What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-10 · 100 added, 172 removed, 213 unchanged (56% of the section changed)

9 unchanged sentences

Our product offering is enhanced by our two proprietary software platforms:

iCUE for gamers and Elgato branded streaming suite for content creators.

These software platforms provide unified, intuitive performance, and aesthetic control and customization across their respective product families.

We group our gear into two categories (operating segments):

iCUE for gamers and the Elgato suite for content creators, which provide unified, intuitive performance, and aesthetic control and customization across their respective product families.

Recently, we further enhanced our streaming product offerings through acquiring EpocCam software, Gamer Sensei gaming coaching services and Visuals by Impulse (“ VBI ”) content creative design platform.

We group our products into two categories (operating segments):

Gamer and creator peripherals.

Includes our high-performance gaming keyboards, mice, headsets and controllers, as well as our streaming gear including capture cards, studio accessories, and microphones, among others.

Includes our high-performance gaming keyboards, mice, headsets, controllers, and streaming gear, which includes capture cards, Stream Decks, USB microphones, studio accessories, and EpocCam software, as well as coaching and training services and content design services, among others

Gaming components and systems.

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The addition of Origin’s and SCUF’s products enhances and expands our product offering to PC and console gamers, respectively.

See Note 5 of the Notes to our condensed combined consolidated financial statements for additional information.

Origin is part of our gaming components and systems segment and its results of operations are included in our condensed combined consolidated statements of operations beginning July 22, 2019.

SCUF is now part of our gamer and creator peripherals segment and its results of operations are included in our condensed combined consolidated statements of operations beginning December 19, 2019.

Our net revenue was $457.1 million and $284.4 million for the three months ended September 30, 2020 and 2019, respectively, representing a period-over-period increase of 61%.

We had net income of $36.4 million and $1.5 million for the three months ended September 30, 2020 and 2019, respectively.

Our net revenue was $1.1 billion and $770.6 million for the nine months ended September 30, 2020 and 2019, respectively, representing a period-over-period increase of 49%.

We had net income of $60.2 million for the nine months ended September 30, 2020 and we had $14.4 million net loss for the nine months ended September 30, 2019.

Initial Public Offering

On September 22, 2020, we priced the initial public offering of our common stock pursuant to a registration statement that was declared effective by the SEC, or the IPO, and our common stock began trading on the Nasdaq Global Select Market under the symbol “CRSR” the next day.

On September 25, 2020, we closed our IPO.

In connection with the IPO, we sold 7,500,000 shares of common stock at $17.00 per share, resulting in proceeds of $118.6 million, net of the underwriting discounts and commissions and before offering costs.

In connection with the IPO, certain stockholders so ld 6,500,000 shares of common stock at $17.00 per share.

Subsequent to the IPO, certain stockholders further sold 1,135,375 shares pursuant to the underwriters’ exercise of their option to purchase additional shares.

We did not receive any of the proceeds from the sale of shares by the selling stockholders.

In September 2020, we used a portion of the net proceeds from the IPO to repay $86.6 million, in aggregate, of the principal amount of our First Lien Term Loan and $0.4 million of related accrued interest.

We subsequently completed three more immaterial acquisitions.

I n August 2020, we acquired EpocCam to enhance the Elgato streaming camera software offering;

in October 2020, we acquired Gamer Sensei to offer gaming coaching services to the wide audience of gamers looking to improve their skills and in February 2021, we acquired VBI to provide creative services to streamers looking to professionalize the look of their broadcast.

Origin is part of our gaming components and systems segment and SCUF, EpocCam, Gamer Sensei and VBI are part of our gamer and creator peripherals segment.

Our net revenue was $529.4 million and $308.5 million for the three months ended March 31, 2021 and 2020, respectively, representing a period-over-period increase of 71.6%.

We had net income of $46.7 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively.

Net cash provided by operating activities was $27.8 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

Key Factors Affecting Our Business

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We operate a global sales network that consists primarily of retailers, as well as distributors we use to access certain retailers.

Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with Amazon accounting for 22.4% and 25.1% of our net revenue for the three months and nine months ended September 30, 2020, respectively, and sales to our ten largest customers accounting for approximately 49.0% and 51.2% of our net revenue for the same periods, respectively.

Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with Amazon accounting for 24.6% of our net revenue for each of the three months ended March 31, 2021 and 2020 and sales to our ten largest customers accounted for approximately 49.3% and 52.0% of our net revenue for the three months ended March 31, 2021 and 2020, respectively.

Our customers typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us.

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Gamers demand new technology and product features, and we expect our ability to accurately anticipate and meet these demands will be one of the main drivers for any future sales growth and market share expansion.

To date, we have had several new product introductions that had a favorable impact on our net revenue and operating resu lts, such as the introduction of our new high-end wireless headset in 2019, Virtuoso.

However, we cannot assure you that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over tho se of our competitors.

To date, we have had several new product introductions that had a favorable impact on our net revenue and operating results, such as the introduction of our new high-performance Elgato Wave microphone in the second quarter of 2020.

However, there can be no assurance that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over those of our competitors.

Impact of Seasonal Sales Trends.

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Further, we believe the increased demand for our gear has been driven in part by individuals seeking to improve their work from home setup.

This increase in demand has continued into the third quarter and we expect it to continue through the remainder of the year as the COVID-19 pandemic continues.

However, as global economic activity slows down, the demand for our gear could decline despite these trends.

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The dynamic nature and uncertainty of the circumstances surrounding COVID-19 pandemic may have adverse consequences on our results of operations for 2021 and may negatively impact future fiscal periods in the event of prolonged disruptions associated with the outbreak.

In contrast, if the COVID-19 pandemic subsides in 2021, resulting in shelter-in-place and other similar restrictions being eased, it could result in consumers returning to other alternative forms of entertainment and interaction.

This in turn could result in a decline in demand for our products.

We continue to evaluate the nature and extent of the impact of the COVID-19 pandemic to our business and we have implemented various measures to attempt to mitigate the disruptive logistic impact specifically around managing inventory stocking level at our distribution hubs and determining the mode of shipment used to deploy our gear to the customers, and we are also ready to implement adjustments to our expenses and cash flow in the event of declines in revenues.

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Components of our Operating Results

We generate all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers, including online retailers, gamers and distributors worldwide.

We generate materially all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers, including online retailers, gamers and distributors worldwide.

Our revenue is recognized net of allowances for returns, discounts, sales incentives and any taxes collected from customers.

Cost of Revenue

Cost of revenue consists of product costs, including costs of contract manufacturers, inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments, cost of materials and overhead, duties and tariffs, warranty replacement cost to process and rework returned items, depreciation of tooling equipment, warehousing costs, excess and obsolete inventory write-downs, and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.

Cost of revenue consists primarily of product costs, including costs of contract manufacturers, inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments, cost of materials and overhead, duties and tariffs, warranty replacement cost to process and rework returned items, depreciation of tooling equipment, warehousing costs, excess and obsolete inventory write-downs, and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.

Operating Expenses

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Interest Expense

Interest expense consists of interest associated with our debt financing arrangements, including our revolving line of credit, amortization of debt issuance costs and debt discounts, loss from debt extinguishment, consisting of the write-off of unamortized debt discount and fees associated with the prepayment of our term loans, and the change in fair value of our interest rate cap contracts.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S.

Other Expense, Net

Other expense, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S.

We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Income Tax (Expense) Benefit

Income Tax Expense

We are subject to income taxes in the United States and foreign jurisdictions in which we do business.

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Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized.

Income ta xes are accounted for under the asset and liability method.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the tax and financial reporting bases of our assets and liabilities.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

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Interest expense

Other (expense) income, net

Other expense, net

Total other expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Income before income taxes

Income tax expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

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Interest expense

Other (expense) income, net

Other expense, net

Total other expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Income before income taxes

Income tax expense

Components of Results of Operations

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Net revenue increased $172.7 million, or 60.7%, for the three months ended September 30, 2020 as compared to the same period last year.

Net revenue increased $375.4 million, or 48.7%, for the nine months ended September 30, 2020 as compared to the same period last year.

We experienced at least double-digit revenue growth in both our gaming components and systems segment and gamer and creator peripherals segment, for both the three- and nine-month periods.

We believe the increased demand of our products is generally due to a larger number of consumers, gaming and working from home due to the COVID-19 pandemic, in addition to existing customers upgrading their systems and gear for a better gaming and/or streaming experience, and to a lesser extent, the inclusion of post-acquisition revenues from the SCUF Acquisition and the Origin Acquisition.

Net revenue increased $220.9 million, or 71.6%, for the three months ended March 31, 2021 as compared to the same period last year.

This increase was due to strong revenue growth in both our gaming components and systems segment and gamer and creator peripherals segment.

We believe the increased demand of our products is generally due to a larger number of consumers that are gaming and working from home due to the COVID-19 pandemic, in addition to existing customers upgrading their systems and gear for a better gaming and/or streaming experience.

Gross Profit and Gross Margin

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Gross margin increased to 28.0% for the three months ended September 30, 2020 from 21.2% for the same period last year and increased to 27.2% for the nine months ended September 30, 2020 from 20.0% for the same period last year.

The increase in gross margins for both the three- and nine-month periods was primarily driven by increased sales volume, improved product mix and less promotional activity, and were partially offset by increased air freight costs incurred in order to meet increased customer demand.

Gross margin increased to 30.3% for the three months ended March 31, 2021 from 25.5% for the same period last year.

The increase in gross margin was primarily driven by improved product mix, particularly the strong growth in sales from our Elgato streaming products, and increased sales volume, and were partially offset by increased freight costs driven primarily by inventory supply limitations largely driven by the COVID-19 pandemic.

Sales, General and Administrative (SG&A)

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Sales, general and administrative

SG&A expenses increased $25.5 million, or 64.1%, for the three months ended September 30, 2020 as compared to the same period last year.

The increase was primarily due to a $9.2 million increase in distribution costs including outbound freight and the costs to operate our distribution hubs due to increased sales volume, the inclusion of $7.7 million of SCUF’s post-acquisition SG&A expenses, a $6.9 million increase in personnel-related costs due to headcount growth and higher bonus expense, and a $1.7 million increase in marketing and advertising expenses.

SG&A expenses increased $59.9 million, or 51.6%, for the nine months ended September 30, 2020 as compared to the same period last year.

The increase was primarily due to the inclusion of $22.2 million of SCUF’s post-acquisition SG&A expenses, including debt refinancing costs for funding the SCUF acquisition, and acquisition and integration costs related to the SCUF Acquisition, a $17.2 million increase in personnel-related costs due to headcount growth and higher bonus expense, a $15.2 million increase in distribution costs including outbound freight and the costs to operate our distribution hubs due to increased sales volume, a $2.7 million increase in professional fees in connection with our IPO and our preparation to become a public company, and a $2.6 million increase in marketing and advertising expenses.

SG&A expenses increased $24.1 million, or 44.9%, for the three months ended March 31, 2021 as compared to the same period last year.

The increase was primarily due to a $12.1 million increase in distribution costs including outbound freight and the costs to operate our distribution hubs due to increased sales volume, a $10.1 million increase in personnel-related costs due to headcount growth and increase in bonus expense and a $1.9 million increase in other SG&A expenses.

Product Development

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Product development

Product development expenses increased $3.4 million, or 36.5%, for the three months ended September 30, 2020 as compared to the same period last year.

The increase was primarily driven by a $1.7 million increase in personnel-related expenses due to headcount growth and higher bonus expense, the inclusion of $1.6 million of SCUF’s post-acquisition product development expenses and a $1.2 million increase in other product development related costs.

These increases were partially offset by a $1.1 million decrease in amortization expense of developed technologies intangible assets.

Product development expenses increased $7.9 million, or 28.0%, for the nine months ended September 30, 2020 as compared to the same period last year.

The increase was primarily driven by a $4.5 million increase in personnel-related expenses due to headcount growth and higher bonus expense, the inclusion of $4.3 million of SCUF’s post-acquisition product development expenses, and a $3.6 million increase in other product development related expenses.

These increases were partially offset by a $4.5 million decrease in amortization expense of developed technologies intangible assets.

Interest Expense and Other (Expense) Income, Net

Product development expenses increased $3.6 million, or 31.4%, for the three months ended March 31, 2021 as compared to the same period last year.

The increase was primarily due to a $2.6 million increase in personnel-related expenses due to headcount growth and increase in bonus expense and a $1.0 million increase in other product development related costs to support our continued innovation and broadening of our product portfolio.

Interest Expense and Other Expense, Net

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Interest expense

Other (expense) income, net

Interest expense increased $1.1 million, or 11.5%, for the three months ended September 30, 2020 as compared to the same period last year.

The increase was primarily due to a $2.9 million write-off of deferred debt discounts and issuance costs associated with the partial extinguishment of our First Lien Term Loan and the full extinguishment of our Second Lien Term Loan.

The increase in interest expense from debt extinguishments was partially offset by lower interest paid on our term loans during the three months ended September 30, 2020 resulting from lower principal balance after the repayments as well as a decrease in interest from borrowings from our line of credit.

Interest expense increased $2.1 million, or 7.6%, for the nine months ended September 30, 2020 as compared to the same period last year.

The increase was primarily due to an aggregate of $3.3 million write-off of deferred debt discounts and issuance costs associated with the partial extinguishment of our First Lien Term Loan and the full extinguishment of our Second Lien Term Loan during the second and third quarter of 2020 and to a lesser extent, due to a $0.5 million loss recognized for the change in fair value of our interest rate cap contracts.

The increase in interest expense was partially offset by a decrease in interest from borrowings from our line of credit .

Other (expense) income, net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies of our subsidiaries .

Other expense, net

Interest expense decreased $4.4 million, or 47.2%, for the three months ended March 31, 2021 as compared to the same period last year.

The decrease was primarily due to lower interest expense paid in the three months of March 31, 2021 for our First Lien Term Loan due to partial extinguishment of our First Lien Term Loan in 2020 and no interest paid for our Second Lien Term Loan due to the full extinguishment of our Second Lien Term Loan in 2020.

Other expense, net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies of our subsidiaries .

Our foreign currency exposure is primarily driven by fluctuations in the foreign currency exchanges rates of the Euro, British Pound and the Chinese Yuan.

Income Tax (Expense) Benefit

Income Tax Expense

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

Income (Loss) Before Income Taxes

Income Tax (Expense) Benefit

Income before income taxes

Income tax expense

Effective tax rate

We are subject to income taxes in the United States and foreign jurisdictions in which we do business.

These foreign jur isdictions have statutory tax rates different from those in the United States.

Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of net operating loss and tax credit carr y forwards, changes in geographic mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.

Our effective tax rates were tax expense of 8.1% and tax benefit of 5.2% for the three months ended September 30, 2020 and 2019, respectively, and tax expense of 14.4% and tax benefit of 24.4% for the nine months ended September 30, 2020 and 2019, respectively.

The change in the effective income tax rate for the three months ended September 30, 2020, compared to the same period last year was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate, as well as the recognition of a $1.5 million tax benefit in the three months ended September 30, 2019 versus a $4.3 million tax benefit recognized in the three months September 30, 2020, resulting from the change in management’s assessment of the realizability of certain deferred tax assets as a result of the Reorganization.

The change in the effective tax rate for the nine months ended September 30, 2020, compared to the same period last year was primarily due to the recognition of a $4.3 million tax benefit in the nine months ended September 30, 2020 resulting from the change in management’s assessment of the realizability of certain deferred tax assets as a result of the Reorganization, and a $0.6 million one-time benefit from the change in tax law resulting from the enactment of the CARES Act in the first quarter 2020.

These foreign jurisdictions have statutory tax rates different from those in the United States.

Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to United States income, the utilization of net operating loss and tax credit carry forwards, changes in geographic mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.

Our effective tax rates were tax expense of 22.0% and 68.8% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in the effective income tax rate from the three months ended March 31, 2020 was primarily due to U.S.

tax losses and credits in that period being subject to a valuation allowance, whereas only an insignificant valuation allowance was necessary for the three months ended March 31, 2021.

In the three months ended March 31, 2020 we recorded a $0.6 million one-time tax benefit from the change in tax law resulting from the enactment of the CARES Act.

Segment Results

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The following table sets forth our net revenue by segment expressed both in dollars (thousands) and as a percentage of net revenue:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Gamer and Creator Peripherals Segment

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Gamer and Creator Peripherals Segment

Net revenue of the gamer and creator peripherals segment increased $90.9 million, or 128.8%, for the three months ended September 30, 2020 as compared to the same period last year, primarily due to strong sales growth of Elgato branded streaming products and growth across all product categories, in addition to the inclusion of SCUF post-acquisition revenue.

Net revenue of the gamer and creator peripherals segment increased $100.1 million, or 131.9%, for the three months ended March 31, 2021 as compared to the same period last year, primarily due to strong sales growth across all product categories, particularly the Elgato branded streaming products.

We believe the strong revenue growth year-over-year is driven in part by the COVID-19 shelter-in-place orders as consumers spend more time working and gaming at home.

Net revenue of the gamer and creator peripherals segment increased $147.4 million, or 73.7%, for the nine months ended September 30, 2020 as compared to the same period last year, primarily due to strong sales growth in sales of Elgato branded streaming products, we believe driven in part by the COVID-19 shelter-in-place orders as consumers spend more time working and gaming at home, and the inclusion of SCUF post-acquisition revenue.

Gaming Components and Systems Segment

Net revenue of the gaming components and systems segment increased $81.8 million, or 38.3%, for the three months ended September 30, 2020 as compared to the same period last year, primarily as a result of strong sales growth across all products due to continued strong market demand, we believe driven in part by the COVID-19 shelter-in-place orders.

Net revenue of the gaming components and systems segment increased $228.0 million, or 40.0%, for the nine months ended September 30, 2020 as compared to the same period last year, primarily as a result of strong sales growth across all products due to continued strong market demand, we believe driven in part by the COVID-19 shelter-in-place orders, and to a lesser extent, the inclusion of Origin post-acquisition revenue.

Net revenue of the gaming components and systems segment increased $120.8 million, or 51.9%, for the three months ended March 31, 2021 as compared to the same period last year, primarily as a result of strong sales growth across all products due to continued strong market demand, we believe driven in part by the COVID-19 shelter-in-place orders.

Segment Gross Profit and Gross Margin

The following table sets forth our gross profit expressed in dollars (thousands) and gross margin (which we define as gross profit as a percentage of net revenue) by segment:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Gamer and Creator Peripherals Segment

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Gamer and Creator Peripherals Segment

The gross profit of the gamer and creator peripherals segment increased in the three months ended September 30, 2020 by $40.1 million, or 200.8%, as compared to the same period last year.

The gross profit of the gamer and creator peripherals segment increased in the nine months ended September 30, 2020 by $62.7 million, or 107.6%, as compared to the same period last year.

The increase in gross profit for both the three- and nine-month periods was primarily due to strong revenue growth in those periods.

Gross margin increased by 8.9% and 5.7% for the gamer and creator peripherals segment in the three- and nine-month periods, respectively, compared to the same periods last year, primarily driven by the increase in sales volume in the same periods, the addition of higher margin SCUF products, and the strong growth in sales of higher margin Elgato branded streaming products, coupled with less promotional activities.

The gross profit of the gamer and creator peripherals segment increased in the three months ended March 31, 2021 by $46.7 million, or 211.1%, as compared to the same period last year.

The 9.9% increase in gross margin was primarily driven by the strong growth in sales of higher margin Elgato branded streaming products and the increase in sales volume in the same period, coupled with less promotional activities.

This was partially offset by the increase in freight costs driven by inventory supply limitations largely due to the COVID-19 pandemic.

Gaming Components and Systems Segment

The gross profit of the gaming components and systems segment increased in the three months ended September 30, 2020 by $27.7 million, or 68.7% as compared to the same period last year.

The gross profit of the gaming components and systems segment increased in the nine months ended September 30, 2020 by $95.1 million, or 99.5% as compared to the same period last year.

The increase in gross profit for both the three- and nine-month periods was primarily due to strong revenue growth in those periods.

Gross margin increased by 4.1% and 7.1% for the gaming components and systems segment in the three- and nine-month periods, respectively, compared to the same periods last year, primarily driven by the increase in sales volume in the same periods in addition to product mix and less promotional activities.

The gross profit of the gaming components and systems segment increased in the three months ended March 31, 2021 by $35.0 million, or 61.9% as compared to the same period last year.

The 1.6% increase in gross margin was primarily driven by a favorable shift in product mix to higher margin products and the increase in sales volume in the same period.

Liquidity and Capital Resources

To date, our principal sources of liquidity have been the net proceeds we received from private sales of equity securities, borrowings under our credit facilities, as well as payments received from customers purchasing our gear.

On September 25, 2020, we completed our IPO which resulted in aggregate net proceeds of $118.6 million, after underwriting discounts and commissions, and before deducting offering costs of $11.8 million.

As of September 30, 2020, we had cash and restricted cash, in aggregate of $120.1 million and $48.0 million capacity under our revolving credit facility.

Our total borrowings outstanding as of September 30, 2020 consisted of $370.1 million of long-term debt.

We anticipate our principal uses of cash will include repayments of debt and related interest, purchases of inventory, payroll and other operating expenses related to the development and marketing of our gear, and purchases of property and equipment and other contractual obligations for the foreseeable future.

Our principal sources of liquidity have been the payments received from customers purchasing our products, the net proceeds we received from private sales of equity securities, the borrowings under our credit facilities and the net proceeds we received from our IPO, completed in September 2020.

As of March 31, 2021, we had cash and restricted cash, in aggregate of $125.6 million and $48.1 million capacity under our revolving credit facility.

Our total borrowings outstanding as of March 31, 2021 consisted of $294.3 million of long-term debt.

We anticipate our principal uses of cash will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our gear, repayments of debt and related interest, and purchases of property and equipment and other contractual obligations for the foreseeable future.

We believe that our existing cash balances and cash flow from operations will be sufficient to fund our principal uses of cash for at least the next 12 months.

Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions.

Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth (if any), the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance and demand for our products and overall economic conditions.

To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing.

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The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financial covenants that would restrict our operations.

We cannot assure you that any such equity or debt financing will be available on favorable terms, or at all.

The following table summarizes our cash flows for the periods indicated (in thousands):

Nine Months Ended September 30,

There can be no assurance that any such equity or debt financing will be available on favorable terms, or at all.

The following table summarizes our cash flows for the periods presented (in thousands):

Three Months Ended March 31,

Net cash provided by (used in):

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Cash Flows from Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2020 was $100.3 million and consisted of net income of $60.2 million, non-cash adjustments of $35.7 million and $4.4 million from changes in our net operating assets and liabilities.

Net cash provided by operating activities for the three months ended March 31, 2021 was $27.8 million and consisted of net income of $46.7 million, non-cash adjustments of $13.5 million and were partially offset by $32.4 million from changes in our net operating assets and liabilities.

The non-cash adjustments consisted primarily of amortization of intangibles and depreciation, stock-based compensation expense, loss on debt extinguishment and amortization of debt issuance costs.

The net cash inflow from changes in our net operating assets and liabilities was primarily related to increase in accounts payable, other liabilities and accrued expenses and deferred revenue.

The increase in accounts payable was mainly due to timing of payments and purchases with longer payment terms, and the increase in other liabilities and accrued expenses was mainly from an increase in the bonus accrual and a higher accrual for sales returns and customer incentives.

The cash inflow was partially offset by an increase in inventory, accounts receivable and prepaid expenses and other assets.

Net cash provided by operating activities for the nine months ended September 30, 2019 was $1.1 million and consisted of a net cash inflow of non-cash adjustments of $27.4 million, which was offset partially by a net loss of $14.4 million and $11.9 million from changes in our net operating assets and liabilities.

The non-cash adjustments consisted primarily of amortization of intangibles and depreciation, stock-based compensation expense, amortization of debt issuance costs and loss on foreign exchange, which were partially offset by changes in deferred income taxes.

The net cash outflow from changes in our net operating assets and liabilities was primarily related to increases in inventory, accounts receivable and prepaid expenses and other assets, which were partially offset by an increase in other liabilities and accrued expenses and accounts payable mainly due to timing of payments.

The net cash outflow from changes in our net operating assets and liabilities was primarily related to increase in inventory, accounts receivable and prepaid expenses and other assets, as well as a decrease in accounts payable mainly due to timing of payments.

The net cash outflow was partially offset by an increase in other liabilities and accrued expenses.

Net cash provided by operating activities for the three months ended March 31, 2020 was $2.0 million and consisted of a net income of $1.2 million, non-cash adjustments of $12.8 million and partially offset by $12.0 million from changes in our net operating assets and liabilities.

The non-cash adjustments consisted primarily of amortization of intangibles and depreciation, stock-based compensation expense and amortization of debt issuance costs.

The net cash outflow from changes in our net operating assets and liabilities was primarily related to decreases in accounts payable and other liabilities and accrued expenses.

The net cash outflow was partially offset by decreases in accounts receivable and prepaid expenses and other assets.

Cash Flows from Investing Activities

Cash used in investing activities was $5.9 million for the nine months ended September 30, 2020 and consisted of $5.1 million for the purchase of capital equipment and software and $0.8 million for the acquisition of an immaterial business.

Cash used in investing activities was $22.1 million for the nine months ended September 30, 2019 and consisted of $10.3 million payment for the deferred consideration of Elgato acquisition, $7.0 million for the purchase of capital equipment and software and $4.8 million for the acquisition of Origin.

Cash used in investing activities was $8.1 million for the three months ended March 31, 2021 and consisted of $4.4 million for the payment of deferred and contingent consideration related to Origin acquisition, $2.0 million for the purchase of capital equipment and software, and $1.7 million for the acquisition of an immaterial business.

Cash used in investing activities was $1.8 million for the three months ended March 31, 2020 and it consisted of payments for capital equipment and software.

Cash Flows from Financing Activities

Cash used in financing activities was $26.4 million for the nine months ended September 30, 2020 and consisted of repayments of debt of $140.4 million and the payment of offering costs of $5.6 million.

These cash outflows were partially offset by proceeds received from issuance of our common stock in connection with our IPO of $118.6 million, after deducting underwriting discounts and commissions , and proceeds received from exercises of stock options of $1.2 million.

Cash provided by financing activities was $5.2 million for the nine months ended September 30, 2019 and consisted of borrowings under our credit facilities of $8.7 million.

The cash inflow was partially offset by the repayment of debt of $2.8 million, repurchase of common stock of $0.6 million and payment of debt issuance costs of $0.2 million.

Cash used in financing activities was $27.8 million for the three months ended March 31, 2021 and consisted of $28.0 repayment of debt and was partially offset by $0.2 million proceeds received from the exercise of employee stock options.

Cash used in financing activities was $1.3 million for the three months ended March 31, 2020 and consisted of repayments of debt of $1.2 million and the payment of offering costs of $0.1 million.

Credit Facilities and Dividend

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The First Lien and the Revolver mature on August 28, 2024 and August 28, 2022, respectively.

Subsequently, we entered into several amendments to the First Lien and the principal amount of the First Lien Term Loan was increased by $10 million in 2017 and increased by $115 million in each of 201 8 and 2019.

The increase in First Lien in 2018 was primarily to fund an $85 million dividend distribution to the unitholders of EagleTree and for operational needs.

The increase in the First Lien in 2019 was primarily to fund the SCUF Acquisition.

The First Lien Term Loan initially carried interest at a rate equal to, at our election, either the (a) greatest of (i) the prime rate, (ii) sum of the Federal Funds Effective Rate plus 0.5%, (iii) one month LIBOR plus 1.0% and (iv) 2%, plus a margin of 3.5%, or (b) the greater of (i) LIBOR and (ii) 1.0%, plus a margin of 4.5%.

the greater of (i) LIBOR and (ii) 1.0%, plus a margin of 4.5%.

The Revolver initially carried interest at a rate equal to, at our election, either the (a) greatest of (i) the prime rate, (ii) sum of the Federal Funds Effective Rate plus 0.5%, (iii) one month LIBOR plus 1.0% and (iv) 2%, plus 3.5%, or (b) the greater of (i) LIBOR and (ii) 1.0%, plus a margin of 4.5%.

As a result of the First Lien amendment in October 2018, the margin for the First Lien term loan and Revolver margin were both changed to range from 2.75% to 3.25% for base rate loans and to range from 3.75% to 4.25% for Eurodollar loans, in each case, based on our net leverage ratio.

Additionally, new contingent repayment provisions were added as a result of the First Lien amendment in October 2018.

Five business days after our IPO, we were required to prepay all amounts (principal and interest) outstanding under the Second Lien Term Loan (as defined below).

Concurrently, we were also required to prepay the First Lien Term Loan in an amount equal to the proceeds from the IPO, less the amount used to repay the Second Lien Term Loan, multiplied by 50%.

Accordingly, in September 2020, with the IPO proceeds, we repaid the mandatory minimum amount of $55.8 million and made an additional $30.8 million voluntary repayment from the use of the IPO proceeds.

According to the repayment schedule, the Consolidated Excess Cash Flow (as defined in the First Lien) and the IPO repayment provisions as set forth in the First Lien, we have made required repayments of the First Lien Term Loan of $59.6 million, in aggregate, in 2020, consisting of $1.2 million in March 2020, $2.6 million in April 2020 and $55.8 million in September 2020, with our IPO proceeds.

There is no further repayment required under the First Lien Term Loan until it matures in full in August 2024.

We may prepay the First Lien Term Loan and the Revolver at any time without premium or penalty other than customary LIBOR breakage.

According to the Consolidated Excess Cash Flow clause as defined in the First Lien, in April 2020, we prepaid $2.6 million of the First Lien Term Loan.

With the excess cash on hand, we have made voluntary prepayments in aggregate of $80.8 million in 2020, consisting of $30.8 million in September 2020, with our IPO proceeds, $25.0 million in November 2020 and $25.0 million in December 2020.

We further prepaid $28.0 million in March 2021 .

In August 2017, we also entered into a syndicated Second Lien Credit and Guaranty Agreement, or the Second Lien, with various financial institutions.

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The Second Lien Term Loan initially carried interest at a base rate equal to that of the First Lien loan, plus a margin of 7.25% for base rate loans and 8.25% for Eurodollar loans.

In October 2017, we entered into an amendment to the Second Lien and the principal amount of the Second Lien Term Loan was reduced by $15 million and the applicable interest rate margins for both the base rate loans and Eurodollar loans were increased by 0.25%.

In October 2017, we entered into an amendment to the Second Lien and the principal amount of the Second Lien Term Loan was reduced to $50 million and the applicable interest rate margins for both the base rate loans and Eurodollar loans were increased by 0.25%.

We had the ability to prepay the Second Lien Term Loan any time after the first and second anniversary without premium or penalty.

In the second and third quarter of 2020, with excess cash on hand, we repaid an aggregate of $50 million of the outstanding principal balance of the Second Lien Term Loan and following this repayment, the Second Lien Term Loan was fully repaid and all obligations and covenants thereunder were terminated.

In 2020, with excess cash on hand, we repaid an aggregate of $50 million of the Second Lien Term Loan, consisting of $10.0 million in May 2020, $15.0 million in August 2020 and $25.0 million in September 2020.

Following these repayments, the Second Lien Term Loan was fully repaid and all obligations and covenants thereunder were terminated.

All accrued and unpaid interest on the borrowed amounts is due and payable on a quarterly basis.

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These restrictive covenants include operating covenants restricting, among other things, our ability to incur additional indebtedness, effect certain acquisitions or make other fundamental changes.

We were in compliance with all of the covenants as of September 30, 2020.

We were in compliance with all of the covenants as of March 31, 2021.

In addition, the First Lien contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments and events constituting a change of control.

Upon the occurrence and during the continuance of an event of default, interest on the obligations may accrue at an increased rate in the case of a non-payment or bankruptcy and insolvency and the lenders may accelerate our obligations under the First Lien Term Loan, except that acceleration will be automatic in the case of bankruptcy and insolvency events of default.

Contractual Obli gations and Other Commitments

The following table summarizes our contractual obligations and commitments as of September 30, 2020:

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations and commitments as of March 31, 2021:

Payments Due by Period

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Operating leases (3)

Represents our syndicated First Lien Term Loan and our anticipated repayment schedule for the loan as of September 30, 2020.

Represents our syndicated First Lien Term Loan and our anticipated repayment schedule for the loan as of March 31, 2021.

See Note 8 “Debt” to our condensed combined consolidated financial statements for more information.

Represents an estimate of our non-cancelable open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services as of September 30, 2020.

Consists of contractual obligations from our non-cancellable operating leases for office and warehouse spaces.

On April 27, 2021, we entered into an operating lease agreement for our new Milpitas headquarters in California, U.S.

The lease term of this new agreement is 10.5 years with the accounting lease commencement date expected to be in May 2021.

The total undiscounted fixed lease payment for this agreement is approximately $45.6.

million and this amount is not included in the table above.

Off-Balance Sheet Arrangements

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Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates during the three months ended September 30, 2020 as compared to the critical accounting policies and estimates described in our Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in our Prospectus.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2021 as compared to the critical accounting policies and estimates described in our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 11, 2021.

Recent Accounting Pronouncements

Refer to Note 2 to the condensed combined consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted and to be adopted.

Quantitative and Qualitati ve Disclosures About Market Risk.

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates.

As of September 30, 2020, we had cash and restricted cash of $120.1 million, which consisted primarily of bank deposits.

Our cash is held for working capital purposes.

As of September 30, 2020, we had indebtedness of $370.1 million under the syndicated First Lien Term Loan which bears variable market rates, primarily LIBOR.

A significant change in these market rates may adversely affect our operating results.

As of September 30, 2020, a hypothetical 100 basis point change in interest rates would result in a change to interest expense by approximately $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively.

Foreign Currency Risk

Approximately 19% of our net revenue in the nine months ended September 30, 2020 was denominated in foreign currencies.

Any unfavorable movement in the exchange rate between U.S.

dollars and the currencies in which we conduct sales in foreign countries could have an adverse impact on our net revenue and gross margins as we may have to have to adjust local currency product pricing due to competitive pressures if there is significant volatility in foreign currency exchange rates.

Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, China and Taiwan.

Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

The primary currency fluctuations to which we are exposed are the Euro, British Pound and the Chinese Yuan.

We enter into forward currency contracts to reduce the short-term effects of currency fluctuations on Euro, British Pound, and Chinese Yuan denominated cash, accounts receivable, and intercompany receivable and payable balances.

These forward contracts generally mature within three months and we do not enter into foreign currency forward contracts for trading purposes.

The outstanding notional principal amount was $21.5 million and $18.3 million as of September 30, 2020 and December 31, 2019, respectively.

The gains or losses on these contracts are recognized in earnings based on the changes in fair value.

The impact of changes in foreign currency rates recognized in other (expense) income, net was $(0.2) million and $(0.4) million for the three months ended September 30, 2020 and 2019, respectively, and $(0.3) million and $(1.5) million for the nine months ended September 30, 2020 and 2019, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis