Good afternoon, everyone, and welcome to Corsair Gaming's First Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. [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 first quarter ended March 31, 2024. On the call today, we have Corsair's CEO, Andy Paul; and CFO, Michael Potter. Andy will review highlights from the quarter, and 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 other 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 Q1 earnings call. 2024 is starting out as expected, with new products driving a rebound in peripheral growth. Our Gaming & Creative Peripheral segment has continued its impressive performance, achieving 20% year-over-year revenue growth in the first quarter of 2024 after a 16% year-over-year revenue growth in the fourth quarter of 2023. We're very pleased that growth is coming from all product lines. This was across Elgato with its popular Stream deck products, SCUF gaming with the successful recent launch of PC controllers and Corsair peripherals with several new Keyboards, Headsets and Mics. We were particularly pleased to see the gross margin lift to 40% with these new product launches. We fully expect to build on this momentum over the coming quarters with an exciting lineup of planned product launches, some of which we will discuss on the call today. Demand was more subdued in the component market and is normal in the stage of a GPU cycle. In the short term, the self-built PC market is stable with the next surge expected in late 2024 and 2025 when next-gen GPUs and CPUs are launched. We're also already seeing some benefit in the pricing of our most popular DRAM modules as gamers are using higher DRAM capacity for faster gameplay. Give you a sense of how big the memory opportunity is, it is estimated that 95% of steam gamers have less than 16 gigs of memory in their systems. That represents a huge opportunity for us. We continue to have high market share in the component space, which we are focused on further growing led by a strong planned product launch schedule, including several recent launches with our 2500 and 6500 series cases, iCUE LINK RX-Series fans and Corsair One platform upgrade.…

Thanks, Andy, and good afternoon, everyone. I am pleased to report a solid start to 2024, especially for our key gamer and creator peripheral segment and gross margins in general. We expect to build on this start with improved revenue growth and EBITDA expansion in the second half. The success of our new products is driving market share gains and margin expansion with notable growth in our gamer and creator peripheral segment. Overall, our markets remain healthy, and we continue to execute on our organic business with an eye on accelerated growth through M&A given our track record and strong financial position. In terms of the specifics, Q1 2024 and net revenue was $337.3 million compared to $354 million in Q1 2023. European markets contributed 34.3% of our Q1 2024 revenues compared to 38.6% in Q4 2023, while the APAC region was 13.8% of our Q1 revenues compared to 9.9% in Q4 2023. Turning now to our segments. The gamer and creator peripheral segment contributed $107 million of net revenue during the first quarter compared to $88.9 million in Q1 2023. The Gaming Components & Systems segment contributed $230.3 million of net revenue during the quarter compared to $265 million in the year ago period. Memory Products contributed $124.9 million in first quarter 2024 compared to $131.3 million in Q1 2023. Overall gross profit in the first quarter was $86.6 million compared to $85.4 million in Q1 2023, primarily reflecting mix. Gross margin increased 160 basis points to 25.7% compared to 24.1% in Q1 2023. We achieved this expansion despite challenges such as increased freight costs stemming from turmoil in the Red Sea and resulting delays necessitating incremental air shipments. The gamer and creator peripheral segment gross profit was $43.6 million compared to $26.6 million in Q1 2023. Gross margin…

[Operator instructions] Our first question today comes from George Wang from Barclays.

I have 2 quick ones. Firstly, can you give a little bit more color just about the component memory business? Definitely weaker than expected kind of partially drove the kind of the overall below expectation. You guys talked about no growth until a new GPU/CQ launch in the second half as well as 2025. So now, what's the refresh growth rate for this year based on my model, it seems it's tracking kind of a slight decline on a year-over-year basis? Just curious how confident you are in terms of kind of a tangible rebound in a few quarters.

Well, we see every GPU cycle, the same thing happens. And we're now I mean the room is already out of when NVIDIA is going to launch their new cards. Obviously, they haven't officially announced what it is, but the rumors out there starting end of this year, early '25. And so, people will start gearing up for that. And in fact, a lot of times people start building machines in advance of the new cards, to building a machine to take it. So, that's why we're expecting Q4 to be pretty good. But this year, the early adopters are definitely going to wait for that new card, and that's offset by the mainstream customers that are now using the less expensive cards to build game PCs. So overall, that gives you, as you say, a flat to slightly down market depending on which part of the world.

Secondly, can you kind of address regional and retail expansion kind of you talked about kind of in the prepared remarks? And also, I kind of noticed that Asia is still a smaller mix versus total kind of the low teens. So, likely some opportunity on the Asia expansion. So, maybe you can talk about your investment in the retail as well as the regional expansion.

Yes, sure. Well, there's a few things going on. In the U.S., we're expanding into additional retailers. We're expanding our footprint into Walmart and Target with some of our new product lines. Worldwide, you are right Asia has been the weakest part of the globe, and that's mostly because China is not doing well. As you probably know, this some pretty big unemployment in the China. So, we've switched our attention now to really double down on Korea and Japan, where we see lots of opportunities, and we have a much lower market share there than we do in other parts of the world. So, we'd expect Asia to bounce back, but not in China, but in places like Korea and Japan. Europe is doing quite well. I just spent the week in Europe with all our sales guys and they're extremely positive. And the U.S. is also pretty strong in a lot of gaming categories, but in the self-built PC market, as we just said, we're waiting for the new cards.

Our next question comes from Drew Crum from Stifel.

On the gamer and creator segment, was there anything unique during the period that drove the record gross margin performance? And do you see that as sustainable going forward? Or should we assume it fall sequentially? And then I have a follow-up.

Well, no. We're expecting that this is where it should be. There's a few things going on from a mix perspective. And I think, as you know, we invested in some of the supply chain from our Elgato product lines. So, we have one manufacturer that developed with us the Stream Deck. We bought a significant amount of that company, and that allows us to increase our margins quite substantially. And that actually is the biggest part of our Elgato portfolio now. So, that's driving very healthy margins. We've had a really good bounce back with SCUF, which again is direct-to-consumer and very high margins. So, a lot of this is mixed in the different parts of the gaming creator segment. We've got some parts that are very high, 50% margin kind of categories that drive the mix up. But our traditional and peripherals categories, which is Keyboards, mics and headsets, has also sequentially been increasing. So, I would hope that we'll use this margin as a base and keep building from here.

And then, Andy, in your prepared remarks, you talked about the mobile gaming controller and the new Sim racing product line you're launching in June. Any way you can size the TAM for both of those?

Well, very roughly, and the reason I say very roughly is, there's not a lot of really good Crisp data. I would say the Sim market, as best we can tell, is probably around $1 billion now. And we're going to enter the top half of that initially. So, we're not going to be making $100 or $200 string well kits. We'll be making products for people that are spending a few thousand dollars on a rig, same way as you do with our PC categories. Tangible market for us to ramp up to $100 million or $200 million there. The mobile gaming is a little less. I mean everyone is thinking that can easily get to $1 billion is probably not there yet, but it is one of the fastest-growing categories. And what we want to make sure there is that we can stay in the $100 or $100-plus ASP area and not be pulled into the $50 category. So, that's another one where we're going to stay in the premium end of the market.

Our next question comes from Aaron Lee from Macquarie.

Just to start, in general, any color you can provide on the general state of the consumer? And do you still feel like there's room to push up ASPs or pass on costs?

Well, that's an interesting question. I mean, as I said, and I remember it simply in the IPO presentations, my feeling was that gaming hardware in general would follow the trend of sports equipment rather than consumer electronic hardware. In other words, if we keep going up as new features are found to enable people to play games better. And that's exactly what's happened. So, if you look at the headset or keyboard market, people are quite comfortable now paying to $300 for headsets and $200 or $300 for keyboards, whereas if you go back 10 years, these were firmly $50 to $100 market. So, the ASP continues to go up. Now, in the components space, a lot of this depends on what happens with the power needs of DPOs but we do think that when we listen to Jensen's Folks, he's absolutely helping on cramming as much horsepower as you possibly can, and that tends to use a lot of power. So, we think the next generation is going to be power hungry as the first 4,000 cards were. And so, that tends to mean people are starting to use 800 to 1,000 more power supplies rather than 500 or 600 watts. So, I think in the components space, we'll see a healthy maintain maybe a little bit on the ASPs, but some increase there's plenty of room to grow.

And then just on some of these new product launches, you've obviously launched several new categories over the past few quarters. Are there any categories that have surprised you or stood out in terms of the demand and growth potential?

Yes. I think the best success we've had compared to our expectations was our PC controller that we brought out from SCUF. And, we knew that a lot of people have transitioned from console to PC and like to use the console staff in color to play PC game, certainly some of them. And, of course, the whole Call of Duty League move from console to PC. So, we brought out a controller that was PC only. I must admit I was a little skeptical that, that would confuse some of the consumers that realize they're buying something that they wouldn't work on a PS4 or Xbox but in fact, the demand has been overwhelming, and we were sold out for the first 6 months. So, that one has been very impressive. The other thing that surprised us was the teleprompter that Elgato brought out. And that literally has been sold out ever since we launched in, I think, October or November. We're just now starting to get inventory in place. So, we've taken the casual and the prosumer streaming market by storm now. And I think everybody that has seen this thing that regularly does video calls was to buy one.

[Operator instructions] Our next question comes from the call in Sebastian from Baird.

It's Colin Moon for Colin Sebastian. Just one from us. Have not seen the peripheral segment at a 40% gross margin this quarter. Are you seeing any relief in freight cost so far in Q2? And then do you think you'll be utilizing air freight this quarter to the same degree that you did in Q1?

Well, I certainly hope not. In some cases, air freight occurs because we are so successful product launches that we get sold out and we have to airfreight them, but we keep increasing our inventory of new launches to take care of that. So, I certainly hope that's going to go down. The vast majority of our gaming crystals are fairly small. So, it doesn't have the same effect on freight and things like power supplies and cases. Those are things that really get affected when the rates go flying up because we just can't keep putting as many into a container. But having said that, I mean, the overall effect of the Red Sea container issues, I don't know how much people realize the costs went flying up in Q1, had quite an effect, as Michael mentioned earlier, on both cost and lead time. But, yes, I think Q2, we'd expect Air freight definitely to go down, and we'll get some benefit from that.

[Operator instructions] Ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to CEO, Andy Paul, for closing comments.

Well, thank you very much, everybody, for attending the call, and thanks for your continued support. Any further 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.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.