competitors burn up their excess inventory, which we’ve already done, then we should see a much more return to healthy markets. And I’d expect that to happen in the second half of this year.

Got it. Thanks Andy.

[Operator Instructions] Next question comes from Aaron Lee with Macquarie. Please go ahead.

Hi. Thanks for taking my question. So you highlighted the partnership with Nickmercs. He is a big name, so congratulations on that. Any color you could give on the partnership and whether we should expect you to be putting more focus on streaming partnerships like this? Or if this is just more normal course of business? Thanks.

Yes, thanks for the question. I think that we’ve experimented with a lot of different marketing methods over the last few years as have some of our competitors. I think when we first started moving into gaming peripherals, the thought was that tournaments and eSports teams would be the natural way to do this and this is what you have – we see obviously in other sports areas. But the eSports teams have really struggled to get to profitability. It’s been quite a long ride. And so what we concluded is that there’s really not a great return on investment doing that. So we backed away from that. In fact, this year we’re only sponsoring a handful of teams, and we’ve noticed the same thing with a lot of our competitors. But what worked – this has worked for us in the past, both in our component sales and peripheral sales is, what we call, third-party endorsers or influencers. And that’s proven to be successful. So we’re going back to – if you like our roots. But there’s so many players now like Nickmercs, who’ve gone from being a really good player to an online influencer and streamer, they are highly influential, especially to younger audience.

Got it. Yes, that makes a lot of sense. And then just also with respect to your recent launch of the third-party marketplace for the Elgato Stream Deck. Can you just talk about how you expect this to impact the installed base?

Well, I think it’s going to go up a lot obviously. And right now, the installed base is about 1.5 million units. We’ve only been shipping it for three years or something, and that’s a Stream Deck hardware units. We actually do have a Stream Deck available on software version on the phone, which allows people to try it out throughout the functions. We would expect it to expand not only in the traditional streaming applications, but also into business applications. So for example, we’ve just been working on both Teams and Zoom plug-ins and we have Teams released now actually Microsoft’s pushing that as well for us. And so as we start to look at other applications, that are different from streaming, i.e., anything that’s using those complex workflows Zoom and Teams are not that complex, but the things that if you’re sharing a screen, you don’t be funding around with windows to try and mute or raise your hand or that sort of thing. So that’s where people really like to have an external button to do it. So I think that’s the sort of thing we’re going to be launching. Adobe is another great example, where there’s fairly complex workflows that’s really nice to have some dedicated buttons to do some functions and simplify the workflow. So I’d expect to see more activity and more people buying the Stream Deck that are outside our typical customer base.

Great. Thank you very much.

[Operator Instructions] Next question, Mario Lu with Barclays. Please go ahead.

Hey, great. This is Jack Butler on for Mario. Thanks for taking my question. I wanted to get into some of your recent product releases and maybe get a sense of what you might look to lean into in the future. So this was another quarter with some exciting product announcements. I guess I was just curious if maybe you could share some color on your recent launches these past couple of quarters. If there are any product lines or product specifically that have been performing exceptionally well or maybe any products or product lines that have lagged your expectations a bit? And then maybe what you’re most excited about moving forward?

Yes, that’s a good question. Well, I think the high-value items that we launched, I mean we launched a $3,000 laptop and we launched a $2,500 monitor right in the period where people were thinking about maybe a recession was coming. So that wasn’t the most brilliant timing. So those haven’t gone as well as we expected. Having said that, the Flex monitor has actually been sold out ever since we launched it although in fairly limited quantities and that’s more just getting that production cranks up. The things that we feel good about are Stream Deck because we see the opportunities there. It’s a streaming marketplace we’ve been working on for a couple of years getting that ready. I think that’s going to be terrific. Headsets, we’ve just managed to redo most of our product line and so we’ve got some really good SKUs there now. So we’re pretty happy about the last two wireless headsets we launched and obviously that’s a big market. The headset market is about half of the total peripheral market. In terms of cameras, again, we launched a very high-end camera, probably the best 4K60 webcam that’s out there. And that’s a 2.99 price point. So again, expensive for the current markets. And as you’ve heard from some of our competitors, the webcam market has shrunk dramatically. But we’re doing very well there. Again, we’re sold out as many as we can make, we sell.

Got it. That’s helpful color. Thank you.

There are no further questions. I would like to turn the floor over to Andy Paul for closing remarks.

All right. Well thank you, everyone, for joining us on the call and for your continued support. If you have any follow-up questions, please contact our Investor Relations department and we look forward to updating you next quarter. Thank you and have a good evening.

This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.