You ought to learn the next dialogue of our monetary situation and outcomes
of operations together with the consolidated monetary statements and the
associated notes included elsewhere on this Annual Report on Form 10-Okay. The
following dialogue accommodates forward-looking statements that contain dangers and
uncertainties. Our precise outcomes might differ materially from such
forward-looking statements. Factors that might trigger or contribute to those
variations embrace these mentioned beneath and elsewhere on this Annual Report on
Form 10-Okay, significantly within the part Item 1A, “Risk Factors” and beneath in Item
7A, “Quantitative and Qualitative Disclosures about Market Risk”.
Overview
We are a number one world supplier and innovator of high-performance gear for
avid gamers, streamers and content material creators, many of which construct their very own PCs utilizing
our elements. Our industry-leading gaming gear helps digital athletes, from
informal avid gamers to dedicated professionals, carry out at their peak throughout PC or
console platforms, and streaming gear that allows streamers and content material
creators to provide studio-quality content material to share with mates or to broadcast
to tens of millions of followers. Our PC elements merchandise supply our prospects a number of
choices to construct their personalized gaming and workstation desktop PCs. Our
resolution is essentially the most full suite of gear that addresses essentially the most crucial
elements for each recreation efficiency and streaming. Our product providing is
enhanced by our two proprietary software program platforms: iCUE for avid gamers and the
Elgato streaming suite for content material creators, together with our Stream Deck management
software program, which offer unified, intuitive efficiency, and aesthetic management
and customization throughout their respective product households. In 2020, we additionally
added a digital providers layer to our choices to boost the client
expertise by integrating esports, teaching, stream deck market, buyer
care and prolonged guarantee into our choices.
We group our merchandise into two classes (segments):
• Gamer and creator peripherals. Includes our high-performance gaming
keyboards, mice, headsets, controllers, and streaming gear, which incorporates
seize playing cards, Stream Decks, USB microphones, our Facecam streaming
digital camera, studio equipment, and EpocCam software program, in addition to teaching and
coaching providers and content material design providers, amongst others.
• Gaming elements and programs. Includes our high-performance energy provide
models, or PSUs, cooling options, pc circumstances, DRAM modules, as properly
as high-end prebuilt and custom-built gaming PCs, amongst others.
Further data on our {industry}, our market alternative and aggressive
strengths is offered in Part I, Item 1, “Business” of this Annual Report on
Form 10-Okay.
Our web income was $1,904.1 million, $1,702.4 million, and $1,097.2 million for
the years ended December 31, 2021, 2020, and 2019, respectively. We had web
revenue (loss) of $101.0 million, $103.2 million and $(8.4) million,
respectively. Net money supplied by working actions was $20.2 million,
$169.0 million, and $37.1 million for the years ended December 31, 2021, 2020,
and 2019, respectively. We proceed to expertise a shift in web income in the direction of
a extra vital combine of our larger margin gamer and creator peripherals
section, which represented 34.0%, 31.7% and 26.8% of whole web income for the
years ended December 31, 2021, 2020 and 2019, respectively. As our product
portfolio continues to increase, our go-to-market mannequin has additionally been evolving
with an elevated combine of direct-to-consumer gross sales representing 10.7%, 8.6% and
2.7% of whole web income for the years ended December 31, 2021, 2020 and 2019,
respectively.
Our web income elevated 55.2% in 2020, as in comparison with 2019, primarily on account of a
bigger quantity of shoppers gaming and working from residence consequently of the
COVID-19 pandemic. Going into 2021, whereas the lockdowns and shelter-in-place
restrictions have been progressively lifted, our web income continued to develop by 11.8%,
regardless of the unfavourable impression from the worldwide provide chain and logistics
challenges in addition to the shortages of fairly priced GPUs, which led to a
lower in demand for self-built gaming PCs and programs and its associated
elements. We additionally skilled larger price of items bought in 2021 primarily
associated to bills on freight and logistics on account of provide chain and logistics
points. The full extent of the impression of COVID-19 pandemic stays unsure,
which has and might proceed to negatively impression our web income and gross
margin. While we skilled the aforementioned challenges in 2021 attributable to the
COIVD-19 pandemic, our 2021 income and gross income represented sturdy progress
from 2019, pre-pandemic, by 73.5% and 129.1%, respectively.
In the final 18 months, we’ve entered into three massive new markets: microphones
and cameras for content material creators and gaming displays for each avid gamers and content material
creators. In addition, we’ve launched 141 new merchandise in 2021. Over the
long run, we consider we can proceed to develop in new markets as
properly because the markets that we take part in via innovation and main
applied sciences and entry into new classes through natural progress or acquisition.
Since 2018, we’ve accomplished eight acquisitions, together with our acquisition of a
51% of the share capital of iDisplay Technology, or “iDisplay”, a frontrunner in
digital growth and design specializing in show expertise, in January
2022.
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Key Factors Affecting Our Business
Our outcomes of operations and monetary situation are affected by quite a few
elements, together with these mentioned within the part titled “Risk Factors” in Part
I, Item 1A of this Annual Report on Form 10-Okay and these described beneath.
Impact of Industry Trends. Our outcomes of operations and monetary situation are
impacted by {industry} developments within the gaming market, together with:
• Increasing gaming engagement. We consider that gaming’s growing time
share of world leisure consumption will drive continued progress in
spending on each video games and gaming gear. Gaming continues to turn into
more and more social and streaming viewership is extra extensively adopted alongside
with growing numbers of content material creators. We consider this pattern, which
has accelerated within the present setting, will proceed and we’re properly
positioned to serve the streaming market with best-in-class instruments for
content material creation.
• Introduction of new high-performance computing {hardware} and subtle
video games. We consider that the introduction of extra highly effective CPUs and GPUs
that place elevated calls for on different system elements, resembling reminiscence,
energy provide or cooling, has a big impact on growing the demand
for our gear. In addition, we consider that our enterprise success relies upon in
half on the introduction and success of video games with subtle graphics
that place growing calls for on system processing velocity and capability and
due to this fact require extra highly effective CPUs or GPUs, which in flip drives demand
for our high-performance gaming elements and programs, resembling PSUs and
cooling options, and our gaming PC reminiscence. As a consequence, our working
outcomes could also be materially affected by the timing of, and the speed at which
pc {hardware} corporations introduce, new and enhanced CPUs and GPUs, the
timing of, and fee at which pc recreation corporations and builders
introduce, subtle new and improved video games that require more and more
excessive ranges of system and graphics processing energy, and whether or not these new
merchandise and video games are extensively accepted by avid gamers.
Impact of Product Mix. Our gamer and creator peripherals section has a better
gross margin than our gaming elements and programs section. As a consequence, our
general gross margin is affected by modifications in product combine. External elements can
have an effect on our product combine, resembling fashionable recreation releases that may
enhance gross sales of peripherals and availability of new CPUs and GPUs that may
impression element gross sales. In addition, inside our gamer and creator peripherals
and gaming elements and programs segments, gross margin varies between
merchandise, and vital shifts in product combine inside both section may additionally
considerably impression our general gross margin.
Impact of Customer Concentration. We function a worldwide gross sales community that
consists primarily of retailers (together with eRetailers), in addition to distributors
we use to entry sure retailers. Further, a restricted quantity of retailers and
distributors signify a good portion of our web income, with eRetailer
Amazon accounting for 26.7%, 24.6% and 25.1% of our web income for 2021, 2020,
and 2019, respectively, and gross sales to our ten largest prospects accounting for
roughly 51.7%, 52.7%, and 51.6% of our web income for a similar intervals,
respectively. Our prospects usually don’t enter into long-term agreements to
buy our gear however as an alternative enter into buy orders with us. As a consequence of
this focus and the shortage of long-term agreements with our prospects, a
main driver of our web income and working efficiency is sustaining good
relationships with these retailers and distributors. To assist keep good
relationships, we implement initiatives resembling our up to date packaging design
which helps eRetailers resembling Amazon course of our packages extra effectively.
Further, given our world operations, a big proportion of our bills
relate to delivery prices. Our skill to successfully optimize these delivery
bills, for instance using costly delivery choices resembling air freight
for smaller packages and extra pressing deliveries and extra cost-efficient choices,
resembling practice or boat, for different shipments, has an impression on our bills and
outcomes of operations.
Impact of New Product Introductions. Gamers demand new expertise and product
options, and we anticipate our skill to precisely anticipate and meet these
calls for might be one of the primary drivers for any future gross sales progress and market
share growth. In 2021, we had a number of product introductions that had a
favorable impression on our web income and working outcomes, such because the
introduction of our new K65 mini RGB keyboard, Elgato’s new equipment
together with our new Facecam, Corsair DDR5 reminiscence and new high-performance gaming
controllers together with SCUF Reflex, Reflex Pro and Reflex FPS, amongst others.
However, there could be no assurance that our new product introductions may have
a good impression on our working outcomes or that prospects will select our
new gear over these of our rivals.
Impact of Seasonal Sales Trends. Since 2020, our income seasonality has been
impacted positively and negatively, and thus has not adopted historic patterns,
by exterior occasions, resembling shelter-in-place restrictions, world provide chain
and logistics points and availability of inexpensive GPUs, primarily attributable to
the COVID-19 pandemic. Historically, previous to 2020, we’ve skilled and
anticipate to proceed to expertise seasonal fluctuations in gross sales as a result of
shopping for patterns of our prospects and spending patterns of avid gamers. Our web
income has typically been lowest within the first and second calendar quarters due
to decrease shopper demand following the fourth quarter vacation season and as a result of
of the decline in gross sales that usually happens in anticipation of the
introduction of new or
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enhanced CPUs, GPUs, and different pc {hardware} merchandise, which normally take
place within the second calendar quarter and which are inclined to drive gross sales within the
following two quarters. Further, our web income tends to be larger within the third
and fourth calendar quarter on account of seasonal gross sales resembling “Black Friday,” “Cyber
Monday” and “Singles Day” in China, as retailers are inclined to make purchases in
advance of these gross sales, and our gross sales additionally are usually larger within the fourth
quarter as a result of introduction of new consoles and high-profile video games in
reference to the vacation season. As a consequence of seasonality, our web
income for the second calendar quarter is mostly the bottom of the 12 months
adopted by the primary calendar quarter. Historical seasonal patterns might not
proceed sooner or later and have been impacted, and could also be additional impacted in
the longer term, by growing provide constraints, GPU shortages, shifts in buyer
conduct and the evolving impacts of the COVID-19 pandemic.
Impact of Fluctuations in Currency Exchange Rates. We are topic to inherent
dangers attributed to working in a worldwide economic system. Some of our worldwide
gross sales are denominated in foreign exchange and any unfavorable motion within the
alternate fee between U.S. {dollars} and the currencies by which we conduct gross sales
in overseas international locations, specifically the Euro and the British Pound might have an
adversarial impression on our web income. In addition, we typically pay our staff
situated outdoors the United States within the native forex, with a big
portion of these funds being made in Taiwan {dollars} and Euros. As a consequence of
our overseas gross sales and operations, we’ve different bills, property and liabilities
which are denominated in foreign exchange, specifically the Chinese Yuan, Euro
and British Pound.
Impact of COVID-19. Due to the COVID-19 pandemic, there was and will
proceed to be uncertainty and disruption within the world economic system and monetary
markets. Since early 2020, we’ve skilled some enterprise disruptions on account of
COVID-19, together with the stoppage in our factories in early 2020, disruption in
our provide chain and elevated distribution prices in 2021, which led to
will increase in working prices such because the considerably elevated ocean freight
prices we incurred within the second half of 2021 as in comparison with the identical interval of
2020. These unfavourable monetary impacts have been offset by income progress in
2020 and 2021, partly on account of a rise in demand for our gear as extra folks
are underneath shelter-in-place restrictions, which we consider have restricted folks’s
entry to various types of leisure and social interplay, and thus
have elevated the demand for residence leisure and connecting with others
via content material creation. In distinction, because the COVID-19 pandemic subsides, it
has, and might proceed to, lead to shelter-in-place and different comparable
restrictions being eased. Such easing of restrictions possible has, and will
proceed to, lead to shoppers returning to different various types of
leisure and interplay. This in flip has, and might proceed to, consequence
in a decline in demand for our merchandise. The full extent of the impression of the
COVID-19 pandemic on our enterprise, outcomes of operations, money flows and
monetary place will rely upon future developments, that are extremely
unsure and can’t be absolutely predicted.
We proceed to judge the character and extent of the impression of the COVID-19
pandemic to our enterprise and we’ve applied numerous measures to try to
mitigate the disruptive logistics impression to our enterprise, particularly round
managing stock stocking degree at our distribution hubs and figuring out the
mode of cargo used to deploy our gear to the shoppers, and we’re additionally prepared
to implement changes to our bills and money move within the occasion of declines
in revenues.
Impact of Fluctuations in Integrated Circuits Pricing. Integrated circuits, or
ICs, account for many of the associated fee of producing our high-performance reminiscence
merchandise. IC costs are topic to pricing fluctuations which might have an effect on the
common gross sales costs of reminiscence modules, and thus impression our web income, and can
affect gross margins. The impression on web revenues could be vital
as our high-performance reminiscence merchandise, included inside our gaming elements
and programs section, signify a good portion of our web income.
Components of our Operating Results
Net Revenue
We generate materially all of our web income from the sale of gamer and creator
peripherals and gaming elements and programs to retailers, together with on-line
retailers, avid gamers and distributors worldwide. Our income is acknowledged web of
allowances for returns, reductions, gross sales incentives and any taxes collected from
prospects.
Cost of Revenue
Cost of income consists of product prices, together with prices of contract
producers, inbound freight prices from producers to our distribution hubs
in addition to inter-hub shipments, price of supplies and overhead, duties and
tariffs, guarantee alternative price to course of and rework returned gadgets,
depreciation of tooling tools, warehousing prices, extra and out of date
stock write-downs,
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and sure allotted prices associated to services and data expertise, or
IT, and personnel-related bills and different working bills associated to
provide chain logistics.
Operating Expenses
Operating bills consist of gross sales, basic and administrative bills and
product growth bills.
Sales, basic and administrative. Sales, basic and administrative, or SG&A
bills signify the biggest element of our working bills and consist
of distribution prices, gross sales, advertising and marketing and different basic and administrative
prices. Distribution prices embrace outbound freight and the prices to function our
distribution hubs. Sales and advertising and marketing prices relate to the prices to function our
world gross sales pressure that works together with our channel companions, gaming
crew and occasion sponsorships, promoting and advertising and marketing promotions of our
merchandise and providers, prices of sustaining our net retailer and bank card
processing charges associated to gross sales on our webstore, personnel-related price and
allotted overhead prices. General and administrative prices consist primarily of
personnel-related bills for our finance, authorized, human sources, IT and
administrative personnel, in addition to the prices of skilled providers associated
to those features and allotted overhead prices.
We anticipate our whole gross sales, basic and administrative bills to extend in
absolute {dollars} as we proceed to actively promote and distribute a better
quantity of our merchandise and additionally as a result of anticipated progress of our enterprise
and associated infrastructure, together with enhance in authorized, accounting, insurance coverage,
compliance, investor relations and different consulting prices.
Product growth. Product growth prices are typically expensed as
incurred. Product growth prices consist primarily of the prices related
with the design and testing of new merchandise and enhancements to present
merchandise. These prices relate primarily to compensation of personnel and
consultants concerned with product design, definition, compatibility testing and
qualification, in addition to depreciation prices of tools used, prototype
materials prices and allotted overhead prices.
We anticipate our product growth bills to extend in absolute {dollars} as we
proceed to make vital investments in creating new merchandise and
enhancing present merchandise.
Interest Expense
Interest expense consists of curiosity related to our debt financing
preparations, together with our revolving line of credit score, amortization of debt
issuance prices and debt reductions, loss from debt extinguishment, consisting of
the write-off of unamortized debt low cost and charges related to the
prepayment of our time period loans, and the change in truthful worth of our rate of interest
cap contracts.
Other (Expense) Income, Net
Other (expense) revenue, web consists primarily of our overseas forex alternate
features and losses referring to transactions and remeasurement of asset and
legal responsibility balances denominated in foreign exchange. We anticipate our overseas
forex features and losses to proceed to fluctuate sooner or later on account of modifications
in overseas forex alternate charges.
Income Tax (Expense) Benefit
We are topic to revenue taxes within the United States and overseas jurisdictions in
which we do enterprise. These overseas jurisdictions have statutory tax charges
totally different from these within the United States. Accordingly, our efficient tax charges
will differ relying on the relative proportion of overseas to United States
revenue, the utilization of overseas tax credit and modifications in tax legal guidelines. Deferred
tax property are diminished via the institution of a valuation allowance, if,
primarily based upon obtainable proof, it’s decided that it’s extra possible than not
that the deferred tax property won’t be realized.
Income taxes are accounted for underneath the asset and legal responsibility technique. Deferred
tax property and liabilities are acknowledged for the longer term tax penalties
attributable to variations between the tax and monetary reporting bases of our
property and liabilities. Deferred tax property and liabilities are measured utilizing
enacted tax charges anticipated to use to taxable revenue in future years by which
these short-term variations are anticipated to be recovered or settled.
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Results of Operations
The following tables set forth the elements of our consolidated statements of
operations, in {dollars} and as a proportion of whole web income, for every of the
intervals offered.
Year Ended December 31,
2021 2020 2019
(in hundreds)
Net income $ 1,904,060 $ 1,702,367 $ 1,097,174
Cost of income 1,390,206 1,236,938 872,887
Gross revenue 513,854 465,429 224,287
Operating bills:
Sales, basic and administrative 315,672 257,004 163,033
Product growth 60,288 50,064 37,547
Total working bills 375,960 307,068 200,580
Operating revenue 137,894 158,361 23,707
Other (expense) revenue:
Interest expense (17,673 ) (35,137 ) (35,548 )
Other expense, web (5,661 ) (1,182 ) (1,558 )
Total different expense, web (23,334 ) (36,319 ) (37,106 )
Income (loss) earlier than revenue taxes 114,560 122,042 (13,399 )
Income tax (expense) profit (13,600 ) (18,825 ) 5,005
Net revenue (loss) $ 100,960 $ 103,217 $ (8,394 )
Year Ended December 31,
2021 2020 2019
Net income 100.0 % 100.0 % 100.0 %
Cost of income 73.0 72.7 79.6
Gross revenue 27.0 27.3 20.4
Operating bills:
Sales, basic and administrative 16.6 15.1 14.9
Product growth 3.2 2.9 3.4
Total working bills 19.7 18.0 18.3
Operating revenue 7.2 9.3 2.2
Other (expense) revenue:
Interest expense (0.9 ) (2.1 ) (3.2 )
Other expense, web (0.3 ) (0.1 ) (0.1 )
Total different expense, web (1.2 ) (2.1 ) (3.4 )
Income (loss) earlier than revenue taxes 6.0 7.2 (1.2 )
Income tax (expense) profit (0.7 ) (1.1 ) 0.5
Net revenue (loss) 5.3 % 6.1 % (0.8 )%
Components of Results of Operations
Net Revenue
Year Ended December 31,
2021 2020 2019
(in hundreds)
Net income $ 1,904,060 $ 1,702,367 $ 1,097,174
Net income elevated $201.7 million, or 11.8%, in 2021 as in comparison with 2020.
This was on account of a 20.0% enhance in gross sales for our gamer and creator peripherals
section and an 8.1% enhance in gross sales for our gaming elements and programs
section. This enhance in gross sales was largely on account of elevated demand for our
merchandise in 2020 and the primary half of 2021 pushed by the COVID-19 pandemic,
with such progress starting to decelerate within the second half of 2021, partly due
to the easing of the COVID-19 shelter-in-place restrictions ensuing within the
reopening of most outdoors leisure. In addition, our second half 2021
income was negatively
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impacted by the worldwide provide and logistics constraints attributable to the COVID-19
pandemic, in addition to the scarcity of fairly priced GPUs.
Net income elevated $605.2 million, or 55.2%, in 2020 as in comparison with 2019.
This enhance was on account of sturdy income progress in each segments. We consider the
elevated demand of our merchandise was typically on account of a bigger quantity of
shoppers gaming and working from residence as a result of COVID-19 pandemic in 2020, in
addition to present prospects upgrading their programs and gear for a greater
gaming and/or streaming expertise, and to a lesser extent, the inclusion of
post-acquisition revenues from our acquisitions of SCUF and Origin.
Gross Profit and Gross Margin
Year Ended December 31,
2021 2020 2019
(in hundreds)
Gross revenue $ 513,854 $ 465,429 $ 224,287
Gross margin 27.0 % 27.3 % 20.4 %
Gross margin decreased to 27.0% in 2021 from 27.3% in 2020. The lower was
pushed primarily by a rise in logistics prices which have been largely pushed by
world delivery and logistics challenges attributable to the COVID-19 pandemic, and
elevated promotional exercise. These unfavourable impacts have been partially offset by
a rise in gross margin from an improved product combine with extra gross sales from
the upper margin gamer and creator peripherals section.
Gross margin elevated to 27.3% in 2020 from 20.4% in 2019. The enhance in
gross margin was primarily pushed by elevated gross sales quantity, an improved product
combine with extra larger margin merchandise being bought in 2020 as in comparison with 2019 and
much less promotional exercise. This enhance was partially offset by elevated air
freight prices pushed primarily by tightness in stock provide as a result of
COVID-19 pandemic in 2020.
As the worldwide delivery and logistics challenges proceed into 2022, we anticipate
our 2022 gross margins to stay pressured by elevated logistics prices.
Sales, General and Administrative (SG&A)
Year Ended December 31,
2021 2020 2019
(in hundreds)
Sales, basic and administrative $ 315,672 $ 257,004 $ 163,033
SG&A bills elevated $58.7 million, or 22.8%, in 2021 as in comparison with 2020.
The enhance was primarily on account of a $22.4 million enhance in distribution prices
primarily pushed by a rise in gross sales quantity in addition to larger freight prices
as a result of world provide chain and logistics constraints attributable to the COVID-19
pandemic, a $18.3 million enhance in personnel-related prices on account of headcount
progress and larger stock-based compensation, a $5.3 million enhance in director
and officer insurance coverage coverage charges, a $5.2 million enhance in advertising and marketing and
promoting bills, primarily on account of enhance in sponsorships and digital
advertising and marketing applications, and a $3.5 million enhance in bank card charges on account of
elevated gross sales via our webstore.
SG&A bills elevated $94.0 million, or 57.6%, in 2020 as in comparison with 2019.
The enhance was primarily as a result of inclusion of $29.1 million of SCUF’s
post-acquisition SG&A bills, together with debt refinancing prices for funding the
SCUF acquisition and acquisition and integration prices associated to the SCUF
Acquisition, a $27.4 million enhance in distribution prices together with outbound
freight and the prices to function our distribution hubs on account of elevated gross sales
quantity, a $24.3 million enhance in personnel-related prices on account of headcount
progress and larger bonus expense, a $6.0 million enhance in advertising and marketing bills
and a $4.4 million enhance in charges primarily associated to elevated bank card
charges on account of elevated gross sales via our webstore and charges from our insurance coverage
insurance policies.
Product Development
Year Ended December 31,
2021 2020 2019
(in hundreds)
Product growth $ 60,288 $ 50,064 $ 37,547
Product growth bills elevated $10.2 million, or 20.4%, in 2021 as
in comparison with 2020. The enhance was primarily on account of a $6.9 million enhance in
personnel-related bills on account of headcount progress and larger stock-based
compensation, a $1.4 million
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enhance in guide and contractor expense supporting our enterprise
growth efforts and a $1.9 million enhance in different product growth
associated prices to help our continued innovation and broadening of our product
portfolio.
Product growth bills elevated $12.5 million, or 33.3%, in 2020 as
in comparison with 2019. The enhance was primarily pushed by a $5.7 million enhance
in personnel-related bills on account of headcount progress and larger bonus expense,
the inclusion of $5.8 million of SCUF’s post-acquisition product growth
bills and a $5.5 million enhance in different product growth associated
bills. These will increase have been partially offset by a $4.5 million lower in
amortization expense of developed applied sciences intangible property.
Interest Expense and Other Expense, Net
Year Ended December 31,
2021 2020 2019
(in hundreds)
Interest expense $ (17,673 ) $ (35,137 ) $ (35,548 )
Other expense, web (5,661 ) (1,182 ) (1,558 )
Interest expense decreased $17.5 million, or 49.7%, in 2021 as in comparison with 2020.
The lower was primarily on account of decrease curiosity expense paid in 2021 for our
First Lien Term Loan consequently of the partial and full compensation of such mortgage
in 2020 and 2021, and no curiosity paid for our Second Lien Term Loan as a result of
full compensation of such mortgage in 2020. Additionally, to a lesser extent, the
lower was as a result of decrease rate of interest on our new Term Loan (outlined beneath)
executed in September 2021 which changed our First Lien Term Loan (outlined
beneath). These decreases in curiosity expense have been offset partially by larger
losses incurred on debt extinguishment in 2021 in comparison with 2020 as the overall
debt quantity extinguished in 2021 was larger than in 2020.
Interest expense decreased $0.4 million, or 1.2%, in 2020 as in comparison with 2019.
The lower was primarily on account of decrease curiosity expense paid in 2020 for our
First Lien Term Loan and Second Lien Term Loan consequently of the partial
extinguishment of our First Lien Term Loan and full extinguishment of our Second
Lien Term Loan in addition to a lower in curiosity from borrowings from our line
of credit score. The lower in curiosity expense was partially offset by an mixture
of $4.2 million write-off of deferred debt reductions and issuance prices
related to extinguishments of our time period loans and a $0.5 million loss
acknowledged for the change in truthful worth of our rate of interest cap contracts.
Other (expense) revenue, web relates primarily to the features and losses ensuing
from the impression of overseas alternate fee modifications on our money, accounts
receivable and intercompany balances denominated in currencies apart from the
useful currencies in our subsidiaries. Our overseas forex publicity is
primarily pushed by fluctuations within the overseas forex exchanges charges of the
Euro, British Pound and the Chinese Yuan.
Income Tax (Expense) Benefit
Year Ended December 31,
2021 2020 2019
(in hundreds, besides percentages)
Income (Loss) Before Income Taxes $ 114,560 $ 122,042 $ (13,399 )
Income Tax (Expense) Benefit (13,600 ) (18,825 ) 5,005
Effective Tax Rate 11.9 % 15.4 % 37.4 %
We are topic to revenue taxes within the United States and overseas jurisdictions in
which we do enterprise. These overseas jurisdictions have statutory tax charges
totally different from these within the United States. Accordingly, our efficient tax charges
will differ relying on the relative proportion of overseas to United States
revenue, the utilization of web working loss and tax credit score carry forwards,
modifications in geographic combine of revenue and expense, and modifications in administration’s
evaluation of issues resembling the power to understand deferred tax property, and
modifications in tax legal guidelines.
Our efficient tax charges have been tax expense of 11.9% and 15.4% for 2021 and 2020,
respectively. The change in efficient tax fee for 2021 as in comparison with 2020 was
primarily on account of extra tax advantages from stock-based compensation in addition to
the popularity of a $3.1 million tax profit ensuing from the change in
administration’s evaluation of the realizability of our California deferred tax
property consequently of the elevated U.S. profitability.
Our efficient tax charges have been tax expense of 15.4% and tax profit of 37.4% for
2020 and 2019, respectively. The change in efficient tax fee for 2020 as
in comparison with 2019 was primarily on account of a rise in revenue earlier than revenue tax
in comparison with 2019, the change within the combine of revenue and losses within the numerous tax
jurisdictions by which we function, the popularity of a $4.6 million tax profit
ensuing from the change in administration’s evaluation of the realizability of
sure deferred tax property consequently of the reorganization of our
organizational construction in reference to our IPO, and a $0.6 million one-time
profit from the change in tax regulation ensuing from the enactment of the
Coronavirus Aid, aid and Economic Security Act (“CARES Act”) within the first
quarter 2020.
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Segment Results
Segment Net Revenue
The following desk units forth our web income by section expressed each in
{dollars} (hundreds) and as a proportion of web income:
Year Ended December 31,
2021 2020 2019
Gamer and Creator Peripherals Segment $ 647,202 34.0 % $ 539,366 31.7 % $ 294,141 26.8 %
Gaming Components and Systems Segment
Memory Products 612,964 32.2
609,053 35.8 463,406 42.2
Other Component Products 643,894 33.8 553,948 32.5 339,627 31.0
1,256,858 66.0 1,163,001 68.3 803,033 73.2
Total Net Revenue $ 1,904,060 100.0 % $ 1,702,367 100.0 % $ 1,097,174 100.0 %
Gamer and Creator Peripherals Segment
Net income of the gamer and creator peripherals section elevated $107.8
million, or 20.0%, in 2021 as in comparison with 2020 on account of income progress throughout
virtually all product classes. In explicit, the Elgato branded content material creator
merchandise was our quickest rising class on this section and accounted for
roughly one-third of the section’s income. We consider income progress in
this section was pushed partially by the COVID-19 shelter-in-place orders that
prompted shoppers to spend extra time working and gaming at residence and avid gamers
searching for to enhance their efficiency by upgrading their gear. The quantity of the
merchandise shipped on this section was decrease within the second half of 2021 than the
first half of 2021 primarily on account of world provide and logistics constraints
attributable to the COVID-19 pandemic.
Net income of the gamer and creator peripherals section elevated $245.2
million, or 83.4%, in 2020 as in comparison with 2019 primarily on account of sturdy gross sales
progress in gross sales of Elgato branded streaming merchandise, we consider pushed partially
by the COVID-19 shelter-in-place orders as shoppers spend extra time working and
gaming at residence, and the inclusion of SCUF post-acquisition income.
Gaming Components and Systems Segment
Net income of the gaming elements and programs section elevated $93.9 million
or 8.1%, in 2021 as in comparison with 2020. We consider the income progress was pushed
partially by the COVID-19 shelter-in-place orders, significantly, for our PSUs and
pre-built programs. The income progress on this section was partially offset in
the second half of 2021 as a result of scarcity of fairly priced GPUs which
curtailed the demand for brand spanking new PC builds and associated elements, in addition to world
provide and logistics constraints attributable to the COVID-19 pandemic.
Net income of the gaming elements and programs section elevated $360.0
million, or 44.8%, in 2020 as in comparison with 2019 primarily consequently of sturdy
gross sales progress throughout all merchandise on account of continued sturdy market demand, we
consider pushed partially by the COVID-19 shelter-in-place orders, and to a lesser
extent, the inclusion of Origin post-acquisition income.
Segment Gross Profit and Gross Margin
The following desk units forth our gross revenue expressed in {dollars} (hundreds)
and gross margin (which we outline as gross revenue as a proportion of web
income) by section:
Year Ended December 31,
2021 2020 2019
Gamer and Creator Peripherals Segment $ 224,920 34.8 % $ 189,742
35.2 % $ 81,363 27.7 %
Gaming Components and Systems Segment
Memory Products 108,901 17.8 125,026 20.5 74,781 16.1
Other Component Products 180,033 28.0 150,661 27.2 68,143 20.1
288,934 23.0 275,687 23.7 142,924 17.8
Total Gross Profit $ 513,854 27.0 % $ 465,429 27.3 % $ 224,287 20.4 %
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Gamer and Creator Peripherals Segment
The gross revenue of the gamer and creator peripherals section elevated in 2021
by $35.2 million, or 18.5%, as in comparison with 2020, largely as a result of income
progress of 20.0% in the identical interval. Gross margin decreased by 40 foundation factors
primarily on account of elevated logistics prices attributable to the COVID-19 pandemic
disruptions and elevated promotional exercise. These unfavourable impacts to the
gross margin have been partially offset by the sturdy progress within the gross sales of our
larger margin Elgato branded content material creator merchandise and higher leverage on our
fastened price from larger gross sales quantity year-over-year.
The gross revenue of the gamer and creator peripherals section elevated in 2020
by $108.4 million, or 133.2%, as in comparison with 2019, largely as a result of sturdy
income progress of 83.4% in the identical interval. The 7.5% enhance in gross margin
was primarily pushed by the addition of larger margin SCUF merchandise and the
sturdy progress in gross sales of larger margin Elgato branded content material creator merchandise,
coupled with much less promotional actions.
Gaming Components and Systems Segment
The gross revenue of the gaming elements and programs section elevated in 2021
by $13.2 million, or 4.8%, in comparison with 2020, primarily as a result of income progress
of 8.1% in the identical interval. The 70 foundation factors lower in gross margin was
primarily attributable to our reminiscence merchandise on account of decrease promoting costs as a
consequence of aggressive pricing strain along with elevated freight and
logistics prices throughout this section attributable to the COVID-19 pandemic disruptions.
The gross revenue of the gaming elements and programs section elevated in 2020
by $132.8 million, or 92.9%, in comparison with 2019, primarily as a result of sturdy
income progress in the identical interval. The 5.9% enhance in gross margin was
primarily pushed by a better margin product combine and much less promotional actions.
Risks and uncertainties associated to the COVID-19 pandemic stay and till the
provide chain and logistics constraints ease and GPUs turn into extra obtainable, our
income and gross margin for each segments might proceed to be negatively
impacted.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity have been the funds obtained from
prospects buying our merchandise, the borrowings underneath our Credit Agreement
(outlined beneath) and the web proceeds we obtained from our IPO accomplished in
September 2020. Our principal makes use of of money typically will embrace purchases of
stock, payroll and different working bills associated to the event and
advertising and marketing of our merchandise, capital expenditure, repayments of debt and associated
curiosity, revenue tax funds and future investments in enterprise and expertise.
As of December 31, 2021, we had money and restricted money, in mixture of $65.4
million, together with $22.8 million held by our overseas subsidiaries. Amounts held
outdoors of the United States are typically utilized to help our non-U.S.
liquidity wants. Repatriations of quantities held outdoors the United States
typically won’t be taxable from a U.S. federal tax perspective, however could also be
topic to state revenue or overseas withholding tax. We don’t anticipate
restrictions or potential taxes incurred on repatriation of quantities held outdoors
of the United States to have a cloth impact on our general liquidity,
monetary situation or outcomes of operations.
We consider that the anticipated money flows from operations primarily based on our present
enterprise outlook, mixed with our present ranges of money balances at December
31, 2021, supplemented with the borrowings underneath our Revolving Credit Facility
might be adequate to fund our principal makes use of of money for at the least the following
twelve months. In the long run, liquidity will rely to an awesome extent on
our future revenues and our skill to appropriately handle our prices primarily based on
the demand for our merchandise. We might require further funding and want or
select to lift the required funds via borrowings or public or non-public gross sales
of debt or fairness securities. The sale of further fairness would lead to
further dilution to our stockholders. The incurrence of debt financing would
lead to debt service obligations and the devices governing such debt might
present for working and monetary covenants that will limit our
operations. There could be no assurance that any such fairness or debt financing
might be obtainable on favorable phrases, or in any respect. Our liquidity is topic to
numerous dangers together with the dangers recognized within the part titled “Risk
Factors” in Item 1A and market dangers recognized within the part titled
“Quantitative and Qualitative Disclosures about Market Risk” in Item 7A, every of
which is included herein by reference.
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Liquidity
The following desk summarizes our money flows for the intervals indicated (in
hundreds):
Year Ended December 31,
2021 2020 2019
Net money supplied by (utilized in):
Operating actions $ 20,192 $ 168,953 $ 37,103
Investing actions (20,541 ) (10,280 ) (145,427 )
Financing actions (65,404 ) (79,131 ) 132,314
Cash Flows from Operating Activities
Net money supplied by working actions for 2021 was $20.2 million and
consisted of web revenue of $101.0 million and non-cash changes of $60.0
million and offset partially by a web use of money of $140.8 million from modifications
in our web working property and liabilities. The non-cash changes consisted
primarily of amortization of intangibles and depreciation, stock-based
compensation expense, loss on debt extinguishment and amortization of debt
issuance prices, which have been partially offset by modifications in deferred revenue taxes.
The web money outflow from modifications in our web working property and liabilities
was primarily associated to will increase in stock purchases and revenue tax
prepayment for our Hong Kong subsidiary, in addition to a lower in accounts
payable primarily on account of timing of funds and purchases. These money outflows have been
partially offset by will increase within the accrual for gross sales returns and buyer
incentives, revenue tax payable and bonus accrual.
Net money supplied by working actions for 2020 was $169.0 million and
consisted of web revenue of $103.2 million, non-cash changes of $50.8 million
and $14.9 million from modifications in our web working property and liabilities. The
non-cash changes consisted primarily of amortization of intangibles and
depreciation, stock-based compensation expense, loss on debt extinguishment and
amortization of debt issuance prices, which have been partially offset by modifications in
deferred revenue taxes. The web money influx from modifications in our web working
property and liabilities was primarily associated to extend in accounts payable,
different liabilities and accrued bills. The enhance in accounts payable was
primarily on account of timing of funds and purchases with longer cost phrases, and
the rise in different liabilities and accrued bills was primarily from an
enhance within the bonus accrual and a better accrual for gross sales returns and
buyer incentives. The money influx was partially offset by a rise in
stock, accounts receivable and pay as you go bills and different property.
Cash Flows from Investing Activities
Cash utilized in investing actions was $20.5 million for 2021 and consisted of
$11.0 million for the acquisition of capital tools and software program, $4.7 million
for the cost of deferred and contingent consideration primarily associated to
the Origin enterprise acquisition, and $4.8 million for acquisitions of immaterial
companies.
Cash utilized in investing actions was $10.3 million for 2020 and consisted of
$9.0 million for the acquisition of capital tools and software program and $1.3 million
for acquisitions of immaterial companies.
Cash Flows from Financing Activities
Net money utilized in financing actions was $65.4 million for 2021 and consisted
primarily of $328.2 million repayments of debt and $0.4 million cost of taxes
associated to web share settlement of fairness awards. These money outflows have been
partially offset by $248.5 million web proceeds from our new Term Loan executed
in September 2021 and $14.9 million proceeds obtained from the issuance of
shares via our worker fairness incentive plans. During 2021, we additionally
borrowed $63.5 million from our revolving credit score facility to fund our operations
and the complete quantity was repaid in 2021.
Cash utilized in financing actions was $79.1 million for 2020 and consisted of
$190.4 million repayments of debt and $8.5 cost of providing prices. These money
outflows have been partially offset by $118.6 million proceeds obtained from the
issuance of frequent inventory in reference to our IPO, after deducting
underwriting reductions and commissions, and $1.3 million proceeds obtained from
the issuance of shares via our worker fairness incentive plans.
Capital Resources
Credit Agreement (Term Loan and Revolving Credit Facility)
On September 3, 2021, we refinanced the First Lien Credit and Guaranty Agreement
with a brand new Credit Agreement (“Credit Agreement”). The new Credit Agreement
offers for a complete dedication of $350.0 million, consisting of a $100.0
million revolving credit score facility (“Revolving Credit Facility”) and a $250.0
million time period mortgage facility (“Term Loan”). The web proceeds from borrowings
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underneath the Term Loan of $248.5 million (web of $1.5 million of debt low cost)
have been used to repay all quantities excellent underneath the First Lien Term Loan on
September 3, 2021.
The Credit Agreement is out there for a interval of 5 years, maturing September
2026, and offers for added incremental services as much as a most
mixture principal quantity of $250.0 million, topic to the satisfaction of
sure situations. We might prepay the Term Loan and the Revolving Facility at
any time with out premium or penalty.
The Term Loan and Revolving Credit Facility underneath the Credit Agreement will every
bear curiosity at our election, both (a) LIBOR plus a proportion unfold
(starting from 1.25% to 2.0%) primarily based on our whole web leverage ratio, or (b) the
base fee (described within the Credit Agreement as the best of (i) the prime
fee, (ii) the federal funds fee plus 0.50% and (iii) one-month LIBOR plus
1.0%) plus a proportion unfold (starting from 0.25% to 1.0%) primarily based on our whole
web leverage ratio.
Our obligations underneath the Credit Agreement are assured by considerably all
of our U.S. subsidiaries and secured by a safety curiosity in considerably all
property of the Company and the guarantor subsidiaries, topic to sure
exceptions detailed within the Credit Agreement and associated ancillary documentation.
The Credit Agreement accommodates covenants with which we should comply through the
time period of the settlement, which we consider are extraordinary and commonplace for agreements
of this nature, together with the upkeep of a most Consolidated Total Net
Leverage Ratio of 3.0 to 1.0 and a minimal Consolidated Interest Coverage Ratio
of 3.0 to 1.0 (as outlined in our credit score services). The Credit Agreement additionally
consists of occasions of default customary for services of this nature and upon the
incidence of such occasions of default, amongst different issues, all excellent
quantities underneath the Credit Agreement could also be accelerated and/or the lenders’
commitments terminated. In addition, upon the incidence of sure occasions of
default, the curiosity on the Term mortgage and Revolving Credit Facility can
enhance by 2.0%. As of December 31, 2021, we weren’t in default underneath the
Credit Agreement.
As of December 31, 2021, whole principal excellent of the Term Loan was $248.8
million and the obtainable and uncommitted capability underneath the Revolving Credit
Facility was $99.5 million.
Contractual Cash and Other Obligations
The following desk summarizes our contractual money and different obligations as of
December 31, 2021 (in hundreds):
Payments Due by Period
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
Debt principal and curiosity $ 278,168 $ 9,899 $ 32,984 $ 235,285 $ –
funds (1)
Inventory-related buy 141,599 141,599 – – –
obligations (2)
Operating lease obligations (3) 72,868 10,164 21,225 12,066 29,413
Other buy obligations (4) 24,346 19,815 4,223 308 –
Contingent consideration in
reference to a 1,250 1,250 – – –
enterprise acquisition
Total $ 518,231 $ 182,727 $ 58,432 $ 247,659 $ 29,413
(1) Amounts signify the principal money funds as of December 31, 2021 of our
Term Loan primarily based on the compensation schedule in response to the Credit Agreement
and the anticipated curiosity funds related to the Term Loan. See Note 8
“Debt” to our consolidated monetary statements for extra data.
(2) Amounts signify an estimate of buy obligations associated to stock,
of which $17.5 million is expounded to buy orders issued to iDisplay, in
which we’ve acquired a 51% controlling monetary curiosity efficient January
1, 2022 and due to this fact, these obligations not exist as of the
acquisition date.
(3) Amounts signify contractual obligations from our working leases for
workplaces and warehouse areas.
(4) Amounts signify non-cancelable obligations associated to capital expenditures,
software program licenses, advertising and marketing and different actions.
As of December 31, 2021, we had $2.1 million in non-current revenue tax payable,
together with curiosity and penalties, associated to our revenue tax legal responsibility for
unsure tax positions. At this time, we’re unable to make a fairly
dependable estimate of the timing of funds in particular person years in connection
with these tax liabilities; due to this fact, such quantities usually are not included within the
contractual money obligation desk above.
Critical Accounting Polices and Estimates
A crucial accounting coverage is outlined as one which has each a cloth impression
on our monetary situation and outcomes of operations and requires us to make
troublesome, advanced and/or subjective judgments, usually consequently of the necessity to
make estimates about issues which are inherently unsure. Our consolidated
monetary statements are ready in accordance with U.S. Generally Accepted
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Accounting Principles (“GAAP”), which requires us to make estimates, judgments
and assumptions that have an effect on the reported quantities of property and liabilities and
the disclosure of contingent liabilities on the date of the consolidated
monetary statements, in addition to the reported quantities of income and bills
through the reporting intervals. Our estimates are primarily based on our historic
expertise and on numerous different elements that we consider to be relevant and
consider them on an ongoing foundation to make sure they continue to be affordable underneath present
situations. Actual outcomes might differ considerably from these estimates, which
might have a cloth impression on our enterprise, outcomes of operations, and
monetary situation.
We consider the accounting insurance policies beneath are crucial within the portrayal of our
monetary situation and outcomes of operations, and contain administration’s most
troublesome, subjective, or advanced judgments.
Revenue Recognition and Accruals for Product Returns and Customer Incentive
Programs
We supply product return rights and buyer incentive applications. Customer
incentive applications embrace particular pricing preparations, promotions, rebates and
volume-based incentives.
Rights of return differ by buyer and vary from the suitable to return merchandise to
restricted inventory rotation rights permitting the alternate of a proportion of the
buyer’s quarterly purchases. Estimates of anticipated future product returns
qualify as variable consideration and are recorded as a discount of the
transaction value of the contract on the time of sale primarily based on historic return
charges. Return charges are influenced by product life cycle standing, new product
introductions, market acceptance of merchandise, gross sales ranges, the kind of
buyer, seasonality, product high quality points, aggressive pressures, revealed
return coverage, and different unexpected world elements. Return charges can fluctuate
over time however are sufficiently predictable to permit us to estimate anticipated
future product returns.
Customer incentive applications are thought-about variable consideration, which we
estimate and document as a discount to income on the time of sale. Significant
administration judgments and estimates have to be used to find out the associated fee of these
applications to be included within the transaction value in any accounting interval
together with a discount for the estimate of quantities that finally won’t be
claimed for sure buyer incentive applications. We use the anticipated worth
technique to reach on the quantity of variable consideration. The Company constrains
variable consideration till the probability of a big income reversal is
not possible. The accrual estimates are primarily based on precise gross sales information, historic
expertise, forecasted incentives, anticipated quantity of future purchases, and
stock ranges within the channel.
Recent Accounting Pronouncements
Refer to Note 2 to the consolidated monetary statements included on this Annual
Report on Form 10-Okay for latest accounting pronouncements adopted and to be
adopted.© Edgar Online, supply Glimpses
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