Corsair Gaming, Inc. 10-Q

Item 1. Financial Statements (Unaudited). Corsair Gaming, Inc. Condensed Combined Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three Months Ended March 31, 2021 2020 Net revenue $ 529,414 $ 308,518 Cost of revenue 369,086 229,896 Gross profit 160,328 78,622 Operating expenses: Sales, general and administrative 77,853 53,729 Product development 15,186 11,556 Total operating expenses 93,039 65,285 Operating income 67,289 13,337 Other (expense) income: Interest expense ( 4,946 ) ( 9,374 ) Other expense, net ( 2,425 ) ( 63 ) Total other expense, net ( 7,371 ) ( 9,437 ) Income before income taxes 59,918 3,900 Income tax expense ( 13,195 ) ( 2,683 ) Net income $ 46,723 $ 1,217 Net income per share Basic $ 0.51 $ 0.01 Diluted $ 0.47 $ 0.01 Weighted-average shares used to compute net income per share Basic 91,951 84,079 Diluted 100,211 86,070 The accompanying notes are an integral part of these condensed combined consolidated financial statements 2 Table of Contents Corsair Gaming, Inc. Condensed Combined Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in thousands) Three Months Ended March 31, 2021 2020 Net income $ 46,723 $ 1,217 Other comprehensive gain (loss): Foreign currency translation adjustments, net of zero tax 165 ( 3,600 ) Unrealized foreign exchange loss from long-term intercompany loans, net of tax benefit of $ 44 and $ 61 for the three months ended March 31, 2021 and 2020, respectively ( 224 ) ( 309 ) Comprehensive income (loss) $ 46,664 $ ( 2,692 ) The accompanying notes are an integral part of these condensed combined consolidated financial statements 3 Table of Contents Corsair Gaming, Inc. Condensed Combined Consolidated Balance Sheets (Unaudited, in thousands, except per share amounts) March 31, 2021 December 31, 2020 Assets Current assets: Cash $ 121,622 $ 129,543 Restricted cash 3,729 3,795 Accounts receivable, net 304,174 293,629 Inventories 234,611 226,007 Prepaid expenses and other current assets 47,508 37,997 Total current assets 711,644 690,971 Property and equipment, net 15,320 16,475 Goodwill 314,089 312,760 Intangible assets, net 252,243 259,317 Restricted cash, noncurrent 231 230 Other assets 39,900 34,362 TOTAL ASSETS $ 1,333,427 $ 1,314,115 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 272,251 $ 299,636 Other liabilities and accrued expenses 227,019 205,745 Total current liabilities 499,270 505,381 Debt, net 294,254 321,393 Deferred tax liabilities 30,350 29,752 Other liabilities, noncurrent 21,846 20,199 TOTAL LIABILITIES 845,720 876,725 Commitments and Contingencies (Note 9) Stockholders’ Equity: Preferred stock, $ 0.0001 par value: 5,000 shares authorized, nil and nil shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively — — Common stock, $ 0.0001 par value: 300,000 shares authorized, 92,087 and 91,935 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 9 9 Additional paid-in capital 442,320 438,667 Retained earnings (accumulated deficit) 43,910 ( 2,813 ) Accumulated other comprehensive income 1,468 1,527 Total Stockholders’ Equity 487,707 437,390 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,333,427 $ 1,314,115 The accompanying notes are an integral part of these condensed combined consolidated financial statements 4 Table of Contents Corsair Gaming, Inc. Condensed Combined Consolidated Statements of Stockholders’ Equity (Unaudited, in thousands) Three Months Ended March 31, 2021 Common Stock Additional Paid-in Retained Earnings (Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit) Income (Loss) Equity Balance as of December 31, 2020 91,935 $ 9 $ 438,667 $ ( 2,813 ) $ 1,527 $ 437,390 Issuance of common stock for stock option exercises 152 — 577 — — 577 Stock-based compensation — — 3,076 — — 3,076 Other comprehensive loss — — — — ( 59 ) ( 59 ) Net income — — — 46,723 — 46,723 Balance as of March 31, 2021 92,087 $ 9 $ 442,320 $ 43,910 $ 1,468 $ 487,707 Three Months Ended March 31, 2020 Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’ Shares Amount Capital Deficit Loss Equity Balance as of December 31, 2019 84,079 $ 8 $ 324,968 $ ( 106,030 ) $ ( 2,171 ) $ 216,775 Stock-based compensation — — 1,105 — — 1,105 Other comprehensive loss — — — — ( 3,909 ) ( 3,909 ) Net income — — — 1,217 — 1,217 Balance as of March 31, 2020 84,079 $ 8 $ 326,073 $ ( 104,813 ) $ ( 6,080 ) $ 215,188 The accompanying notes are an integral part of these condensed combined consolidated financial statements 5 Table of Contents Corsair Gaming, Inc. Condensed Combined Consolidated Statements of Cash Flows (Unaudited, in thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net income $ 46,723 $ 1,217 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation 3,076 1,105 Depreciation 2,436 2,158 Amortization of intangible assets 8,702 8,447 Debt issuance costs amortization 537 579 Loss on debt extinguishment 439 — Deferred income taxes ( 3,005 ) 6 Gain on currency forward contract — ( 359 ) Loss on foreign exchange — 118 Other 1,316 743 Changes in operating assets and liabilities: Accounts receivable ( 13,416 ) 37,432 Inventories ( 13,508 ) 145 Prepaid expenses and other assets ( 4,419 ) 6,312 Accounts payable ( 26,988 ) ( 43,533 ) Other liabilities and accrued expenses 25,875 ( 12,370 ) Net cash provided by operating activities 27,768 2,000 Cash flows from investing activities: Acquisition of business, net of cash acquired ( 1,684 ) — Payment of deferred and contingent consideration ( 4,353 ) — Purchase of property and equipment ( 2,036 ) ( 1,847 ) Net cash used in investing activities ( 8,073 ) ( 1,847 ) Cash flows from financing activities: Repayment of debt ( 28,000 ) ( 1,194 ) Payment of other offering costs — ( 115 ) Proceeds from exercise of stock options 185 — Net cash used in financing activities ( 27,815 ) ( 1,309 ) Effect of exchange rate changes on cash 134 ( 308 ) Net decrease in cash and restricted cash ( 7,986 ) ( 1,464 ) Cash and restricted cash at the beginning of the period 133,568 51,947 Cash and restricted cash at the end of the period $ 125,582 $ 50,483 Supplemental cash flow disclosures: Cash paid for interest $ 3,961 $ 9,769 Cash paid for income taxes 413 6,199 Supplemental schedule of non-cash investing and financing activities: Equipment purchased and unpaid at period end $ 1,558 $ 600 Initial deferred and contingent purchase consideration 735 — Measurement period adjustment relating to business acquisitions — 1,530 Deferred offering costs included in accounts payable and accrued expenses — 2,231 The accompanying notes are an integral part of these condensed combined consolidated financial statements 6 Table of Contents Corsair Gaming, Inc. Notes to Condensed Combined Consolidated Financial Statements (Unaudited) 1. Description of Business and Basis of Presentation Description of Business Corsair Gaming, Inc., a Delaware corporation, together with its subsidiaries (collectively, “Corsair” the “Company”, “we”, “us”, or “our”) , is a global provider and innovator of high-performance gear for gamers, streamers and content creators. Corsair is organized into two reportable segments: • Gamer and creator peripherals . 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 . Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs, among others. Reorganization On September 15, 2020, a corporate reorganization (the “Reorganization”) was consummated whereby we now own directly and indirectly all of the operating subsidiaries and assets that were formerly owned by Corsair Group (Cayman), LP (the “Parent”) and Corsair Group (US), LLC, a minority interest holder. The Parent is a limited partnership domiciled in the Cayman Islands. The Parent and Corsair Group (US), LLC are under common control of the affiliates of EagleTree Capital, LP, a private equity investment firm. Prior to the Reorganization, the North American and international operations of Corsair were conducted by certain operating subsidiaries held by separate entities, Corsair Gaming, Inc. and Corsair Holdings (Lux) S.à r.l. (or “Corsair Luxco”) , respectively, each of which was substantially owned by and under common control of the Parent. The Reorganization was comprised of a series of steps as set forth below: • The Parent acquired the minority interest held by Corsair Group (US), LLC in exchange for its own units. • Corsair Gaming, Inc. acquired all of the outstanding capital stock of Corsair Luxco from the Parent in exchange for its own stock. • In order for management and certain other partnership unit holders of the Parent to hold Corsair’s common stock directly, we entered into exchange agreements with such holders to exchange the Parent’s units for shares of Corsair’s common stock on a pro rata basis relative to their holdings in the Parent prior to the Reorganization. • The Parent’s 2017 Equity Incentive Program was assumed by Corsair and all of the outstanding options to acquire units under the Parent’s 2017 Equity Incentive Program were converted into options to purchase Corsair’s common stock on a pro rata basis with an adjusted exercise price to reflect the assumption. • We implemented a 1-for- 28,693.596843964 stock split resulting in there being 84,405,366 shares of Corsair’s common stock outstanding and 10,029,388 options outstanding to purchase Corsair’s common stock as of the date of the Reorganization. As all legal entities included in the Reorganization are under common control of the Parent, all steps of the Reorganization were accounted for as a combination of entities under common control. Initial Public Offering and Secondary Offering On September 25, 2020, we completed our initial public offering (“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 sold 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. 7 Table of Contents On January 26, 2021, we completed a secondary offering of our common stock where certain selling stockholders sold 8,625,000 , shares of common stock at $ 35.00 per share. We did no t receive any of the proceeds from the sale of shares by the selling stockholders in either the IPO or the secondary. Deferred offering costs consist primarily of accounting, legal, and other fees related to the IPO. Prior to the IPO, all deferred offering costs were capitalized in other assets in the condensed combined consolidated balance sheets. After the IPO, $ 12.0 million of deferred offering costs were reclassified into stockholders’ equity as a reduction of the IPO proceeds in the condensed combined consolidated balance sheets as of December 31, 2020. Basis of Presentation Our interim condensed combined consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ( “ U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accounting policies we follow are set forth in Part II, Item 8, Note 2, Significant Accounting Policies, of the Notes to the Combined Consolidated Financial Statements included in our Annual Report on Form 10K for the year ended December 31, 2020 which was filed with the SEC on March 11, 2021. The condensed combined consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements as of that date. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed, combined or omitted pursuant to such rules and regulations. Therefore, these interim condensed combined consolidated financial statements should be read in conjunction with our combined consolidated financial statements and notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K. The interim condensed combined consolidated financial statements have been prepared on the same basis as the audited combined consolidated financial statements, and in management’s opinion, include all adjustments, which consist of only normal recurring adjustments necessary for the fair statement of our condensed combined consolidated balance sheet as of March 31, 2021 and our results of operations for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the current fiscal year or any other future periods. Principles of Consolidation The accompanying condensed combined consolidated financial statements include the accounts of Corsair and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of condensed combined consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, the valuation of intangible assets, accounts receivable, sales return reserves, reserves for customer incentives, warranty reserves, inventory, derivative instruments, stock-based compensation, deferred income tax, and common stock (prior to the IPO completed in September 2020). These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19. 8 Table of Contents Risks and Uncertainties related to the COVID-19 Pandemic Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. Since early 2020, we have experienced some business disruptions due to COVID-19 including the stoppage in our factories in early 2020, disruption in our supply chain and increased distribution costs, which led to increase in operating costs. This negative financial impact has been offset by strong revenue growth year-over-year partly due to an increase in demand for our gear as more people in more countries are under shelter-in-place restrictions. In contrast, if the COVID-19 pandemic subsides in the second half of 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. The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future. As of the date of issuance of these condensed combined consolidated financial statements, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions due to COVID-19 to the carrying value of our assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed combined consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the condensed combined consolidated financial statements. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12 , Income Taxes (Topic 740) , to simplify various aspects related to the accounting for income taxes. We adopted this standard effective January 1, 2021 . The adoption of this new standard did not have a material impact on our condensed combined consolidated financial statements. Accounting Pronouncements Issued but Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) , to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new guidance is effective, at our election, beginning March 12, 2020 through December 31, 2022. Our term loan and revolving line of credit have interest payments that are correlated to a reference rate, and we are currently evaluating the impact of adopting this guidance and the potential effects it could have on our condensed combined consolidated financial statements. 3. Fair Value Measurement U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into the following three levels of inputs that may be used to measure fair value: Level 1 —Quoted prices are available in active markets for identical assets or liabilities as of the measurement date. Level 2 —Pricing inputs are other than quoted prices in active market, which are either directly or indirectly observable as of the report date. The nature of these securities includes investments for which quoted prices are available but traded less frequently and investments that are fair valued using other securities, the parameters of which can be directly observed. Level 3 —Securities that have little to no pricing observability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation. 9 Table of Contents The following tables summarize our financial assets and liabilities that were measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value: March 31, 2021 (Level 1) (Level 2) (Level 3) Total (in thousands) Assets: Foreign currency forward contracts (1) $ — $ 642 $ — $ 642 Other — 19 — 19 Total assets $ — $ 661 $ — $ 661 Liabilities: Deferred cash consideration in connection with a business acquisition—SCUF (2) $ — $ — $ 1,250 $ 1,250 Other — 14 735 749 Total liabilities $ — $ 14 $ 1,985 $ 1,999 December 31, 2020 (Level 1) (Level 2) (Level 3) Total (In thousands) Liabilities: Contingent consideration in connection with a business acquisition—Origin (3) $ — $ — $ 2,887 $ 2,887 Deferred cash consideration in connection with a business acquisition—SCUF (2) — — 1,250 1,250 Deferred cash consideration in connection with a business acquisition—Origin (3) — — 1,505 1,505 Foreign currency forward contracts (1) — 819 — 819 Total liabilities $ — $ 819 $ 5,642 $ 6,461 (1) The fair values of the forward contracts were based on similar exchange traded derivatives and the related asset or liability is included within Level 2 of the fair value hierarchy. (2) The fair value of the SCUF contingent consideration was determined based on the estimates of acquired tax benefits owed to SCUF’s sellers according to the merger agreement. These estimates involved inputs unobservable in the markets and thus represent a level 3 fair value measurement. The $ 1.3 million liability as of March 31, 2021 and December 31, 2020 consists of $ 0.1 million based on a contractual amount and the remaining $ 1.2 million is subject to update upon filing our tax returns for tax years 2020 and 2021. ( 3 ) The Origin earn-out liability of $ 2.9 million and deferred cash consideration of $ 1.5 million were fully paid and settled in the three months ended March 31, 2021. 4. Derivative Financial Instruments From time to time, we enter into derivative instruments such as foreign currency forward contracts, to minimize the short-term impact of foreign currency exchange rate fluctuations on certain foreign currency denominated assets and liabilities, and interest rate cap contracts, to minimize our exposure to interest rate movements on our variable rate debts. The derivative instruments are recorded at fair value in prepaid expenses and other current assets or other liabilities and accrued expenses on the condensed combined consolidated balance sheets. We do not designate such instruments as hedges for accounting purposes; accordingly, changes in the value of these contracts are recognized in each reporting period in other (expense) income, net in the condensed combined consolidated statements of operations. We do no t enter into derivative instruments for trading purposes. The foreign currency forward contracts generally mature within three to four months . The notional principal amount of outstanding foreign exchange forward contracts was $ 38.6 million and $ 41.6 million as of March 31, 2021 and December 31, 2020, respectively, none of which have been designated as hedging instruments during the periods presented. The fair value gain recognized in other (expense) income, net in relation to these derivative instruments was $ 0.7 million and $ 0.3 million for the three months ended March 31, 2021 and 2020, respectively. 10 Table of Contents 5. Business Combinations 2021 Immaterial Acquisition In February 2021, we completed the immaterial acquisition of Visual by Impulse (“ VBI ”), a business that provides creative design services to streamers looking to professionalize the look of their broadcast. Total cash consideration for VBI was approximately $ 1.7 million and it was accounted for using the acquisition method of accounting. 2020 Immaterial Acquisitions For the year ended December 31, 2020, we completed two immaterial acquisitions, EpocCam and Gamer Sensei, for total cash consideration of $ 1.3 million, which were accounted for using the acquisition method of accounting. 6. Goodwill and Intangible Assets Goodwill The following table summarizes the changes in the carrying amount of goodwill by reportable segment: Gaming Components and Systems Gamer and Creator Peripherals Total (In thousands) Balance as of December 31, 2020 $ 145,644 $ 167,116 $ 312,760 Addition from an immaterial business acquisition — 1,272 1,272 Effect of foreign currency exchange rates ( 18 ) 75 57 Balance as of March 31, 2021 $ 145,626 $ 168,463 $ 314,089 Intangible assets, net The following table is a summary of intangible assets, net: March 31, 2021 December 31, 2020 Weighted Average Useful Life in Years Weighted Average Remaining Amortization Period in Years Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (In thousands) Developed technology 5.6 4.0 $ 32,086 $ 10,370 $ 21,716 $ 31,016 $ 8,892 $ 22,124 Trade name 15.0 13.3 30,807 3,397 27,410 30,632 2,873 27,759 Customer relationships 10.0 6.4 218,570 78,393 140,177 218,469 72,892 145,577 Patent 7.9 6.7 32,074 5,270 26,804 31,802 4,207 27,595 Non-competition agreements 5.0 1.4 2,521 1,815 706 2,521 1,689 832 Total finite-life intangibles 7.0 316,058 99,245 216,813 314,440 90,553 223,887 Indefinite life trade name Indefinite life — 35,430 — 35,430 35,430 — 35,430 Total intangible assets $ 351,488 $ 99,245 $ 252,243 $ 349,870 $ 90,553 $ 259,317 In the year after an identified intangible asset becomes fully amortized, we remove the fully amortized balances from the gross asset and accumulated amortization amounts from the table above. 11 Table of Contents The estimated future amortization expense of intangible assets as of March 31, 2021 is as follows: Amounts (in thousands) Remainder of 2021 $ 26,092 2022 34,506 2023 32,899 2024 31,541 2025 31,051 Thereafter 60,724 Total $ 216,813 7. Balance Sheet Components Cash and Restricted Cash March 31, 2021 December 31, 2020 (In thousands) Cash $ 121,622 $ 129,543 Restricted cash—short term 3,729 3,795 Restricted cash—noncurrent 231 230 Total cash and restricted cash $ 125,582 $ 133,568 Accounts Receivable, net: March 31, 2021 December 31, 2020 (In thousands) Accounts receivable $ 304,715 $ 293,975 Allowance for doubtful accounts ( 541 ) ( 346 ) Accounts receivable, net $ 304,174 $ 293,629 As of March 31, 2021, and December 31, 2020, two customers each represented 10% or more of our consolidated accounts receivable, net. Inventories March 31, 2021 December 31, 2020 (In thousands) Raw materials $ 48,259 $ 52,165 Work in progress 9,462 9,654 Finished goods 176,890 164,188 Inventories $ 234,611 $ 226,007 12 Table of Contents Property and Equipment, Net March 31, 2021 December 31, 2020 (In thousands) Manufacturing equipment $ 22,609 $ 22,035 Computer equipment, software and office equipment 9,572 9,407 Furniture and fixtures 3,662 3,675 Leasehold improvements 4,350 4,521 Total property and equipment $ 40,193 $ 39,638 Less: Accumulated depreciation and amortization ( 24,873 ) ( 23,163 ) Property and equipment, net $ 15,320 $ 16,475 Other Liabilities and Accrued Expenses March 31, 2021 December 31, 2020 (In thousands) Accrued reserves for customer incentive programs $ 50,384 $ 49,619 Accrued reserves for sales return 38,078 35,673 Accrued payroll and related expense 19,659 26,877 Income tax payable 37,749 22,445 Sales and use tax and value-added tax payables 15,932 9,284 Contract liabilities 11,600 9,787 Operating lease liabilities, current 9,589 9,070 Other 44,028 42,990 Other liabilities and accrued expenses $ 227,019 $ 205,745 Nonmonetary Transactions The sales and purchases of inventory with our manufacturers are accounted for as nonmonetary transactions. Upon sale of raw materials to the manufacturer, for the inventories on-hand with the manufacturer where there is an anticipated reciprocal purchase by us, we will record this nonmonetary transaction as prepaid inventories and accrued liabilities. When we transact the reciprocal purchase of inventory from the manufacturer, we will record a payable to the manufacturer at the purchase price, which replaces the initial nonmonetary transaction and inventory will be reflected at carrying value, which includes the costs for the raw materials and the incremental costs charged by the manufacturer for additional work performed on the inventory. As of March 31, 2021 and December 31, 2020, we recognized $ 10.8 million and $ 5.9 million, respectively, prepaid inventory and accrued liabilities in the condensed combined consolidated balance sheet for such nonmonetary transactions with our manufacturers. Because the transactions are nonmonetary, they have not been included in the condensed combined consolidated statements of cash flows pursuant to ASC 230, Statement of Cash Flows . 8. Debt First Lien Credit and Guaranty Agreement In August 2017, we entered into a syndicated First Lien Credit and Guaranty Agreement ( “First Lien” ) with various financial institutions. The First Lien originally provided a $ 235 million term loan ( “First Lien Term Loan” ) for a business acquisition and to repay existing indebtedness of the acquired company and a $ 50 million revolving line-of-credit ( “Revolver” ). The First Lien and the Revolver matures 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 2018 and 2019, primarily to fund various business acquisitions and operation needs. 13 Table of Contents 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 Revolver initially bore 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 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, based on our net leverage ratio. 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. 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. The following table summarizes the carrying value of the First Lien Term Loan: March 31, 2021 December 31, 2020 (In thousands) Principal amount outstanding $ 298,938 $ 326,938 Less: Debt discount, net of amortization ( 1,794 ) ( 2,124 ) Less: Debt issuance costs, net of amortization ( 2,890 ) ( 3,421 ) Carrying amount $ 294,254 $ 321,393 The fair value of the First Lien Term Loan was approximately $ 298.2 million and $ 326.5 million as of March 31, 2021 and December 31, 2020, respectively. The fair values were determined based on the quoted bid price of the First Lien Term Loan in a syndicated loan market on the reporting date. The First Lien Term Loan is classified as Level 1 of the fair value hierarchy. Our obligation under the First Lien is secured by substantially all of our personal property assets and those of our United States-organized subsidiaries, including intellectual property. The First Lien Term Loan includes customary restrictive covenants that impose operating and financial restrictions on Corsair, including restrictions on our ability to take actions that could be in our best interests. These restrictive covenants include operating covenants restricting, among other things, our ability to incur additional indebtedness, effect certain acquisitions or make other fundamental changes. As of March 31, 2021, we were in compliance with all covenants. 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. Second Lien Credit and Guaranty Agreement In August 2017, we also entered into a syndicated Second Lien Credit and Guaranty Agreement ( “Second Lien” ) with various financial institutions. The Second Lien initially provided a $ 65 million term loan ( “Second Lien Term Loan” ), with a maturity date of August 28, 2025 , for a business acquisition and for general corporate operations purposes. 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 to $ 50 million and the applicable interest rate margins for both the base rate loans and Eurodollar loans were increased by 0.25 %. The amendment to the Second Lien was accounted for as a loan modification. We had the ability to prepay the Second Lien Term Loan any time after the first and second anniversary without premium or penalty. In 2020, with excess cash on hand, we repaid an aggregate of $ 50 million of the Second Lien Term Loan, consisting of $ 10.0 14 Table of Contents million in May 2020, $ 15.0 million in August 2020 and $ 25.0 million in September 2020. F ollowing t h ese repayment s , the Second Lien Term Loan was fully repaid and all obligations and covenants thereunder were terminated. The following table summarizes the interest expense recognized for the First Lien and Second Lien: Three Months Ended March 31, 2021 2020 (In thousands) Contractual interest expense for First Lien and Second Lien Term Loan $ 3,882 $ 8,638 Contractual interest expense for Revolver — 15 Amortization of debt discount 162 243 Amortization of debt issuance costs 375 336 Loss on debt extinguishment 439 — Total interest expense recognized $ 4,858 $ 9,232 The annual weighted average effective interest rate used for amortizing the debt discount and debt issuance costs for the First Lien and Second Lien, in aggregate, were approximately 6.45 % and 6.92 % for the three months ended March 31, 2021 and 2020, respectively. The estimated future principal payments under our total long-term debt as of March 31, 2021 are as follows: Amounts (In thousands) Remainder of 2021 $ — 2022 — 2023 — 2024 298,938 2025 — Thereafter — Total debt $ 298,938 Less: Discount and debt issuance costs ( 4,684 ) Total Debt, net of discount and debt issuance costs $ 294,254 Presented on the condensed combined consolidated balance sheet under: Current portion of debt, net $ — Debt, net $ 294,254 9. Commitments and Contingencies Product Warranties Changes in our warranty obligations were as follows: Three Months Ended March 31, 2021 2020 (In thousands) Beginning of the period $ 5,865 $ 3,991 Warranty provision related to products shipped 1,873 1,365 Deductions for warranty claims processed ( 1,737 ) ( 1,039 ) End of period $ 6,001 $ 4,317 15 Table of Contents Unconditional Purchase Obligations Our long-term non-cancelable purchase commitments consist primarily of multi-year contractual arrangements relating to subscriptions for cloud computing hosting arrangements for our enterprise resource planning (ERP) system and the related support services as well as marketing sponsorship. Long-term non-cancelable purchase commitment as of March 31, 2021 were as follows : Amounts (in thousands) Remainder of 2021 $ 1,504 2022 2,104 2023 1,282 2024 1,263 2025 157 Thereafter — Total $ 6,310 Our total non-cancelable purchase commitments outstanding as of December 31, 2020 were $ 6.8 million. Letters of Credit The total letters of credit outstanding, in aggregate, was $ 2.0 million and $ 2.0 million as of March 31, 2021 and December 31, 2020, respectively. No amounts have been drawn upon the letters of credit for all periods presented. Indemnification In the ordinary course of business, we may provide indemnifications of varying scope and terms with respect to certain transactions. We have entered into indemnification agreements with directors and certain officers and employees that will require Corsair, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon Corsair to provide indemnification under such agreements, and thus, there are no claims that we are aware of that could have a material effect on our condensed combined consolidated balance sheets, statements of operations, or statements of cash flows. We currently have directors’ and officers’ insurance. Significant Operating Lease Arrangement Executed After March 31, 2021 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 and the total undiscounted fixed lease payment for this agreement is approximately $ 45.6 million. The lease agreement for our existing Fremont headquarters will expire in March 2022 . 10. Stockholders’ Equity On September 15, 2020, we completed a Reorganization through a series of steps as discussed in Note 1. In connection with the Reorganization, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation which authorized 100,000,000 shares of our common stock for issuance, with a par value of $ 0.0001 per share and effected a 1-for- 28,693.596843964 stock split resulting in there being 84,405,366 shares of Corsair’s common stock outstanding as of September 15, 2020. On September 25, 2020, in connection with the closing of the IPO, we filed an Amended and Restated Certificate of Incorporation which increased the authorized shares of common stock for issuance to 300,000,000 and authorized 5,000,000 shares of preferred stock, with a par value of $ 0.0001 per share, for issuance. There were no shares of preferred stock outstanding as of March 31, 2021. 16 Table of Contents 11. Equity Incentive Plans and Stock-Based Compensation As of March 31, 2021, we have two active equity incentive plans: the 2020 Equity Incentive Plan and the Employee Stock Purchase Plan (“ ESPP ”). The following table summarizes stock-based compensation expense by line item in the accompanying condensed combined consolidated statements of operations: Three Months Ended March 31, 2021 2020 (In thousands) Cost of revenue $ 181 $ 63 Sales, general and administrative 2,572 880 Product development 323 162 Total stock-based compensation expense 3,076 1,105 Income tax benefit ( 919 ) — Total stock-based compensation expense, net of income tax benefit $ 2,157 $ 1,105 As of March 31, 2021, we had $ 30.3 million of total unrecognized stock-based compensation relating to options and restricted stock units which is expected to be amortized over a weighted-average period of 3.0 years. As of March 31, 2021, we had $ 0.5 million of total unrecognized stock-based compensation relating to ESPP which is expected to be amortized over a weighted-average period of 0.5 years. The total intrinsic value of options exercised for the three months ended March 31, 2021 was $ 4.4 million . There were no stock options exercises for the three months ended March 31, 2020. 12. Net Income Per Share The following table summarizes the calculation of basic and diluted net income per share: Three Months Ended March 31, 2021 2020 (in thousands, except per share amounts) Numerator Net income, basic and diluted $ 46,723 $ 1,217 Denominator Weighted-average shares used to compute net income per share, basic 91,951 84,079 Effect of dilutive securities (1) 8,260 1,991 Weighted-average shares used to compute net income per share, diluted 100,211 86,070 Net income per share: Basic $ 0.51 $ 0.01 Diluted $ 0.47 $ 0.01 Anti-dilutive potential common shares (1) 369 2,807 (1) Potential common share equivalents were not included in the calculation of diluted net income per share as the effect would have been anti-dilutive 17 Table of Contents 13. Income Taxes The table below presents our income (loss) before income taxes, income tax (expense) benefit and effective income tax rates for all periods presented: Three Months Ended March 31, 2021 2020 (in thousands) Income before income taxes $ 59,918 $ 3,900 Income tax expense ( 13,195 ) ( 2,683 ) Effective tax rate 22.0 % 68.8 % We are subject to income taxes in the United States and foreign jurisdictions in which we do business. 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 in the first quarter 2020. Unrecognized tax benefits were $ 1.3 million and $ 1.2 million as of March 31, 2021 and December 31, 2020, respectively, and i f recognized, would favorably affect the effective income tax rate in future periods . 14. Segment and Geographic Information We have two reportable segments: • Gamer and Creator Peripherals , which includes 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 , which includes high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs, among others. The segments are defined as those operations our chief operating decision maker ( “CODM” ) regularly reviews to analyze performance and allocate resources. Our CODM is determined to be Corsair’s Chief Executive Officer. The results of the reportable segments are derived directly from our reporting system and are based on the methods of internal reporting which are not necessarily in conformity with GAAP. Management measures net revenue and gross profit to evaluate the performance of, and allocate resources to, each of the segments. 18 Table of Contents The table below summarizes the financial information for each reportable segment: Three Months Ended March 31, 2021 2020 (In thousands) Net revenue Gaming and Creator Peripherals $ 175,912 $ 75,861 Gaming Components and Systems 353,502 232,657 Total net revenue $ 529,414 $ 308,518 Gross Profit Gaming and Creator Peripherals $ 68,866 $ 22,133 Gaming Components and Systems 91,462 56,489 Total gross profit $ 160,328 $ 78,622 The CODM manages assets on a total company basis, not by operating segments; therefore, asset information and capital expenditures by operating segments are not presented. Geographic Information The following table summarizes our net revenue by geographic region based on the location of the customer: Three Months Ended March 31, 2021 2020 (In thousands) Net revenue Americas $ 226,388 $ 123,710 Europe and Middle East 225,494 110,550 Asia Pacific 77,532 74,258 Total net revenue $ 529,414 $ 308,518 Revenues from sales to customers in the United States represented 36.2 % and 32.9 % for the three months ended March 31, 2021 and, 2020, respectively. No other countries besides the United States represented 10 % or more of total net revenue for each of the periods presented. One customer represented at least 10% of total net revenue for each of the periods presented. Long-lived assets are comprised primarily of property and equipment, net. The following table summarizes property and equipment, net by country: March 31, 2021 December 31, 2020 (In thousands) United States $ 4,733 $ 5,764 China 6,333 6,334 Taiwan 3,126 2,992 Other countries 1,128 1,385 Total property and equipment, net $ 15,320 $ 16,475 No other countries represented 10 % or more of total combined consolidated property and equipment, net as of March 31, 2021 and 2020. 19 Table of Contents