Corsair Gaming, Inc. 10-Q

Item 1. Financial Statements (Unaudited). Corsair Gaming, Inc. Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenue $ 311,769 $ 391,121 $ 976,368 $ 1,393,438 Cost of revenue 240,209 289,759 777,593 1,001,397 Gross profit 71,560 101,362 198,775 392,041 Operating expenses: Sales, general and administrative 66,932 76,112 216,456 234,134 Product development 15,616 14,495 50,752 45,150 Total operating expenses 82,548 90,607 267,208 279,284 Operating income (loss) ( 10,988 ) 10,755 ( 68,433 ) 112,757 Other (expense) income: Interest expense ( 2,734 ) ( 7,202 ) ( 5,689 ) ( 16,656 ) Other income (expense), net 1,662 ( 1,402 ) 1,796 ( 4,002 ) Total other expense, net ( 1,072 ) ( 8,604 ) ( 3,893 ) ( 20,658 ) Income (loss) before income taxes ( 12,060 ) 2,151 ( 72,326 ) 92,099 Income tax benefit (expense) 6,115 ( 374 ) 11,262 ( 15,854 ) Net income (loss) ( 5,945 ) 1,777 ( 61,064 ) 76,245 Less: Net income attributable to noncontrolling interests 266 — 33 — Net income (loss) attributable to Corsair Gaming, Inc. $ ( 6,211 ) $ 1,777 $ ( 61,097 ) $ 76,245 Calculation of net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: Net income (loss) attributable to Corsair Gaming, Inc. $ ( 6,211 ) $ 1,777 $ ( 61,097 ) $ 76,245 Change in redemption value of redeemable noncontrolling interests ( 2,690 ) — ( 12,330 ) — Net income (loss) attributable to common stockholders of Corsair Gaming, Inc. $ ( 8,901 ) $ 1,777 $ ( 73,427 ) $ 76,245 Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc.: Basic $ ( 0.09 ) $ 0.02 $ ( 0.77 ) $ 0.82 Diluted $ ( 0.09 ) $ 0.02 $ ( 0.77 ) $ 0.76 Weighted-average common shares outstanding: Basic 95,858 93,918 95,537 92,894 Diluted 95,858 100,041 95,537 100,116 The accompanying notes are an integral part of these condensed consolidated financial statements 2 Table of Contents Corsair Gaming, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ ( 5,945 ) $ 1,777 $ ( 61,064 ) $ 76,245 Other comprehensive gain (loss): Foreign currency translation adjustments, net of tax benefit of $ 520 and $ 0 for the three months ended September 30, 2022 and 2021, respectively, and $ 507 and $ 0 for the nine months ended September 30, 2022 and 2021, respectively ( 5,761 ) ( 1,943 ) ( 13,173 ) ( 1,297 ) Unrealized foreign exchange (loss) from long-term intercompany loans, net of tax benefit of $ 53 and $ 24 for the three months ended September 30, 2022 and 2021, respectively, and $ 127 and $ 56 for the nine months ended September 30, 2022 and 2021, respectively ( 273 ) ( 121 ) ( 645 ) ( 282 ) Comprehensive income (loss) ( 11,979 ) ( 287 ) ( 74,882 ) 74,666 Less: Comprehensive loss attributable to noncontrolling interests ( 265 ) — ( 962 ) — Comprehensive income (loss) attributable to Corsair Gaming, Inc. $ ( 11,714 ) $ ( 287 ) $ ( 73,920 ) $ 74,666 The accompanying notes are an integral part of these condensed consolidated financial statements 3 Table of Contents Corsair Gaming, Inc. Condensed Consolidated Balance Sheets (Unaudited, in thousands, except per share amounts) September 30, 2022 December 31, 2021 Assets Current assets: Cash $ 57,275 $ 62,415 Restricted cash 4,176 2,734 Accounts receivable, net 156,311 291,287 Inventories 249,942 298,315 Prepaid expenses and other current assets 47,717 51,024 Total current assets 515,421 705,775 Restricted cash, noncurrent 231 231 Property and equipment, net 26,710 16,819 Goodwill 346,302 317,054 Intangible assets, net 224,256 225,709 Other assets 70,348 71,808 Total assets $ 1,183,268 $ 1,337,396 Liabilities Current liabilities: Debt maturing within one year $ 4,655 $ 4,753 Accounts payable 162,213 236,120 Other liabilities and accrued expenses 158,170 205,874 Total current liabilities 325,038 446,747 Long-term debt 239,052 242,898 Deferred tax liabilities 16,413 25,700 Other liabilities, noncurrent 47,796 53,871 Total liabilities 628,299 769,216 Commitments and Contingencies (Note 9) Temporary equity Redeemable noncontrolling interests 27,977 — Permanent equity Corsair Gaming, Inc. stockholders’ equity: Preferred stock, $ 0.0001 par value: 5,000 shares authorized, nil and nil shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively — — Common stock, $ 0.0001 par value: 300,000 shares authorized, 95,950 and 94,510 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 10 9 Additional paid-in capital 504,633 470,364 Retained earnings 24,720 98,147 Accumulated other comprehensive loss ( 13,163 ) ( 340 ) Total Corsair Gaming, Inc. stockholders’ equity 516,200 568,180 Nonredeemable noncontrolling interests 10,792 — Total permanent equity 526,992 568,180 Total liabilities, temporary equity and permanent equity $ 1,183,268 $ 1,337,396 The accompanying notes are an integral part of these condensed consolidated financial statements 4 Table of Contents Corsair Gaming, Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited, in thousands) Three Months Ended September 30, 2022 Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Total Corsair Gaming, Inc. Stockholders’ Nonredeemable Noncontrolling Total Permanent Shares Amount Capital Earnings Loss Equity Interests Equity Balance as of June 30, 2022 95,780 $ 10 $ 498,741 $ 33,621 $ ( 7,660 ) $ 524,712 $ 10,900 $ 535,612 Net income (loss) — — — ( 6,211 ) — ( 6,211 ) 109 ( 6,102 ) Other comprehensive loss — — — — ( 5,503 ) ( 5,503 ) ( 217 ) ( 5,720 ) Change in redemption value of redeemable noncontrolling interests — — — ( 2,690 ) — ( 2,690 ) — ( 2,690 ) Issuance of common stock in connection with employee equity incentive plans 195 — 624 — — 624 — 624 Shares withheld related to net share settlement ( 25 ) — ( 402 ) — — ( 402 ) — ( 402 ) Stock-based compensation — — 5,670 — — 5,670 — 5,670 Balance as of September 30, 2022 95,950 $ 10 $ 504,633 $ 24,720 $ ( 13,163 ) $ 516,200 $ 10,792 $ 526,992 Three Months Ended September 30, 2021 Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Total Corsair Gaming, Inc. Stockholders’ Nonredeemable Noncontrolling Total Permanent Shares Amount Capital Earnings Income (Loss) Equity Interests Equity Balance as of June 30, 2021 93,790 $ 9 $ 456,010 $ 71,655 $ 2,012 $ 529,686 $ — $ 529,686 Net income — — — 1,777 — 1,777 — 1,777 Other comprehensive loss — — — — ( 2,064 ) ( 2,064 ) — ( 2,064 ) Issuance of common stock in connection with employee equity incentive plans 403 — 2,027 — — 2,027 — 2,027 Shares withheld related to net share settlement ( 7 ) — ( 208 ) — — ( 208 ) — ( 208 ) Stock-based compensation — — 5,797 — — 5,797 — 5,797 Balance as of September 30, 2021 94,186 $ 9 $ 463,626 $ 73,432 $ ( 52 ) $ 537,015 $ — $ 537,015 5 Table of Contents Nine Months Ended September 30, 2022 Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Total Stockholders’ Nonredeemable Noncontrolling Total Permanent Shares Amount Capital Earnings Loss Equity Interests Equity Balance as of December 31, 2021 94,510 $ 9 $ 470,364 $ 98,147 $ ( 340 ) $ 568,180 $ — $ 568,180 Issuance of common stock in relation to business acquisition 690 1 14,504 — — 14,505 — 14,505 Noncontrolling interests from business combination — — — — — — 12,084 12,084 Net income (loss) — — — ( 61,097 ) — ( 61,097 ) 14 ( 61,083 ) Other comprehensive loss — — — — ( 12,823 ) ( 12,823 ) ( 406 ) ( 13,229 ) Change in redemption value of redeemable noncontrolling interests — — — ( 12,330 ) — ( 12,330 ) — ( 12,330 ) Dividend paid to nonredeemable noncontrolling interests — — — — — — ( 900 ) ( 900 ) Issuance of common stock in connection with employee equity incentive plans 822 — 4,132 — — 4,132 — 4,132 Shares withheld related to net share settlement ( 72 ) — ( 1,379 ) — — ( 1,379 ) — ( 1,379 ) Stock-based compensation — — 17,012 — — 17,012 — 17,012 Balance as of September 30, 2022 95,950 $ 10 $ 504,633 $ 24,720 $ ( 13,163 ) $ 516,200 $ 10,792 $ 526,992 Nine Months Ended September 30, 2021 Common Stock Additional Paid-in Retained Earnings (Accumulated Accumulated Other Comprehensive Total Stockholders’ Nonredeemable Noncontrolling Total Permanent Shares Amount Capital Deficit) Income (Loss) Equity Interests Equity Balance as of December 31, 2020 91,935 $ 9 $ 438,667 $ ( 2,813 ) $ 1,527 $ 437,390 $ — $ 437,390 Net income — — — 76,245 — 76,245 — 76,245 Other comprehensive loss — — — — ( 1,579 ) ( 1,579 ) — ( 1,579 ) Issuance of common stock in connection with employee equity incentive plans 2,258 — 11,493 — — 11,493 — 11,493 Shares withheld related to net share settlement ( 7 ) — ( 215 ) — — ( 215 ) — ( 215 ) Stock-based compensation — 13,681 — — 13,681 — 13,681 Balance as of September 30, 2021 94,186 $ 9 $ 463,626 $ 73,432 $ ( 52 ) $ 537,015 $ — $ 537,015 The accompanying notes are an integral part of these condensed consolidated financial statements 6 Table of Contents Corsair Gaming, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 61,064 ) $ 76,245 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation 16,877 13,656 Depreciation 7,695 7,581 Amortization 33,924 26,118 Debt issuance costs amortization 274 1,372 Loss on debt extinguishment — 4,868 Deferred income taxes ( 19,552 ) ( 6,556 ) Other 1,721 1,649 Changes in operating assets and liabilities: Accounts receivable 133,362 38,556 Inventories 54,371 ( 102,896 ) Prepaid expenses and other assets ( 7,132 ) ( 7,790 ) Accounts payable ( 74,091 ) ( 51,842 ) Other liabilities and accrued expenses ( 41,243 ) 24,100 Net cash provided by operating activities 45,142 25,061 Cash flows from investing activities: Acquisition of business, net of cash acquired ( 19,534 ) ( 1,684 ) Payment of deferred contingent consideration ( 95 ) ( 4,678 ) Purchase of property and equipment ( 19,850 ) ( 7,677 ) Investment in available-for-sale convertible note ( 1,000 ) — Net cash used in investing activities ( 40,479 ) ( 14,039 ) Cash flows from financing activities: Proceeds from issuance of debt, net — 248,513 Repayment of debt ( 3,750 ) ( 326,974 ) Payment of debt issuance costs ( 267 ) — Borrowing from line of credit 626,000 — Repayment of line of credit ( 626,000 ) — Payment of contingent consideration ( 438 ) — Proceeds from issuance of shares through employee equity incentive plans 4,132 11,493 Payment of taxes related to net share settlement of equity awards ( 1,399 ) ( 215 ) Dividends paid to noncontrolling interests ( 2,205 ) — Net cash used in financing activities ( 3,927 ) ( 67,183 ) Effect of exchange rate changes on cash ( 4,434 ) ( 1,078 ) Net decrease in cash and restricted cash ( 3,698 ) ( 57,239 ) Cash and restricted cash at the beginning of the period 65,380 133,568 Cash and restricted cash at the end of the period $ 61,682 $ 76,329 Supplemental cash flow disclosures: Cash paid for interest $ 5,406 $ 10,066 Cash paid for income taxes 9,243 9,842 Supplemental schedule of non-cash investing and financing activities: Equipment purchased and unpaid at period end $ 1,617 $ 2,084 Right-of-use assets obtained in exchange for operating lease liabilities 1,767 34,557 Issuance of common stock relating to business acquisition 14,505 — Debt issuance costs unpaid at period end 283 168 The accompanying notes are an integral part of these condensed consolidated financial statements 7 Table of Contents Corsair Gaming, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business 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, many of which build their own PCs using our components. Corsair is organized into two reportable segments: • Gamer and creator peripherals . Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, as well as coaching and training 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 and laptops, and gaming monitor, among others. 2. Summary of Significant Accounting Policies Basis of Presentation Our interim condensed 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 Consolidated Financial Statements included in our Annual Report on Form 10K for the year ended December 31, 2021 which was filed with the SEC on March 1, 2022. The condensed consolidated balance sheet as of December 31, 2021, 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 consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K. The interim condensed consolidated financial statements have been prepared on the same basis as the audited 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 consolidated balance sheet as of September 30, 2022 and our results of operations for the three and nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the current fiscal year or any other future periods. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Corsair and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For consolidated entities where we own less than 100% of the equity, our consolidated net comprehensive income (loss) is reduced by the portion attributable to the noncontrolling interests. In determining whether an entity is considered a controlled entity, we apply the VIE (Variable Interest Entity) and VOE (voting interest entity) models. Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, we consolidate the entity if we determine that we have a controlling financial interest in the entity through our ownership of greater than 50% of the outstanding voting shares of the entity and that other equity holders do not have substantive voting, participating or liquidation rights. On January 1, 2022 (the “Closing” or “Closing Date”), we completed the acquisition of a 51 % ownership stake in Elgato iDisplay Holdings LTD. and its related companies (together “iDisplay”). (See Note 5 , “Business Combination - iDisplay Acquisition” for more details on the iDisplay Acquisition). We have determined that iDisplay does not qualify as a VIE and Corsair has a controlling financial 8 Table of Contents interest in iDisplay under the VOE model and therefore, iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022. As a result, w e recorded net income of $ 0.3 million and $ 33 thousand attributable to noncontrolling interests in our condensed consolidated statement of operations for the three and nine months ended September 30 , 2022, respectively, equal to the 49 % of the ownership interest retained in iDisplay by the noncontrolling interests. Noncontrolling Interests We have included both redeemable noncontrolling interests and noncontrolling interests in our condensed consolidated balance sheet in connection with our consolidation of the 51 % ownership of iDisplay . Redeemable noncontrolling interests that are redeemable and not solely within our control are classified within temporary equity in the condensed consolidated balance sheets. Redeemable noncontrolling interests are measured at the greater of the redemption value (calculated based on the formula stipulated in the Shareholders Agreement between the iDisplay seller and Corsair and, including the amounts for dividends not currently declared or paid, for which the payment is not solely within our control), or the carrying value before giving effect to the redemption feature. The redeemable noncontrolling interests are recorded at their maximum redemption value at each reporting date. The redemption value is remeasured each quarter and changes in the value are recognized immediately. Any resulting change in the value of the redeemable noncontrolling interests is recognized through retained earnings and this adjustment also impacts the net income or loss attributable to common stockholders of Corsair Gaming, Inc used in the net income (loss) per share calculation. (See Note 15 for more information regarding the redeemable noncontrolling interests). In addition, we have noncontrolling interests recorded at carrying value which do not have redemption features and are classified within permanent equity in our condensed consolidated balance sheet. Use of Estimates The preparation of condensed 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 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, and deferred income tax. 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. Risks and Uncertainties In February 2022, Russia invaded Ukraine resulting in, among other things, broad economic sanctions being imposed on Russia, and Russia’s drastic reduction in supply of natural gas to Europe in response, which has further increased existing global supply chain, logistics, and inflationary challenges and energy costs. Although our business in Russia and Ukraine was not material to our results, we believe the war has degraded the consumer sentiment in Europe and coupled with the unexpected worldwide inflationary pressures and the negative impacts from the strengthening of the U.S. dollar, has dampened consumer spending, which led to the 20.3 % and 29.9 % decrease in our net revenue in the three and nine months ended September 30, 2022, respectively, compared to the same periods last year. 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 through the first half of 2021, we have experienced an increase in demand for our gear as more people were under shelter-in-place restrictions, which we believe have limited people’s access to alternative forms of entertainment and social interaction, and thus have increased the demand for home entertainment and connecting with others through content creation. In contrast, as the COVID-19 pandemic subsides, it has resulted in shelter-in-place and other similar restrictions being eased. Such easing of restrictions has resulted in consumers returning to other alternative forms of entertainment and interaction. This in turn has resulted in a decline in demand for our products since the second half of 2021. In addition, we have experienced and may in the future continue to experience supply chain challenges, including longer production and shipping times, and increased shipping and logistics costs, each of which has negatively impacted our gross margins, as well as the need to purchase long-lead time items ahead of demand due to supply constraints. The extent of the impact of macroeconomic conditions, the COVID-19 pandemic and geopolitical tensions on our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are not within our control and are highly uncertain and cannot be predicted. We will continue to evaluate these risks and uncertainties and further our mitigation plans. 9 Table of Contents During the second fiscal quarter of 2022, as part of the plan to rationalize inventory level to align with our updated revenue outlook for 2022, we increased our inventory impairment and related charges by approximately $ 22.7 million, as compared to the same period last year. In the third fiscal quarter of 2022, we have seen the excess inventory situation in the distribution channels begin to ease in the United States. Inventory impairment and related charges, of a routine nature, were recognized in the three months ended September 30, 2022, and the amount was immaterial. In order to align our expenses with the expected revenue level, we implemented a restructuring plan in 2022 and terminated 94 employees worldwide, resulting in approximately $ 1.6 million of restructuring costs, primarily consisting of severance and benefits. Our restructuring plan has been completed as of September 30, 2022. Recently Adopted Accounting Pronouncements 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. We adopted this standard effective January 1, 2022 . The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. We adopted this standard effective January 1, 2022 . The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. Accounting Pronouncements Issued but Not Yet Adopted None. 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. The carrying values of certain of our financial instruments, including accounts receivable and accounts payable, approximate their fair values due to their short maturities. The following tables summarize our financial assets and financial 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 (in thousands): 10 Table of Contents September 30, 2022 (Level 1) (Level 2) (Level 3) Total Assets: Foreign currency forward contracts (1) $ — $ 828 $ — $ 828 Available-for-sale debt securities (2) — — 1,000 1,000 Total assets $ — $ 828 $ 1,000 $ 1,828 Liabilities: Deferred cash consideration in connection with a business acquisition—SCUF (3) $ — $ — $ 954 $ 954 Foreign currency forward contracts (1) — 15 — 15 Total liabilities $ — $ 15 $ 954 $ 969 December 31, 2021 (Level 1) (Level 2) (Level 3) Total Assets: Foreign currency forward contracts (1) $ — $ 33 $ — $ 33 Other — 3 — 3 Total assets $ — $ 36 $ — $ 36 Liabilities: Deferred cash consideration in connection with a business acquisition—SCUF (3) $ — $ — $ 1,250 $ 1,250 Foreign currency forward contracts (1) — 427 — 427 Other — — 224 224 Total liabilities $ — $ 427 $ 1,474 $ 1,901 (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) In May 2022, we invested in a convertible promissory note issued by a private company (the “Note”) for $ 1.0 million. The Note is interest bearing and matures in April 2023 . The Note is classified as an available-for-sale security and is included in prepaid expenses and other assets in our condensed consolidated balance sheets. We included the Note as Level 3 in the fair value hierarchy due to the absence of quoted market prices or other observable data. The fair value of the Note is estimated based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs requiring management judgement. ( 3 ) In December 2019, one of our subsidiaries entered into an Agreement and Plan of Merger with Scuf Holdings, Inc. and its subsidiaries (collectively “SCUF”) and acquired 100% of their equity interests (the “SCUF Acquisition”). 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, and these estimates represent a level 3 fair value measurement. The $ 1.3 million liability as of December 31, 2021 consisted of $ 0.3 million based on a contractual amount and the remaining $ 1.0 million is subject to update upon filing our tax return for tax year 2021. In March 2022, we paid the $ 0.3 million contractual amount, and the contingency around the remaining $ 1.0 million liability is expected to be resolved in the fourth quarter of 2022 and this amount is expected to be paid by the end of 2022. 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 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 consolidated statements of operations. We do no t enter into derivative instruments for trading purposes. 11 Table of Contents The foreign currency forward contracts generally mature within two to four months . The notional principal amount of outstanding foreign exchange forward contracts was $ 32.4 million and $ 48.6 million as of September 30 , 2022 and December 31, 2021 , respectively, no ne of which have been designated as hedging instruments during the periods presented. Total fair value gains (losses) recognized in other (expense) income, net in relation to these derivative instruments was $ 1.5 million and $ 0.4 million for the three months ended September 30 , 2022 and 2021 , respectively , and was $ 4.1 million and $ 0.5 million for th e n ine m onths ended September 30 , 2022 and 2021, respectively. 5. Business Combinations iDisplay Acquisition On January 1, 2022, we completed the acquisition of a 51 % ownership stake in iDisplay (the “ iDisplay Acquisition ”), a leader in electronic development and design specializing in display technology, headquartered in Taiwan. The fair value consideration for iDisplay was $ 36.4 million, including $ 21.9 million in cash and the issuance of 690,333 shares of our common stock with a fair value of $ 14.5 million at Closing Date. The consideration was reduced for the effective 51 % settlement of a pre-existing contractual accounts payable balance owed to iDisplay of $ 3.5 million. The iDisplay Acquisition will allow us to direct the development and integration of iDisplay’s display-based touch-screen technologies into our products for creators, gamers and streamers. iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022. The seller of iDisplay (the “iDisplay Seller”) has retained 49 % noncontrolling interests in iDisplay. Under the Shareholders Agreement between Corsair and the iDisplay Seller, a put option was provided to the iDisplay Seller and a call option was provided to Corsair for the option to transfer (i) 14 % ownership interest in iDisplay to Corsair upon the first anniversary of the Closing and (ii) an additional 15 % of ownership interest in iDisplay to Corsair upon the second anniversary of the Closing. Both put and call options expire on January 1, 2025 . The exercise price of the put option and the call option is based on multiples of iDisplay’s trailing twelve-month earnings before interest, income tax, depreciation and amortization (“TTM EBITDA”) less any debt. The 29 % noncontrolling interests entitled to the put option is considered a redeemable noncontrolling interests. See Note 2, “Summary of Significant Accounting Policies – Noncontrolling Interests” and Note 15, “Redeemable Noncontrolling Interests” for more information regarding the redeemable noncontrolling interests. The fair value of the 49 % noncontrolling interests was estimated to be $ 29.6 million. The control premium assigned to Corsair’s 51 % controlling financial interest was 15 %, which resulted in an implied minority discount of 13 %. The control premium was based on an analysis considering similar market transactions involving control premiums, as well as factors specific to iDisplay, including its significant customer concentration. Subsequent to the iDisplay Acquisition Closing Date, we recorded measurement period adjustments which increased goodwill by $ 1.0 million and decreased identifiable intangible assets and deferred liabilities by $ 1.1 million and $ 0.1 million, respectively. The final allocation of the iDisplay Acquisition purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows (in thousands): Amounts Cash $ 2,330 Accounts receivable 3,382 Inventories 2,772 Prepaid and other assets 424 Operating lease right-of-use asset 360 Property and equipment 277 Identifiable intangible assets 34,200 Goodwill 32,987 Total assets acquired 76,732 Accounts payable ( 5,106 ) Deferred tax liabilities ( 4,561 ) Accrued liabilities ( 731 ) Operating lease liabilities ( 360 ) Total liabilities assumed ( 10,758 ) Net assets acquired 65,974 Noncontrolling interests ( 29,606 ) Fair value of consideration transferred $ 36,368 Purchase consideration: Cash $ 21,864 Corsair common stock 14,504 Fair value of consideration transferred $ 36,368 12 Table of Contents The fair value of certain working capital related items, including accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, as well as the fair value of property and equipment approximated their book values at the date of the iDisplay Acquisition. The fair value of the inventories was estimated by major category, at net realizable value, which we believe approximates the price a market participant could achieve in a current sale. The difference between the fair value of the inventories and the book value recorded by iDisplay on the acquisition date was $ 0.3 million, which was recognized in cost of revenue in the consolidated statements of operations upon the sale of the acquired inventory. The excess of the purchase consideration over the fair value of the identifiable intangible assets and the net tangible assets and liabilities acquired has been estimated to be $ 33.0 million, of which $ 29.3 million and $ 3.7 million are assigned to our gamer and creator peripherals reporting unit and gaming component and systems reporting unit, respectively. We believe goodwill represents the strengthening of our supply chain with display-based touch-screen technologies into our products for creators, gamers and streamers, and the ability to design and generate new technologies to enhance the features of our products. A portion of the identifiable intangible assets are not deductible for tax purposes of which $ 4.6 million deferred tax liability has been estimated at the date of acquisition for the difference between the book and tax bases of these assets. The goodwill is not deductible for tax purposes. Valuation of identified intangible assets The following table summarizes the valuation of the identifiable intangible assets acquired in the iDisplay Acquisition and the estimate of their respective useful lives as of Closing Date, including subsequent measurement period adjustments: Valuation Useful Life (In thousands) (In years) Patent portfolio $ 5,100 6 Supplier relationships 6,800 6 Developed technology 22,300 6 Total identifiable intangible assets $ 34,200 The fair value of patent portfolio was estimated using the relief from royalty approach and the economic useful life was determined based on the average product life cycle of the products manufactured by iDisplay. The supplier relationships intangible asset represents the value assigned to the relationship iDisplay had established over the years with a broad network of suppliers and OEMs that have been crucial to the quality and magnitude of iDisplay manufacturing capability. The fair value of supplier relationships was estimated using the multi-period excess earnings approach and the economic useful life was determined to be aligned with the estimated useful life of the developed technology acquired from iDisplay. The developed technology intangible asset represents unpatented propriety technologies, such as hardware designs and architectures and process technologies used in the on-going research and design of the products manufactured by iDisplay. The fair value of developed technology was estimated using the income approach and the economic useful life was based on the technology cycle of the products manufactured, as well as the cash flows anticipated over the forecasted periods. The valuations of the intangible assets were calculated with the assistance of a third-party valuation firm. The fair values of these intangibles were valued based on long-term cash flow projections, which we consider to be Level 3 inputs. These intangibles are being amortized over their estimated useful lives using the straight-line method of amortization, which reflects the pattern in which the economic benefits of the intangible asset are consumed. Amortization of patent portfolio and supplier relationships is included in cost of revenue and amortization of developed technology is included in product development expense in our condensed consolidated statements of operations. Acquisition-related costs We incurred acquisition-related costs of approximately $ 0.1 million and $ 0.7 million for the three and nine months ended September 30, 2022, respectively, and $ 0.6 million for the year ended December 31, 2021. These costs are recorded in sales, general and administrative expenses in the consolidated statement of operations. Unaudited Pro-forma Financial Information 13 Table of Contents Pro forma financial information is not included because the effects of the acquisition are not material to our consolidated statements of operations for 2021. 6. Goodwill and Intangible Assets Goodwill The following table summarizes the changes in the carrying amount of goodwill by reportable segment (in thousands): Gaming Components and Systems Gamer and Creator Peripherals Total Balance as of December 31, 2021 $ 145,310 $ 171,744 $ 317,054 Addition from iDisplay Acquisition 3,485 28,485 31,970 Measurement period adjustments 235 782 1,017 Effect of foreign currency exchange rates ( 157 ) ( 3,582 ) ( 3,739 ) Balance as of September 30, 2022 $ 148,873 $ 197,429 $ 346,302 Intangible assets, net The following table is a summary of intangible assets, net (in thousands): September 30, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technology $ 53,986 $ 21,821 $ 32,165 $ 32,086 $ 14,922 $ 17,164 Trade name 29,339 6,253 23,086 30,665 4,942 25,723 Customer relationships 218,527 111,405 107,122 218,566 94,910 123,656 Patent portfolio 31,042 9,884 21,158 31,481 8,196 23,285 Non-competition agreements — — — 2,521 2,193 328 Supplier relationships 5,922 740 5,182 — — — Total finite-life intangibles 338,816 150,103 188,713 315,319 125,163 190,156 Indefinite life trade name 35,430 — 35,430 35,430 — 35,430 Other 113 — 113 123 — 123 Total intangible assets $ 374,359 $ 150,103 $ 224,256 $ 350,872 $ 125,163 $ 225,709 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. The estimated future amortization expense of intangible assets as of September 30, 2022 is as follows (in thousands): Amounts Remainder of 2022 $ 9,670 2023 37,561 2024 36,110 2025 35,814 2026 32,454 Thereafter 37,104 Total $ 188,713 14 Table of Contents 7. Balance Sheet Components The following tables present the components of certain balance sheet amounts (in thousands): Cash and Restricted Cash September 30, 2022 December 31, 2021 Cash $ 57,275 $ 62,415 Restricted cash—short term 4,176 2,734 Restricted cash—noncurrent 231 231 Total cash and restricted cash $ 61,682 $ 65,380 Accounts Receivable, Net September 30, 2022 December 31, 2021 Accounts receivable from customers $ 131,340 $ 291,816 Due from factor 25,599 — Allowance for doubtful accounts ( 628 ) ( 529 ) Accounts receivable, net $ 156,311 $ 291,287 On September 29, 2022, one of our fully consolidated subsidiaries entered into an accounts receivable factoring agreement (“ Factoring Agreement” ) with a third-party financial institution (“ Factor” ). Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor. Proceeds from factoring the accounts receivable are due upon collection of payments from the customers, but upon our request, the Factor may, at their sole discretion, remit a portion of the proceeds to us prior to their collection of payments from the customers. Our obligations to the Factor arising from the Factoring Agreement are secured by certain assets of our subsidiary. In the three months ended September 30, 2022, we sold receivables and received cash proceeds of $ 66.3 million and $ 40.6 million, respectively. The cost of factoring is included in selling, general and administrative expenses in our condensed consolidated statements of operations and the amount incurred in the three months ended September 30, 2022, was immaterial. As of S eptember 30, 2022, the amount due from the Factor was $ 25.6 million, or 16.4 % of our accounts receivable, net balance, with one other customer with more than 10% of our accounts receivable, net balance. Two customers represented 10% or more of our accounts receivable, net balance as of December 31, 2021. Inventories September 30, 2022 December 31, 2021 Raw materials $ 51,726 $ 62,110 Work in progress 9,975 4,931 Finished goods 188,241 231,274 Inventories $ 249,942 $ 298,315 Property and Equipment, Net September 30, 2022 December 31, 2021 Manufacturing equipment $ 27,342 $ 26,094 Computer equipment, software and office equipment 11,757 9,407 Furniture and fixtures 4,884 5,154 Leasehold improvements 15,935 4,709 Total property and equipment $ 59,918 $ 45,364 Less: Accumulated depreciation and amortization ( 33,208 ) ( 28,545 ) Property and equipment, net $ 26,710 $ 16,819 15 Table of Contents Other Assets September 30, 2022 December 31, 2021 Right-of-use assets $ 43,095 $ 51,387 Deferred tax asset 20,093 12,737 Other 7,160 7,684 Other assets $ 70,348 $ 71,808 Other Liabilities and Accrued Expenses September 30, 2022 December 31, 2021 Accrued reserves for customer incentive programs $ 52,151 $ 66,733 Accrued reserves for sales return 26,989 37,166 Income tax payable 13,902 6,316 Accrued freight expenses 11,931 18,296 Accrued payroll and related expense 10,280 20,526 Operating lease liabilities, current 7,690 9,457 Contract liabilities 3,406 6,663 Other 31,821 40,717 Other liabilities and accrued expenses $ 158,170 $ 205,874 Other Liabilities, Noncurrent September 30, 2022 December 31, 2021 Operating lease liabilities, noncurrent $ 44,574 $ 51,153 Other 3,222 2,718 Other liabilities, noncurrent $ 47,796 $ 53,871 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. In connection with such nonmonetary transactions with our manufacturers, as of September 30, 2022 , we recognized $ 0.5 million prepaid inventory and $ 0.6 million accrued liabilities and as of December 31, 2021, we recognized $ 5.0 million prepaid inventory and $ 5.4 million accrued liabilities in the condensed consolidated balance sheet. Because the transactions are nonmonetary, they have not been included in the condensed consolidated statements of cash flows pursuant to ASC 230, Statement of Cash Flows. 8. Debt Our debt consisted of the following (in thousands): September 30, 2022 December 31, 2021 Term Loan (variable rate) due September 2026 $ 245,000 $ 248,750 Debt discount and issuance cost, net of amortization ( 1,293 ) ( 1,099 ) Total debt 243,707 247,651 Less: debt maturing within one year 4,655 4,753 Long-term debt $ 239,052 $ 242,898 16 Table of Contents First Lien Credit and Guaranty Agreement (Extinguished in September 2021) 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 was to 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 2018 and 2019, primarily to fund various business acquisitions and operation needs. 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. We may prepay the First Lien Term Loan and the Revolver at any time without premium or penalty other than customary LIBOR breakage. In the nine months ended September 30, 2021, with the excess cash on hand, we made voluntary prepayments of $ 78.3 million. The remaining $ 248.5 million of the First Lien Term Loan was fully prepaid with the proceeds from the Term Loan (defined below) on September 3, 2021, and as a result, all obligations and covenants thereunder were terminated. Accordingly, we recorded losses on extinguishment of debt of $ 4.9 million for the nine months ended September 30, 2021. The effective interest rate inclusive of the debt discount and debt issuance costs for the First Lien was approximately 5.7 % and 5.4 % for the three and nine months ended September 30, 2021, respectively. Credit Agreement On September 3, 2021, we entered into a new Credit Agreement (“ Credit Agreement ”) which provides for a $ 100.0 million five-year revolving credit facility (“ Revolving Facility ”) and a $ 250.0 million five-year term loan facility (“ Term Loan ”), with each maturing in September 2026 . The Credit Agreement also permits, subject to conditions stated therein, additional incremental facilities in a maximum aggregate principal amount not to exceed $ 250.0 million. We may prepay the Term Loan and the Revolving Facility at any time without premium or penalty. The credit facilities under the Credit Agreement replaced our senior credit facilities under the First Lien Credit and Guaranty Agreement. The net proceeds from borrowings under the Credit Agreement of $ 248.5 million (net of $ 1.5 million of debt discount) were used to repay all amounts outstanding under the First Lien Term Loan on September 3, 2021. The Term Loan and Revolving Facility under the Credit Agreement initially carried interest at the Company’s election at either (a) LIBOR plus a percentage spread (ranging from 1.25 % to 2.0 %) based on our total net leverage ratio, or (b) the base rate (described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) one-month LIBOR plus 1.0 %) plus a percentage spread (ranging from 0.25 % to 1.0 %) based on our net leverage ratio. The Credit Agreement contains covenants with which we must comply during the term of the agreement, which we believe are ordinary and standard for agreements of this nature. The financial covenants include the maintenance of a maximum Consolidated Total Net Leverage Ratio of 3.0 to 1.0 and a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0 (as defined in the Credit Agreement) . The Credit Agreement also includes events of default customary for facilities of this nature and upon the occurrence of such events of default, among other things, all outstanding amounts under the Credit Agreement may be accelerated and/or the lenders’ commitments terminated. In addition, upon the occurrence of certain events of default, the interest on the Term loan and Revolving Facility can be increased by 2.0 %. Our obligations under the Credit Agreement are guaranteed by substantially all of our U.S. subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation. On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“ First Amendment ”), which among other changes resulted in the Bloomberg Short-Term Bank Yield Index rate (“ BSBY ”) being utilized as a replacement rate for LIBOR. Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at the Company’s election at either (a) BSBY plus a percentage spread (ranging from 1.25 % to 2.25 %) based on our total net leverage ratio, or (b) the 17 Table of Contents base rate ( as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50 % and (iii) one-month BSBY plus 1.0 %) plus a percentage spread (ranging from 0.25 % to 1.25 %) based on our total net leverage ratio. In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) was also amended to increase to 3.50 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.00 to 1.00 from the quarter ended June 30 , 2023 and each quarter thereafter , provided that, upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.50 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met . On September 29, 2022, we entered into an accounts receivable Factoring Agreement with a Factor. See Note 7 “Balance Sheet Components – Accounts Receivable, Net” for additional information on the Factoring Agreement . In connection with the Factoring Agreement, we also entered into (i) a Second Amendment ( “ Second Amendment ”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral. The First and Second Amendment were both accounted for as debt modifications. As of September 30, 2022, we were not in default under the Credit Agreement. As of September 30, 2022 and December 31, 2021, we had no outstanding balance under the Revolving Facility. The carrying value of our Term Loan was $ 243.7 million and $ 247.7 million as of September 30, 2022 and December 31, 2021, respectively. The estimated fair value of the Term Loan as of September 30, 2022, which we have classified as a Level 2 financial instrument, was approximately $ 243.2 million. The effective interest rate inclusive of the debt discount and debt issuance costs was approximately 3.8 % and 2.5 % for the three and nine months ended September 30, 2022, respectively. The following table summarizes the interest expense recognized for all periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 First Lien Guaranty Agreement: Contractual interest expense for term loan $ — $ 2,399 $ — $ 9,818 Amortization of debt discount and issuance cost — 291 — 1,343 Loss on debt extinguishment — 4,107 — 4,904 Credit Agreement: Contractual interest expense for term loan 2,129 286 4,364 286 Contractual interest expense for revolving facility 489 — 964 — Amortization of debt discount and issuance cost 102 29 274 29 Other 14 90 87 276 Total interest expense recognized $ 2,734 $ 7,202 $ 5,689 $ 16,656 The estimated future principal payments under our total long-term debt as of September 30, 2022 are as follows (in thousands): Amounts Remainder of 2022 $ 1,250 2023 6,875 2024 12,500 2025 12,500 2026 211,875 Thereafter — Total debt $ 245,000 18 Table of Contents 9. Commitments and Contingencies Product Warranties Changes in our warranty obligations were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Beginning of the period $ 4,765 $ 5,749 $ 5,655 $ 5,865 Warranty provision related to products shipped 244 1,690 2,709 5,223 Deductions for warranty claims processed ( 1,449 ) ( 1,678 ) ( 4,804 ) ( 5,327 ) End of period $ 3,560 $ 5,761 $ 3,560 $ 5,761 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 various reporting applications and the related support services. Long-term non-cancelable purchase commitments as of September 30, 2022 were as follows (in thousands) : Amounts Remainder of 2022 $ 563 2023 2,417 2024 2,417 2025 328 2026 — Thereafter — Total $ 5,725 Our total long term non-cancelable purchase commitments outstanding as of December 31, 2021 were $ 7.1 million. Letters of Credit There were no letters of credit outstanding as of September 30, 2022; total letters of credit outstanding were $ 0.5 million as of December 31, 2021. No amounts have been drawn upon the letters of credit for all periods presented. Legal Proceedings We may from time to time be involved in various claims and legal proceedings of a character normally incident to the ordinary course of business. Litigation can be expensive and disruptive to normal business operations, and the results of complex legal proceedings are difficult to predict, and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred and we record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information, we believe there are no existing claims or proceedings that are likely to have a material adverse effect on our financial position, or the outcome of these 19 Table of Contents matters is currently not determinable. An unfavorable outcome to any legal matter, if material, could have an adverse effect on our operations or financial position, liquidity of results of operations. 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 consolidated balance sheets, statements of operations, or statements of cash flows. We currently have directors’ and officers’ insurance. 10. Stockholders’ Equity 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 September 30, 2022 and December 31, 2021. 11. Equity Incentive Plans and Stock-Based Compensation As of September 30, 2022 , 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 consolidated statements of operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenue $ 369 $ 282 $ 1,034 $ 756 Sales, general and administrative 4,505 4,889 13,518 11,061 Product development 769 641 2,329 1,839 Stock-based compensation expense, net of amounts capitalized (1) $ 5,643 $ 5,812 $ 16,881 $ 13,656 Income tax benefits related to stock-based compensation expense $ 123 $ 832 $ 493 $ 5,987 (1) Total stock-based compensation expense capitalized in inventory and as cloud computing arrangement implementation costs were not material for each of the periods presented. The following table summarizes by type of grant, the total unrecognized stock-based compensation expense and the remaining period over which such expense is expected to be recognized (in thousands, except number of years): September 30, 2022 Unrecognized Expense Remaining weighted average period (In years) Stock Options $ 24,702 2.6 RSUs 27,773 3.0 ESPP 300 0.25 Total unrecognized stock-based compensation expense $ 52,775 The total intrinsic value of options exercised was $ 0.4 million and $ 4.4 million for the three and nine months ended September 30, 2022, respectively, and was $ 8.8 million and $ 62.4 million for the three and nine months ended September 30, 2021, respectively . The total fair value of RSUs vested was $ 1.1 million and $ 4.0 million for the three and nine months ended September 30, 2022, respectively, and was $ 0.8 million for both the three and nine months ended September 30, 2021. 20 Table of Contents 12. Net Income (Loss) Per Share The following table summarizes the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator Net income (loss) $ ( 5,945 ) $ 1,777 $ ( 61,064 ) $ 76,245 Less: Net income attributable to noncontrolling interests 266 — 33 — Net income (loss) attributable to Corsair Gaming, Inc. ( 6,211 ) 1,777 ( 61,097 ) 76,245 Change in redemption value of redeemable noncontrolling interests ( 2,690 ) — ( 12,330 ) — Net income (loss) attributable to common stockholders of Corsair Gaming, Inc. $ ( 8,901 ) $ 1,777 $ ( 73,427 ) $ 76,245 Denominator Basic weighted-average shares outstanding 95,858 93,918 95,537 92,894 Effect of dilutive securities (1) — 6,123 — 7,222 Total diluted weighted-average shares outstanding 95,858 100,041 95,537 100,116 Net income (loss) per share attributable to common stockholders of Corsair Gaming, Inc. Basic $ ( 0.09 ) $ 0.02 $ ( 0.77 ) $ 0.82 Diluted $ ( 0.09 ) $ 0.02 $ ( 0.77 ) $ 0.76 Anti-dilutive potential common shares (1) 11,241 1,226 10,941 792 (1) Potential common share equivalents were not included in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive. 13. Income Taxes The table below presents our income (loss) before income taxes, income tax benefit (expense) and effective income tax rates for all periods presented (in thousands, except percentages): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Income (loss) before income taxes $ ( 12,060 ) $ 2,151 $ ( 72,326 ) $ 92,099 Income tax benefit (expense) 6,115 ( 374 ) 11,262 ( 15,854 ) Effective tax rate 50.7 % 17.4 % 15.6 % 17.2 % 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 50.7 % and 17.4 % for the three months ended September 30, 2022 and 2021, respectively. The increase in effective tax rates was primarily due to the change in the forecast and the mix of losses between the various jurisdictions. Our effective tax rates were 15.6 % and 17.2 % for the nine months ended September 30, 2022 and 2021, respectively. The decrease in effective tax rates was primarily due to an increase in losses in our foreign subsidiaries, which was partially offset by a decrease in excess tax benefits from stock-based compensation recognized in the nine months ended September 30, 2022, as compared to the same period last year. In addition, in the nine months ended September 30, 2021, we recorded a $ 1.4 million one-time tax 21 Table of Contents expense related to the remeasurement of our United Kingdom deferred tax liabilities as a result of the enactment of the increased corporate tax rate in the United Kingdom. Unrecognized tax benefits were $ 3.8 million as of September 30, 2022 and December 31, 2021, 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 . Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear, which includes capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, as well as coaching and training 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 and laptops, and gaming monitor, 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. The table below summarizes the financial information for each reportable segment (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenue Gamer and Creator Peripherals $ 96,848 $ 139,260 $ 319,985 $ 470,329 Gaming Components and Systems 214,921 251,861 656,383 923,109 Total net revenue $ 311,769 $ 391,121 $ 976,368 $ 1,393,438 Gross Profit Gamer and Creator Peripherals $ 31,790 $ 48,580 $ 85,405 $ 172,080 Gaming Components and Systems 39,770 52,782 113,370 219,961 Total gross profit $ 71,560 $ 101,362 $ 198,775 $ 392,041 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 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenue Americas $ 164,378 $ 189,330 $ 506,835 $ 606,788 Europe and Middle East 91,092 147,703 284,521 560,905 Asia Pacific 56,299 54,088 185,012 225,745 Total net revenue $ 311,769 $ 391,121 $ 976,368 $ 1,393,438 Revenues from sales to customers in the United States represented 44.7 % and 41.4 % for the three months ended September 30, 2022 and 2021, respectively, and represented 44.5 % and 37.3 % for the nine months ended September 30, 2022 and 2021, respectively. No other countries besides the United States represented 10 % or more of total net revenue for each of the periods presented. 22 Table of Contents Two customers represented at least 10 % of total net revenue for the three and nine months ended September 30, 2022 . One customer represented at least 10 % of total net revenue for the three and nine months ended September 30, 2021. 15. Redeemable Noncontrolling Interests Under the Shareholders Agreement between Corsair and the iDisplay Seller a put option was provided to the iDisplay Seller to transfer to Corsair (i) 14 % of their ownership interest in iDisplay upon the first anniversary of the Closing Date of the iDisplay Acquisition, and (ii) an additional 15 % of their ownership interest in iDisplay upon the second anniversary of the Closing Date. The put option will expire after January 1, 2025 . The exercise price of the put option is based on multiples of iDisplay’s historical TTM EBITDA less any debt. The put option makes this portion of the noncontrolling interests redeemable and therefore, the redeemable noncontrolling interests are classified as temporary equity and carried at redemption value on our condensed consolidated balance sheet. The change in redemption value is recognized through retained earnings. As of the Closing Date of the iDisplay Acquisition, the fair value of the total 49 % noncontrolling interests in iDisplay has been estimated to be $ 29.6 million, of which $ 17.5 million is attributable to the 29 % redeemable noncontrolling interests and classified within temporary equity and $ 12.1 million is attributable to the 20 % noncontrolling interests classified within permanent equity on our condensed consolidated balance sheets . The following table presents the changes in redeemable noncontrolling interests for the periods presented (in thousands): Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Balance at beginning of period $ 26,749 $ — Redeemable noncontrolling interests in iDisplay estimated at fair value at Closing Date — 17,522 Net income attributable to redeemable noncontrolling interests 157 19 Other comprehensive loss attributable to redeemable noncontrolling interests ( 314 ) ( 589 ) Dividend paid to the redeemable noncontrolling interests ( 1,305 ) ( 1,305 ) Change in redemption value of redeemable noncontrolling interests (1) 2,690 12,330 Balance at end of period (2) $ 27,977 $ 27,977 (1) These amounts represent a $ 2.7 million and $ 12.3 million increase in redemption value over the carrying value for the three and nine months ended September 30, 2022 respectively. These amounts were recorded as an offset to retained earnings and increased the net loss used in the calculation of net loss per share attributable for these periods. (2) The redeemable noncontrolling interests balance at September 30, 2022 included the amount that would be paid to the noncontrolling interests holder if they exercise their put option (calculated based on multiples of iDisplay’s historical TTM EBITDA less any debt), and the accrual for dividends based on the Shareholders Agreement. 23 Table of Contents