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.

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.

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…

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…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Thanks. Hey guys, good afternoon. So you noted a recovery in the Gaming Peripheral market. The ‘24 guidance would imply your business grows at a mid-teens clip. If that's accurate, how does that compare to your expectations for category growth? And assuming you're a share gainer, what are the sources of increase for Corsair? And then I have a follow-up.

Yes, it was a combination of market share gain, which we're pretty confident of. And we do expect some small market growth. It's obviously a little difficult to say what that could be. We know historically, if you go back pre-pandemic, the gaming peripheral market was growing at 15% to 20%. And certainly all the underlying drivers of that are still in place. But we've got to deal with the surge, obviously, of COVID. And so it's difficult to forecast what that could be. We expect, eventually, it's going to return back to the same growth numbers, because the white space is so huge. But what it's going to be this year, I mean, obviously we've got our own models, which we're probably not going to share. But let's just say that there's a combination of market share gain and market growth in our forecast.

And Andy, do the new product categories you reference, you know, the sim racing and mobile controllers have a meaningful impact on that part of the business this year?

We haven't built that in so possibly would have, but those are not really built into our models in any meaningful way.

Okay, got it. And then, Michael, just real quickly on gross margin, it looks like the midpoint of the range for this year is 27%, which, you know, if I'm accurate here, represents a nice step up versus last year and would approach a peak for Corsair, at least as a public company. Can you talk about what's driving the expected year-on-year increase? Thanks.

For the most part, it's the recovery in our peripherals segment. We were quite low compared to historical average at the beginning part of the year, and we ended the year a lot closer to where we normally are. So I'm expecting that to continue in 2024. And then the growth compared to our component segment should pull the overall margins up. Essentially just a story of the momentum we started getting towards the end of ‘23, continuing through ‘24.

Got it. Okay, thanks, guys.

Thank you. Our next question comes from the line of George Wang with Barclays. Please proceed with your question.

Oh, hey, guys. Thanks for the color. Just I have two quick ones. Firstly, just by looking at your long-term model, obviously nice to see a kind of upward trajectory. Just curious, kind of, what time frame would you be targeting and any thoughts on creators to get to their long-term model?

Well, I'm not going to share the details of our models like that. We've said long-term guidance. And we mean a few years, obviously not decades. A lot of this depends on how fast the market returns to growth and how much growth we get from the market. Because as I said in the last question, this is a combination of market share gain as well as market growth. So hopefully that helps. The cadence of how we get there is really going to be a steady growth, very similar to what we expect this year. In other words, continuous upward margins, upward momentum on margins, and some regional expansion as we look to gain some traction in Asia. And also, we mentioned a new move into more customization and personalization.

Okay, great. I just have a quick follow-up. In terms of the peripherals, it's nice to see growth rebounding to double-digit level over the next couple of years, just kind of as the new sort of refresh cycle, you know, just getting underway, you know, from the kind of COVID refresh. Just maybe you can double-click on that, just what I've seen from sort of macro standpoint in terms of the kind of health of the consumer peripherals, and how strong of a rebound do you think the industry can enjoy, and also obviously on top of additional share gains by Corsair? Thank you.

Yes. So if you look at last year, clearly 2022 was the first year after the surge from the pandemic, even though 2022 was still significantly up, I think 40% or 50%, compared with 2019. So the market was bigger, but it was less than it was during the surge. In 2023 was more of the same. Now some of the things that happened in ‘23 was there was a lot of continued clearing out of inventory and discounts. Now, when that happens, if you've got a lot of discounts going on, the ASPs go down. I'm talking industry-wide. So therefore, the TAM is a little less than it should be when those discounting stops. And so there's more recovery that we're seeing on industry reports, more recovery on ASP than there are on units, meaning that it drives revenue up. So that's the first thing that we've seen. And then as we move through the year, we were pretty encouraged by activity around, not Prime Day, but Black Friday and Christmas. A lot of activity there at pretty reasonable prices. So we lent in on Black Friday, because we could do it without having to over discount and had pretty good results. So that's the sort of first thing. The market is definitely recovering from a decline, again, much bigger than it was before COVID, but a decline since the surge. Now for us, we've got a number of things going on in peripherals, right? One is that we've launched some really key products at the right price points that we know is the center of gravity for peripherals, especially on keyboards. The second thing is that, as we mentioned, we're going to be further launching or further rolling out customization. As you may know, the acquisition we did on SCUF was quite strategic. And last year, about 50% of the products that were sold to consumers were customized or personalized in some way, either with graphics or with other features, such as switches and paddles and that sort of thing. And we're going to do the same thing with the rest of our peripherals starting around the middle of the year. So we think there was a huge opportunity there. And the same thing happened with Drop, this company we just bought about four months ago. They're specializing in limited edition drops. And so the key thing for us was to get our factory sorted out so that we could take advantage of that at a fairly low cost premium. Those are the main things we expect to happen, yes.

Okay, great. I will go back to the queue.

Thank you. [Operator Instructions] Our next question comes from the line of Doug Creutz with TD Cowen. Please proceed with your question.

Hey, thank you. Just wondered, if we go back two years, you had an analyst day and you kind of give longer-term guidance of, let's say, low-teens revenue out into the future. Obviously, your guidance for this year is basically 0% to 10%. We talked about being mid-cycle. Just wondering how to line up, you know, what you're expecting this year with that guidance you gave two years ago. Have things changed and you no longer feel that guidance appropriate. Just whatever color you can give around that would be great?

Yes, so I think obviously, you know, history of the past for some gives you more details, right? So what we now know is what happened during the pandemic and after the pandemic, and we're now sort of back to normal, I think. But we still do have a hangover of inflation. We've obviously got to deal with that. We see that with all the consumer markets. We do think that there's going to be a refresh cycle. We've talked about that quite a lot. We're now four years after, pretty much exactly four years after the pandemic started. And that was when a lot of people started buying new entry level peripherals. We expect them to start upgrading. So that's where we think the immediate growth. And then I think once we're through this sort of bulge and trough or bulge and pullback, then we'll get back to normal drivers. And as I said earlier, I don't see why, given the amount of white space we've got in gaming, and the fact that it's growing generationally, it wouldn't surprise me it's for gaming to get back to 15% or 20% growth per year. But we're not going to see that this year, I don't think, with the inflationary situation going on and the interest rates pretty high. So once that gets ironed out, I think we'll get back to better market growth. Now in the interim, I do think we've got an opportunity now to really grow some market share. There's a lot of things that are in our favor for that.

Okay, great. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Aaron Lee with Macquarie. Please proceed with your question.

Hi, good afternoon. Thanks for taking my question. So you talked about a few of your initiatives like the Stream Deck marketplace and DROP, and I know we're still early days, but just looking for any color really on your strategy to advance those through the year and any major milestones that we should look out for? Thanks.

Yes, I mean, they're still pretty early. I think the first, let's talk about marketplace first. So very early stages, we just launched it four months ago. We already have about 35% of the installed base that have signed up for a marketplace account. And a lot of downloads, I think we mentioned is 5.5 million downloads so far. So the next rollout there, we've already started to showcase some products that are -- that you have to pay for. And so, you know, the move now is to see how many people we can move from getting free plugins to paid for plugins. And of course, once you go past there, then you can start thinking about subscription models and that sort of thing. But I think it's kind of a wide open opportunity. We want to try and make sure that the Stream Deck is as useful as possible. When the Stream Deck was launched, it was launched as a streaming aid. And so for content creators that were streaming, that was the main use case. We're now seeing all sorts of incremental use cases, even in office spaces and general use cases. So that's going to be the next expansion. But we'll keep everyone posted as we go through the year on significant metrics. This year, we don't expect any huge revenue from it, but it is starting to generate some revenue. On Drop, we've just finished the integration, so now everyone's working together and there's really two things that we're looking forward to. One, is taking the Drop products into retail, into our channels, and that's going to start happening very quickly in the next few months. And the second thing is we're going to experiment with some of our customized products, putting them on the Drop website. So these are the initial setups. Obviously, we've had to sort of do all the integration and get everybody working together which is largely complete as I said. So, you know, more to come on that and we'll keep everybody posted as we go through the year.

Okay, great. Thank you for the call.

Thank you. [Operator Instructions] There are no further questions at this time. I would like to turn the floor back over to Andy Paul, CEO, for closing comments.

Thank you everyone for joining on the call today 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. Thank you for your participation.