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These software platforms provide unified, intuitive performance, and aesthetic control and customization across their respective product families.
−Removed: We group our products into two categories (segments):
+Added: We group our products into two categories (operating segments):
Gamer and creator peripherals.
−Removed: Includes our high-performance gaming keyboards, mice, headsets, controllers, and our streaming gear including capture cards, Stream Decks, USB microphones, our Facecam streaming camera, studio accessories and EpocCam software, as well as coaching and training services, among others.
+Added: Includes our high-performance gaming keyboards, mice, headsets, controllers, and 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.
−Removed: 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.
+Added: Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, and DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others .
Our gear is sold to end users worldwide through our retail channel or our direct-to-consumer channel.
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We believe our brand, scale and global reach provide significant competitive advantages and will allow us to continue to capture a growing share of the expanding gaming and streaming market.
−Removed: We believe we can continue to grow by offering market-leading gear
−Removed: to gamers , streamers and content creators, expanding the breadth of our product suite to meet the needs of our customers, growing our worldwide market share, continuing to invest in marketing, product innovation and sales, and selectively pursuing accretive acquisitions , such as the eight acquisitions we have completed since 2018 .
+Added: We believe we can continue to grow by offering market-leading gear to gamers, streamers and content creators, expanding the breadth of our product suite to meet the needs of our customers, growing our worldwide market share, continuing to invest in marketing, product innovation and sales, and selectively pursuing accretive acquisitions, such as the eight acquisitions we have completed since 2018.
Since traditional arcade games of the 1970s, gaming has evolved into the mainstream and taken a central place in the global entertainment landscape.
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We believe this indicates that the majority of the gaming hardware total addressable market is still consumed by a small percentage of gamers, and as a result, there is significant potential opportunity for gaming hardware sales.
−Removed: There are a number of drivers we believe will continue to fuel the gaming market’s expansion.
+Added: Although the gaming industry was negatively impacted in 2022 by global macroeconomic challenges, such as the ongoing war between Russia and Ukraine, the COVID-19 pandemic, volatility in exchange rates, inflationary trends, and evolving dynamics in the global trade environment, there are a number of drivers we believe will fuel the gaming market’s growth in 2023.
Technology continues to improve game quality.
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In parallel, digital content creation today has democratized, with content sharing, video-first communication and voice-chat being the norm among creators, viewers and gamers.
−Removed: Gaming content creation and streaming is now ubiquitous, with many active gaming channels on YouTube and live streaming hours watched across Twitch, Mixer, YouTube Gaming and Facebook Gaming is growing.
+Added: Gaming content creation and streaming is now ubiquitous, with many active
+Added: gaming channels on YouTube , and live streaming hours watched across Twitch, YouTube Gaming and Facebook Gaming is growing .
The proliferation of gaming content is attracting new gamers and increasing the performance focus of existing gamers.
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While emerging, these applications represent a promising avenue for continued expansion of the streaming gear market opportunity.
−Removed: We believe that the growth in gaming and streaming has enhanced demand for our gear by inspiring gamers and creators to reach for the next level of performance and content quality.
+Added: Inspiring gamers and creators aim to reach for the next level of performance and content quality, and we seek to meet this need with Corsair gear.
Competitive gaming rewards speed, precision and reliability.
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Competitive gamer performance needs are being met with specialized gear, such as ultra-precise optical sensors in gaming mice, very low actuation distances in gaming keyboard switches, customizable rear paddles on performance controllers, liquid cooling solutions for high-performance processors and overclocked DRAM modules to process graphically complex games.
−Removed: Similarly, the broadcast quality expected of streamers has increased significantly and a traditional webcam does not produce the professional quality audiences expect of content.
−Removed: Dedicated capture cards are required to record and broadcast video at high resolution, high fidelity microphones are required to ensure clear sound quality, studio lighting and green screens improve production quality, high resolution USB cameras are required to capture smooth and clear images, and dedicated software is required to allow a single-person operation to optimize the streaming experience, preventing lag and fidelity loss.
−Removed: Further, gamers striving for peak performance have heightened requirements for ergonomics and durability, and gamers and streamers often wish to express their personal style or brand with their choice of gear, including a range of appealing design options and opportunities for customization.
−Removed: Finally, gear integration has become an important feature, where gamers and streamers need all of their gear to integrate harmoniously and need the ability to fine-tune that gear, which we believe is an experience best delivered with a software platform that seamlessly integrates and unifies control across devices.
−Removed: Our two proprietary software ecosystems cover the broadest range of gaming peripherals, components and streaming gear, which we believe are unmatched by anything else in the market.
+Added: Similarly, streamers' broadcast needs are being met with professional audio/visual gear as audience demand for high-quality viewing experiences has grown, and continues to grow, significantly.
+Added: Further, Stream Deck studio control interfaces have become a mainstay in broadcast setups as gear and software integration has become critical for gamers and streamers who need all their devices to work together harmoniously.
+Added: Finally, gamers and streamers need the ability to customize their gear, which we believe is best delivered via a software platform that seamlessly unifies control across devices.
+Added: Our two proprietary software ecosystems cover the broadest range of gaming components, peripherals, and streaming gear, which we believe are unmatched by anything else in the market.
Our Competitive Strengths
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Expand into new gear and services that grow our market opportunity.
−Removed: Since our inception, we have successfully entered a number of new gear categories, including gaming PC peripherals, streaming accessories, console controllers, and prebuilt and gaming PCs and laptops.
+Added: Since our inception, we have successfully entered a number of new gear categories, including gaming PC peripherals, streaming accessories, console controllers, and prebuilt and custom built gaming PCs and laptops.
As the gaming and content creation landscape continues to evolve, we intend to continue to introduce new products and services to address our customers’ new and changing needs, and to grow our market opportunity.
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Through our acquisitions of Origin and SCUF in 2019, we acquired two companies whose sales are primarily generated through direct-to-consumer channels.
−Removed: Our acquisitions of Gamer Sensei in 2020 and Visuals by Impulse in 2021, both of which have recurring service revenue streams, engage directly with our customer base across our brands.
−Removed: While sales from this channel are a relatively small contributor to our revenue today, we believe direct-to-consumer sales represent a significant avenue to drive growth by facilitating increased market penetration across our product categories.
−Removed: The mix of direct-to-consumer sales represented 10.7%, 8.6% and 2.7% of our total revenue for the years ended December 31, 2021, 2020 and 2019.
+Added: While sales from this channel are a relatively small contributor to our revenue today, the percentage of such sales has grown consistently and we believe direct-to-consumer sales represent a significant avenue to drive growth by facilitating increased market penetration across our product categories.
+Added: The mix of direct-to-consumer sales represented 13.7%, 10.7%, and 8.6% of our total revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
Continue to grow market share globally.
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Our gamer and creator peripherals seek to provide the fastest, highest fidelity, and most seamless interface between digital athletes and their game, and content creators and their viewers.
−Removed: Our solutions include our high-performance gaming keyboards, mice, headsets, controllers, and 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 and content design services, among others.
+Added: Our solutions include our high-performance gaming keyboards, mice, headsets, controllers, and 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 .
We develop and sell high-performance gaming components to help gamers, streamers and content creators build their own custom gaming PCs.
−Removed: We also develop and sell complete high-performance gaming systems using our gaming components.
−Removed: Our prebuilt systems and user-built systems are designed to deliver maximum performance, all the while providing our customers the design aesthetic and customizability they demand.
−Removed: Our solutions include 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.
+Added: We also develop and sell complete high-performance gaming PCs and laptops using our gaming components.
+Added: Our prebuilt systems and user-built systems are designed to deliver maximum performance, while also providing our customers the design aesthetic and customizability they demand.
+Added: Our solutions include our PSUs, cooling solutions, computer cases, and DRAM modules, as well as high-end prebuilt and custom-built gaming PCs and laptops, and gaming monitors, among others.
PC Gaming Software .
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We have structured our marketing organization to achieve both product- and geography-specific coverage.
−Removed: In addition, our marketing personnel regularly meets with other key industry suppliers such as Intel, AMD, NVIDIA and Asus, in order to ensure that our product development efforts appropriately address the needs of their new products and also to discuss trends and changes in the computer technology market.
+Added: In addition, our marketing personnel regularly meets with other key industry suppliers such as Intel, AMD, and NVIDIA, in order to ensure that our product development efforts appropriately address the needs of their new products and also to discuss trends and changes in the computer technology market.
We build awareness of our products and brand through advertising campaigns, public relations efforts, marketing development funds and other financial incentives provided to retailers to promote our products, end-user rebates, online social media outreach, online and in-store promotions and merchandising, our website and other efforts.
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We also invest in sponsorships and partnerships with esports events, leagues teams and streaming influencers.
−Removed: We benefit from an active computer gaming community whose members communicate with each other through various online social media such as forums, blogs and social networks, including Facebook, Twitter and YouTube.
−Removed: In addition to forums hosted by third-party domains, we host Corsair-branded forums that are accessible via our website.
+Added: We benefit from an active computer gaming community whose members communicate with each other through various online social media such as forums, blogs and social networks, including Facebook, Instagram, Tik-Tok, Twitter and YouTube.
+Added: In addition to
+Added: forums hosted by third-party domains, we host a Corsair-branded forum that is accessible via our website.
We actively participate in this community, enabling us to communicate directly with our end customers.
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Sales and Distribution
−Removed: Our gear is purchased by gaming enthusiasts worldwide through either our e-tail and retail channel or our direct-to-consumer channel.
−Removed: In our e-tail and retail channel, we distribute our gear either directly to our reseller or through key distributors.
+Added: Our gear is purchased by gaming enthusiasts and content creators worldwide through either our e-retail and retail channel or our direct-to-consumer channel.
+Added: In our e-retail and retail channel, we distribute our gear either directly to resellers or through key distributors.
+Added: We have also seen a growing demand for our gear within the business-to-business channel since 2020.
While we historically have sold our gear directly to consumers through our website, following our acquisitions of Origin and SCUF Gaming in 2019, the volume of direct-to-consumer sales has increased as both of these companies primarily generated sales through direct-to-consumer channels.
−Removed: We believe direct-to-consumer sales represent a significant avenue to drive growth by facilitating increased market penetration across our product categories.
+Added: We believe direct-to-consumer sales represent a significant avenue to increase engagement with our customers to drive growth by facilitating increased market penetration across our product categories, and since 2019, our direct-to-consumer sales have grown consistently each year.
We have organized our sales organization into four major geographic regions—Europe (including the Middle East and North Africa), North America, Latin America and Asia Pacific (including South Africa)—and we have local language-speaking sales representatives in the countries that, in the aggregate, generate the majority of our net revenue.
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A small portion of our net revenue is from sales directly to original equipment manufacturers that manufacture gaming PCs.
−Removed: In 2021, 2020 and 2019, Amazon accounted for more than 10% of our net revenue, at 26.7%, 24.6% and 25.1%, respectively.
+Added: In 2022, 2021 and 2020, e-retailer Amazon accounted for more than 10% of our net revenue, at 26.0%, 26.7%, and 24.6%, respectively.
Production and Operations
−Removed: We believe we have developed a global, scalable production and operations infrastructure that allows us to deliver our products cost-effectively and in a timely manner.
+Added: We believe we have developed a global, scalable production and operations infrastructure that allows us to deliver our products promptly and cost-effectively.
We operate a facility in Taiwan where we assemble, test, package and ultimately supply nearly all of our DRAM modules and a significant portion of our customized gaming controllers, liquid cooling products and prebuilt gaming systems.
−Removed: We also assemble, test, package and ultimately supply our custom-built PCs in our U.S.
−Removed: facility, and our customized gaming controllers in our U.S.
−Removed: All of the other gear we sell is produced at factories operated by third parties
−Removed: located in Asia.
+Added: We also assemble, test, package and ultimately supply our custom-built PCs and our customized gaming controllers in our U.S.
+Added: facility in Atlanta, Georgia.
+Added: All of the other gear we sell is produced at factories operated by third parties located in Asia.
In addition, we outsource storage and shipping to several third-party logistics providers around the world which allows us to reduce order fulfillment time, reduce shipping costs and improve inventory flexibility.
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Given the products we sell and the global nature of our business, freight costs can have a significant impact on our expenses, because of this, we have developed a sophisticated forecasting and planning process designed to reduce the cost of transporting our products to our regional distribution hubs and finally, to our customers.
−Removed: The COVID-19 pandemic has affected our supply chain consistent with its effect across many industries, including creating shipping and logistics challenges, increasing freight costs significantly, and placing significant limits on component supplies.
−Removed: While we anticipated industry-wide supply chain tightening we took proactive inventory buffering measures in order to position us well during the second half of 2021 and going forward.
−Removed: We will take additional inventory actions as appropriate to align with market demand, and will continue to leverage strong partnerships with our suppliers.
−Removed: Since 2020, our revenue seasonality has been impacted positively and negatively, and thus has not followed historic patterns, by external events, such as shelter-in-place restrictions, global supply chain and logistics issues and availability of affordable GPUs, primarily caused by the COVID-19 pandemic.
−Removed: Historically, prior to 2020, we have experienced and expect to continue to experience seasonal fluctuations in sales due to the buying patterns of our customers and the spending patterns of gamers.
−Removed: Our net revenue has generally been lower in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs and GPUs, which usually take place in the second calendar quarter and which tend to drive sales in the following two quarters.
−Removed: Further, our net revenue tends to be higher in the third and fourth calendar quarter due to seasonal sales such as “Black Friday,” “Cyber Monday” and “Singles Day” in China, as retailers tend to make purchases in advance of these sales.
+Added: We have experienced and expect to continue to experience seasonal fluctuations in sales due to the buying patterns of our customers and spending patterns of gamers.
+Added: Our net revenue has generally been lower in the first and second calendar quarters due to lower consumer demand following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced CPUs, GPUs, and other computer hardware products, which usually take place in the second calendar quarter, and which tend to drive sales in the following two quarters.
+Added: Further, our net revenue tends to be higher in the third and fourth calendar quarters due to seasonal sales such as “Black Friday” and “Cyber Monday,” as well as “Singles Day” in China, as retailers tend to make purchases in advance of these sales.
Our sales also tend to be higher in the fourth quarter due to the introduction of new consoles and high-profile games in connection with the holiday season.
As a consequence of seasonality, our net revenue for the second calendar quarter is generally the lowest of the year followed by the first calendar quarter.
−Removed: Historical seasonal patterns may not continue in the future and have been impacted, and may be further impacted in the future, by increasing supply constraints, GPU shortages, shifts in customer behavior and the evolving impacts of the COVID-19 pandemic .
+Added: Historical seasonal
+Added: patterns may not continue in the future and have been impacted , most recently in 2020 and 2021 , and may be further impacted in the future, by macroeconomic factors, increasing supply constraints, GPU shortages, shifts in customer behavior and the continuing impacts of the COVID-19 pandemic.
We face intense competition in the markets for all of our products.
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Our competitors may be in a strong position to respond quickly to new technologies and may be able to design, develop, market, and sell their products more effectively than we can.
−Removed: In addition, some of our competitors are small or mid-sized specialty companies, which may enable them to react to changes in industry trends or
−Removed: consumer preferences or to introduce new or innovative products more quickly than we can.
+Added: In addition, some of our competitors are small or mid-sized specialty companies, which may enable them to react to changes in industry trends or consumer preferences or to introduce new or innovative products more quickly than we can.
As a result, our product development efforts may not be successful or result in market acceptance of our products.
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Human Capital Resources
−Removed: As of December 31, 2021, we had a total of 2,490 employees, including temporary employees and dedicated sales and software developer contractors.
−Removed: None of our employees is currently represented by a labor union or is covered by a collective bargaining agreement with respect to his or her employment.
+Added: As of December 31, 2022, we employed 2,480 persons, including contractors working full-time in our manufacturing operations as well as contractors supporting our software and IT development.
+Added: None of our direct employees is currently represented by a labor union or is covered by a collective bargaining agreement with respect to his or her employment.
To date we have not experienced any work stoppages, and we consider our relationship with our employees to be good.
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and we changed our name to Corsair Gaming, Inc.
−Removed: We completed the initial public offering, or the IPO, of our common stock in September 2020 and our common stock is listed on the Nasdaq Global Select Market under the symbol “CRSR.” Our principal executive offices are located at 47100 Bayside Pkwy, Fremont, California 94538, and our telephone number is (510) 657-8747.
+Added: We completed the initial public offering, or the IPO, of our common stock in September 2020 and our common stock is listed on the Nasdaq Global Select Market under the symbol “CRSR.” Our principal executive offices are located at 115 N.
+Added: McCarthy Boulevard, Milpitas, California, 95035, and our telephone number is (510) 657-8747.
Available Information
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Copies of our reports on Form 10-K, Forms 10-Q, Forms 8-K, and amendments to those reports may also be obtained, free of charge, electronically through our investor relations website located at www.corsair.com as soon as reasonably practical after we file such material with, or furnish it to, the SEC.
−Removed: Information about Our Executive Officers
−Removed: Corsair’s executive officers as of March 1, 2022 are as follows:
−Removed: Chief Executive Officer and Director
−Removed: President and Chief Operating Officer
−Removed: Chief Financial Officer
−Removed: Vice President, Corporate Controller
−Removed: Paul co-founded Corsair in 1994.
−Removed: He has served as our Chief Executive Officer and President since 1994 and we appointed Mr.
−Removed: Paul to our board of directors in September 2018.
−Removed: Previously, Mr.
−Removed: Paul served as President of the Multichip Division at Cypress Semiconductor Corporation, a provider of semiconductor devices.
−Removed: Paul also founded Multichip Technology, Inc., a provider of high-performance memory modules and electronics in 1987, and the business was sold to Cypress Semiconductor Corporation in 1993.
−Removed: Prior to that, he worked as a marketing manager at Integrated Device Technology, Inc.
−Removed: and in several sales and marketing positions at Fairchild Semiconductor Incorporated.
−Removed: Paul holds a B.Sc.
−Removed: (Hons) in Physics from The City University, London, England.
−Removed: La has served as our President since January 2021 and as our Chief Operating Officer since August 2013.
−Removed: La was appointed to our board of directors in December 2021.
−Removed: From May 2010 to August 2013, Ms.
−Removed: La served as our Senior Vice President and General Manager of our gaming PC component unit.
−Removed: Previously, from April 2008 to July 2010, she served as the Vice President of Global Operations and Information Technology at Opnext, Inc., a designer and manufacturer of optical transponders for communications uses.
−Removed: From 1997 to 2008, she held various positions at HP, including Director of Consumer Desktop PC, Display and Accessories for North America.
−Removed: La holds a B.S.
−Removed: in Electrical Engineering from San Jose State University.
−Removed: Potter has served as our Chief Financial Officer since November 2019.
−Removed: Previously, Mr.
−Removed: Potter worked as a business consultant, including interim Chief Financial Officer work and advising a large pension fund.
−Removed: Prior to that, from July 2011 to May 2016, Mr.
−Removed: Potter was Chief Financial Officer and Chief Legal Officer at Canadian Solar, a company listed on the Nasdaq Exchange.
−Removed: Prior to that, Mr.
−Removed: Potter spent 10 years in the semiconductor industry holding multiple Chief Financial Officer roles at public companies including Lattice Semiconductor Corporation, Neophotonics and STATS ChipPac.
−Removed: Prior to that, Mr.
−Removed: Potter worked for six years at Honeywell in various financing and accounting positions, and at KPMG in Montreal as an auditor.
−Removed: Potter is a member of the board of Cordelio Power, Inc.
−Removed: and serves as the chair of its audit committee.
−Removed: Potter is a Chartered Professional Accountant (CPA).
−Removed: He received a Graduate Diploma of Public Accountancy from McGill University, and a BComm in Accounting from Concordia University.
−Removed: Lakritz has served as our Vice President, Corporate Controller since November 2017.
−Removed: From July 2017 to October 2017, Mr.
−Removed: Lakritz served as a Senior Strategic Consultant at Trimble Inc., or Trimble.
−Removed: From September 2011 to June 2017 he worked at Harmonic Inc., a publicly traded company which sells high-performance video software and cable access solutions, where he served initially as the Vice President and Corporate Controller from September 2011 to December 2014, and then as Chief Accounting Officer, Vice President and Corporate Controller.
−Removed: Previously, Mr.
−Removed: Lakritz also served as a Corporate Controller at Trimble, from
−Removed: October 2005 to September 2011.
−Removed: Lakritz is a Certified Public Accountant and he earned a B.A.
−Removed: in Accounting from the University of Wisconsin-Milwaukee and an M.B.A.
−Removed: from the University of Wisconsin-Madison.
Risk Factor Summary
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If we are unable to do so, demand for our current gear may decline and new gear we introduce may not be successful.
−Removed: We depend upon the introduction and success of new third-party high-performance computer hardware, particularly graphics processing units, or GPUs, and central processing units, or CPUs, and sophisticated new video games to drive sales of our gear.
+Added: We depend upon the introduction and success of new third-party high-performance computer hardware, particularly graphics processing units, or GPUs, and central processing units, or CPUs, and sophisticated new video games to drive
+Added: sales of our gear.
If newly introduced GPUs, CPUs and sophisticated video games are not successful, if the rate at which those products are introduced declines or if such products are not readily available , it may seriously harm our business.
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The coronavirus outbreak has had, and could continue to have, a materially disruptive effect on our business.
+Added: The ongoing war between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
We are controlled by a single stockholder, whose interest in our business may be different than yours.
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Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report.
−Removed: Unless otherwise indicated, references to our business being
−Removed: seriously harmed in these risk factors and elsewhere will include harm to our business, reputation, financial condition, results of operations, revenue and future prospects.
+Added: Unless otherwise indicated, references to our business being seriously harmed in these risk factors and elsewhere will include harm to our business, reputation, financial condition, results of operations, revenue and future prospects.
Risks Related to Our Business
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This requires that we constantly innovate by introducing new and enhanced gear that achieves significant levels of acceptance among gamers.
−Removed: We also need to continue to invest in, and devote substantial resources to, advertising, marketing and other efforts to create and maintain brand recognition and loyalty among our retailer customers, distributors and gamers.
+Added: We also need to continue to invest in, and devote substantial resources to, advertising, marketing, customer support and other efforts to create and maintain brand recognition and loyalty among our retailer customers, distributors and gamers.
However, product development, marketing and other brand promotion activities may not yield increased net revenue and, even if they do, any increased net revenue may not offset the expenses incurred in building our brands.
Further, certain marketing efforts such as sponsorship of esports athletes, content creators or events could become prohibitively expensive, and as a result these marketing initiatives may no longer be feasible.
+Added: Additionally, the quality of our customer support is important to our customers, and if we fail to provide adequate levels of customer support or devote substantial resources to customer support, we could lose customers.
+Added: Our consumers depend on our
+Added: customer support organization to resolve any issues relating to our gear and products .
+Added: A high level of support is critical for the successful mar keting of our brands and marketing and sales of our products.
If we fail to build and maintain our brands, or if we incur substantial expenses in an unsuccessful attempt to build and maintain our brands, our business may be harmed.
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Further, our growth depends in part on our ability to introduce and successfully market new gear and categories of gear.
−Removed: For example, in the last 18 months, we entered into three large new markets, namely the microphones and cameras market for content creators and the gaming monitors market for both gamers and content creators, and in the future, we intend to introduce other gear designed to appeal to these markets.
+Added: For example, in the last 24 months, we entered into four large new markets, namely the microphones and cameras markets for content creators, the gaming monitors market and prebuilt gaming laptops market for both gamers and content creators, and in the future, we intend to introduce other gear designed to appeal to these markets.
To the extent we do so, we will likely encounter competition from large, well-known consumer electronics and peripherals companies.
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We cannot predict whether we will be successful in developing or marketing new gear and categories of gear and, if we fail to do so, our business may be seriously harmed.
−Removed: In addition, we implemented a work from home policy for many of our employees as a result of the COVID-19 coronavirus outbreak, which may have a substantial impact on attendance, morale and productivity, disrupt access to facilities, equipment, networks, corporate systems, books and records and may add additional expenses and strain on our business.
+Added: In addition, we have shifted to a hybrid work model for many of our employees in response to the continuing COVID-19 disruptions.
+Added: Pursuant to this policy, many of our employees work in the office and at home on designated days.
+Added: This hybrid work model is relatively new and may impair our ability to maintain a collaborative and innovative culture, and may cause disruptions among our employees, including decreases in productivity, challenges in communications between on-site and off-site employees and, potentially, employee dissatisfaction and attrition.
+Added: Further, any future attempt to transition away from the hybrid work model to more stringent on-site work requirements may result in employee dissatisfaction and attrition.
+Added: If we fail to retain key employees, attract new employees or maintain employee productivity as a result of the hybrid work model or an attempt to return to more on-site work, our business could be adversely impacted.
The duration and extent of the impact from the coronavirus outbreak on our business depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees.
−Removed: If a substantial number of our employees continue to work from home, it could negatively impact new gear and improvements and potentially result in delays or releasing significant updates.
If we do not execute on these factors successfully, demand for our current gear may decline and any new gear that we may introduce may not gain widespread acceptance.
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The manufacturers of those products are large, public, independent companies that we do not influence or control.
−Removed: As a result, our business results can be materially affected by the frequency with which new high-performance hardware products are introduced by these independent third parties, whether these products achieve widespread acceptance among gamers, whether such products are readily available at affordable prices and whether additional memory, enhanced PSUs or cooling solutions, new computer cases or other peripheral devices are necessary to support those products.
+Added: As a result, our business results can be materially affected by the frequency with which new high-performance hardware products are introduced by these independent third
+Added: parties, whether these products achieve widespread acceptance among gamers, whether such products are readily available at affordable prices and whether additional memory, enhanced PSUs or cooling solutions, new computer cases or other peripheral devices are necessary to support those products.
Although we believe that, historically, new generations of high-performance GPUs and CPUs have positively affected the demand for our gear, there can be no assurance that this will be the case in the future.
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We experience aggressive price competition and other promotional activities by competitors, including in response to declines in consumer demand and excess product supply or as competitors seek to gain market share.
−Removed: In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies.
+Added: We provide a variety of financial incentive programs to our customers, including special pricing arrangements, promotions, rebates and volume-based incentives, among others.
+Added: The reserves for such incentive programs are based on our judgment and estimates, using actual sales data, historical experience, forecasted incentives, anticipated volume of future purchases, and inventory levels in the channel.
+Added: There could be significant differences between the actual costs of such programs and our estimates.
+Added: Because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies.
Many of our current and potential competitors, some of which are large, multi-national businesses, have substantially greater financial, technical, sales, marketing, personnel and other resources and greater brand recognition than we have.
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Our primary competitors in the market for gaming keyboards and mice include Logitech and Razer.
−Removed: Our primary competitors in the market for headset and related audio products include Logitech, Razer and HP through its HyperX brand.
−Removed: Our primary competitors in the gamer and creator streaming gear market include Logitech,
−Removed: following its acquisition of Blue Microphones, and AVerMedia.
+Added: Our primary competitors in the market for headset and related audio products include Logitech, Razer, Steel Series and HP through its HyperX brand.
+Added: Our primary competitors in the gamer and creator streaming gear market include Logitech, following its acquisition of Blue Microphones, and AVerMedia.
Our primary competitors in the performance controller market include Microsoft and Logitech.
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Our primary competitors in the market for PSUs, cooling solutions and computer cases include Cooler Master, NZXT, EVGA, Seasonic and Thermaltake.
−Removed: Our primary competitors in the market for DRAM modules include G.Skill, Kingston and Micron through its Crucial division.
−Removed: Our primary competitors in the market for prebuilt gaming PCs and laptops include Dell through its Alienware brand, HP through its Omen brand, Asus and Razer.
+Added: Our primary competitors in the market for DRAM modules include G.Skill and Kingston.
+Added: Our primary competitors in the market for prebuilt gaming PCs and laptops include Dell through its Alienware brand, HP through its Omen brand, Asus, MSI and Razer.
Our primary competitors in the market for custom-built gaming PCs and laptops include iBuypower and Cyberpower.
Competitors in new markets .
−Removed: We are considering introducing new gear for gamers or streamers and content creators and, to the extent we introduce gear in new categories, we will likely experience substantial competition from additional companies, including large computer gaming and streaming peripherals and consumer electronics companies with global brand recognition and significantly greater resources than ours.
+Added: We are considering introducing new gear for gamers or streamers and content creators and, to the extent we introduce gear in new categories, we will likely experience substantial competition from additional companies, including
+Added: large computer gaming and streaming peripherals and consumer electronics companies with global brand recognition and significantly greater resources than ours.
Our ability to compete successfully is fundamental to our success in existing and new markets.
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If gaming, including streaming and esports, does not grow as expected or declines our business could be seriously harmed.
−Removed: Over the past two decades, gaming has grown from a relatively niche industry to a significant segment of the global entertainment industry with a wide following across various demographic groups globally.
+Added: Over the past three decades, gaming has grown from a relatively niche industry to a significant segment of the global entertainment industry with a wide following across various demographic groups globally.
This growth includes, and has been driven by, the rapid expansion of live game streaming by content creators and the growing popularity of professional competitive gaming, also referred to as esports.
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As a result, any decline or slowdown in the growth of the gaming industry or the declining popularity of the gaming industry could materially and adversely affect our business.
−Removed: While there were 2.6 billion mobile gamers in 2020, according to Newzoo, we have no specific plans to attract gamers who use only mobile devices or tablets and we have no plans to develop gear specifically designed for gamers who use mobile devices or tablets.
+Added: We have no specific plans to attract gamers who use only mobile devices or tablets and we have no plans to develop gear specifically designed for gamers who use mobile devices or tablets.
As a result, if gamers migrate to mobile devices or tablets and away from PCs and consoles, our business may be seriously harmed.
−Removed: In addition, there can be no assurance that the active demographics in gaming will continue to buy into and drive the growth
−Removed: in gamer culture and the games industry overall nor can there be any assurance that gaming will expand into new demographics that will drive growth.
+Added: In addition, there can be no assurance that the active demographics in gaming will continue to buy into and drive the growth in gamer culture and the games industry overall nor can there be any assurance that gaming will expand into new demographics that will drive growth.
Further, if gamers’ interest in video games is diminished, this may seriously harm our business.
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The success of our business depends on live game streaming and esports driving significant growth in the high-performance gaming and content streaming market, which could prompt strong growth in the sales of our gear.
−Removed: However, there are a number of factors which could result in the esports or live game streaming markets having limited or negative impact on our sales and overall growth.
+Added: However, there are a number of
+Added: factors which could result in the esports or live game streaming markets having limited or negative impact on our sales and overall growth.
These factors include:
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If we do not succeed in attracting, retaining and motivating highly qualified personnel, our business may be seriously harmed.
−Removed: Further, we also face significant competition for employees, particularly in the San Francisco Bay Area where our headquarters are located, and as a result, skilled employees in this competitive geographic location can often command higher compensation and may be
−Removed: difficult to hire.
−Removed: In addition, recent political and military events in Ukraine, poor relations between the United States and Russia, and sanctions by the United States and the E uropean U nion against Russia could have an adverse impact on our research and development efforts as we maintain significant research and development operations in Ukraine .
+Added: Further, we also face significant competition for employees, particularly in the San Francisco Bay Area where our headquarters are located, and as a result, skilled employees in this competitive geographic location can often command higher compensation and may be difficult to hire.
+Added: In addition, Russia’s invasion of Ukraine, poor relations between the United States and Russia, and sanctions by the United States and the European Union against Russia could have an adverse impact on our research and development efforts as we outsource significant research and development activities to companies in Ukraine.
Currency exchange rate fluctuations could result in our gear becoming relatively more expensive to our overseas customers or increase our manufacturing costs, each of which may seriously harm our business.
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dollars, an increase in the value of the U.S.
−Removed: dollar relative to the currency used in the countries where our gear is sold may result in an increase in the price of our gear in those countries, which may lead to a reduction in sales.
+Added: dollar relative to the currency used in the countries where our gear is sold has and may continue to result in an increase in the price of our gear in those countries, which has and may continue to lead to a reduction in sales in such countries.
Likewise, because we pay our suppliers and third-party manufacturers, most of which are located outside of the United States, primarily in U.S.
dollars, any decline in the value of the U.S.
−Removed: dollar relative to the applicable local currency, such as the Chinese Renminbi or the New Taiwan dollar, may cause our suppliers and manufacturers to raise the prices they charge us.
+Added: dollar relative to the applicable local currency, such as the Chinese Yuan or the New Taiwan dollar, may cause our suppliers and manufacturers to raise the prices they charge us.
In addition, we generally pay our employees located outside the United States in the local currency and, as a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies and changes in the value of the U.S.
dollar could result in significant increases in our expenses that may seriously harm our business.
+Added: Supply chain issues, including scarcity of raw materials or other components to produce our products and limited ability to control or influence our procurement process, could increase costs or cause a delay in our ability to produce our products, and could adversely affect our future results of operations and our overall financial performance.
+Added: We and our manufacturers rely on an extended third-party supply chain and the availability of raw materials to produce a significant amount of our gear.
+Added: From time to time we have experienced product shortages due to both disruptions in supply from the third parties that manufacture or supply our gear and our inability or the inability of these third-party manufacturers to obtain necessary components, and we may experience similar shortages in the future.
+Added: A reduction or interruption in supply, including interruptions due to the ongoing COVID-19 pandemic or geopolitical unrest beyond our control, an inability to procure quality raw materials in a cost effective manner and constrain volatile materials costs, a failure to monitor contract compliance to ensure and sustain sourcing savings, a failure to procure adequate inventory or raw materials from our suppliers or regulatory changes may lead to delays in manufacturing and increases in costs.
+Added: Moreover, procurement of many components used in our gear is generally the responsibility of the third parties that manufacture our gear, and we therefore have limited or no ability to control or influence the procurement process or to monitor the quality of components.
+Added: Our manufacturers or suppliers may provide us with products or components that do not perform reliably or do not meet our quality standards or performance specifications, are susceptible to early failure or contain other defects.
+Added: This may seriously harm our reputation, increase our warranty and other costs or lead to product returns or recalls, any of which may seriously harm our business.
+Added: Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages that could materially adversely affect our financial condition and operating results.
+Added: While we have entered into agreements for the supply of many components, there can be no assurance that we will be able to extend or renew these agreements on similar terms, or at all.
+Added: Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting our ability to obtain sufficient quantities of components on commercially reasonable terms.
+Added: Health crises, like the ongoing COVID-19 pandemic, have led, and could lead, to quarantines or labor shortages, which may impact the output of key suppliers because of longer production and shipping times, and increased supply, shipping and logistics costs, each of which have historically negatively impacted our gross margins, as well as the need to purchase long-lead time items ahead of demand due to supply constraints.
+Added: Any disruption in or termination of our relationships with any of our manufacturers or suppliers or our inability to develop relationships with new manufacturers or suppliers as and when required would cause delays, disruptions or reductions in product shipment and may require product redesigns, all of which could damage relationships with our customers, seriously harm our brand, increase our costs and otherwise seriously harm our business.
+Added: Likewise, shortages or interruptions in the supply of products or components, or any inability to procure these products or components from alternate sources at acceptable prices in a timely manner, could delay shipments to our customers and increase our costs, any of which may seriously harm our business.
+Added: If our customers experience delays or unavailability of our products due to our inability to obtain certain components, this may negatively impact our customers’ ordering patterns.
+Added: Accordingly, if our supply of components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to us, our financial condition and operating results could be materially adversely affected.
Total unit shipments of our gear have historically been higher during the third and fourth quarters of the year.
As a result, our sales may be subject to seasonal fluctuations, which may seriously harm our business.
−Removed: Since 2020, our revenue seasonality has been impacted positively and negatively, and thus has not followed historic patterns, by external events, such as shelter-in-place restrictions, global supply chain and logistics issues and availability of affordable GPUs, primarily caused by the COVID-19 pandemic.
−Removed: Historically, prior to 2020, we have experienced and expect to continue to experience seasonal fluctuations in sales due to the spending patterns of gamers who purchase our gear.
+Added: We have experienced and expect to continue to experience seasonal fluctuations in sales due to the spending patterns of gamers who purchase our gear.
Our total unit shipments have generally been lowest in the first and second calendar quarters due to lower sales following the fourth quarter holiday season and because of the decline in sales that typically occurs in anticipation of the introduction of new or enhanced GPUs, CPUs and other computer hardware products, which usually takes place in the second calendar quarter, and which tends to drive sales in the following two quarters.
−Removed: As a consequence of seasonality, our total unit shipments for the second calendar quarter are generally the lowest of the year, followed by total unit shipments for the first calendar quarter.
+Added: As a consequence of seasonality, our total unit
+Added: shipments for the second calendar quarter are generally the lowest of the year, followed by total unit shipments for the first calendar quarter.
As a result, our total unit shipments are subject to seasonal fluctuations, which may seriously harm our business.
−Removed: Historical seasonal patterns may not continue in the future and have been impacted, and may be further impacted in the future, by increasing supply constraints, GPU shortages, shifts in customer behavior and the evolving impacts of the COVID-19 pandemic .
+Added: Historical seasonal patterns may not continue in the future and have been impacted , most recently in 2020 and 2021 , and may be further impacted in the future, by macroeconomic factors, increasing supply constraints, GPU shortages, shifts in customer behavior and the continuing impacts of the COVID-19 pandemic .
Our results of operations are subject to substantial quarterly and annual fluctuations, which may adversely affect the market price of our common stock.
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fluctuations in the available supply of high-performance computer hardware resulting in the increased costs to gamers, which could ultimately lead to decreased demand for our gaming gear, due to factors such as component supply shortages or gamers purchasing GPUs for non-gaming purposes such as cryptocurrency mining;
−Removed: tensions between Russia and the Ukraine resulting in shipments of resources from these countries being delayed, or even ceasing, which could cause the GPU shortage to last longer as the production of GPUs require resources that come from these countries such as highly purified neon gas and palladium, of which Ukraine and Russia, respectively, are the world’s leading exporters;
−Removed: potential changes in trade relations arising from policy initiatives implemented by the current U.S.
−Removed: administration, which has been critical of existing and proposed trade agreements;
+Added: the war between Russia and the Ukraine resulting in shipments of resources from these countries being delayed, or even ceasing, which could cause the GPU shortage to last longer as the production of GPUs requires resources that come from these countries such as highly purified neon gas and palladium, of which Ukraine and Russia, respectively, are the world’s leading exporters;
+Added: potential changes in trade relations or the implementation of export sanctions, in particular any sanctions between the United States and China;
unexpected changes in laws, including tax and trade laws, and regulatory requirements;
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outbreaks of pandemics, such as the novel coronavirus;
−Removed: the impact of political instability, natural disasters, war and/or events of terrorism, such as the tensions between Russia and Ukraine and any military conflict that may ensue, and the corresponding tensions created from such conflict between Russia, the United States and countries in Europe as well as other countries such as China;
−Removed: macro-economic fluctuations in the United States and global economies, including those that impact discretionary consumer spending such as may result from the COVID-19 coronavirus outbreak;
+Added: the impact of political instability, natural disasters, war and/or events of terrorism, such as the war between Russia and Ukraine, and the corresponding tensions created from such conflict between Russia, the United States and countries in Europe as well as other countries such as China;
+Added: macro-economic fluctuations in the United States and global economies, including those that impact discretionary consumer spending such as may result from the COVID-19 coronavirus outbreak, increased interest rates or increased inflation;
changes in business cycles that affect the markets in which we sell our gear;
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Conditions in the retail and consumer electronics markets may significantly affect our business and could have an adverse effect on our net revenue.
−Removed: We derive most of our revenue from higher priced gear sold through online and brick-and-mortar retailers to gamers, and we are vulnerable to declines in consumer spending due to, among other things, depressed economic conditions, reductions in disposable income and other factors that affect the retail and consumer electronics markets generally.
+Added: We derive most of our revenue from higher priced gear sold through online and brick-and-mortar retailers to gamers, and we are vulnerable to declines in consumer spending due to, among other things, depressed economic conditions, high inflation, reductions in disposable income (as a result of high inflation or otherwise) and other factors that affect the retail and consumer electronics markets generally.
In addition, our revenues are attributable to sales of high-performance gamer and creator peripherals and gaming components and systems, all of which are products that are geared to the computer gaming market which, like other consumer electronic markets, is susceptible to the adverse effects of poor economic conditions.
Other significant negative effects could include limited growth or reductions in worldwide sales of products that incorporate DRAM modules, such as PCs, smartphones and servers, resulting in excess supply in the worldwide DRAM market and reduced demand for our gear from our customers as they limit or lower their spending and inventory levels.
−Removed: Adverse economic conditions may also reduce our cash flow due to delays in customer payments, increase the risk of customer bankruptcy or business failures and result in increases in bad debt write-offs and receivables reserves.
+Added: Adverse economic conditions may
+Added: also reduce our cash flow due to delays in customer payments, increase the risk of customer bankruptcy or business failures and result in increases in bad debt write-offs and receivables reserves.
Other negative effects on our business resulting from adverse economic conditions worldwide may include:
higher costs for promotions, customer incentive programs and other initiatives used to stimulate demand;
−Removed: increased risk of excess and obsolete inventories, which may require write-downs or impairment charges;
+Added: constraints on consumer spending caused by higher inflation, increased interest rates and exchange rate fluctuations, leading to weaker consumer demand for our products;
+Added: increased risk of excess and obsolete inventories, which may require write-downs or impairment charges, such as the $22.5 million inventory impairment and related charges recognized during the second quarter of 2022;
financial distress or bankruptcy of key suppliers or third-party manufacturers, resulting in insufficient product quantities to meet demand or increases in the cost of producing our gear;
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Depressed economic conditions, whether in our key regional markets or globally, could result in a decline in both product prices and the demand for our gear, which may seriously harm our business.
−Removed: Our sponsorship of individuals, teams and events within the gaming community is subject to numerous risks that may seriously harm our business.
−Removed: We interact with the gaming community in numerous ways, including through the sponsorship of streamers, esports events, tournaments, esports athletes and teams.
−Removed: These sponsored events and individuals are associated with our brand and represent our commitment to the gaming community.
−Removed: There can be no assurance that we will be able to maintain our existing relationships with any of our sponsored individuals or teams in the future or that we will be able to attract new highly visible gamers to endorse our gear.
−Removed: Additionally, certain individuals or teams with greater access to capital may increase the cost of certain sponsorships to levels we may choose not to match.
−Removed: If this were to occur, our sponsored individuals, teams or events may terminate their relationships with us and endorse our competitors’ products, and we may be unable to obtain endorsements from other comparable alternatives.
−Removed: In addition, if any of our sponsored individuals or teams become unpopular or engage in activities perceived negatively in the gaming community or more broadly, our sponsorship expenditures could be wasted and our brand reputation could be damaged which, in turn, could seriously harm our business.
DRAM integrated circuits account for most of the cost of producing our DRAM modules and fluctuations in the market price of DRAM integrated circuits may have a material impact on our net revenue and gross profit.
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We purchase those DRAM ICs, pursuant to purchase orders and not long-term supply contracts, largely from third-party distributors and, to a lesser extent, directly from those manufacturers.
−Removed: According to the most recent external market share data for the year ended December 31, 2021, DRAM IC manufacturers, Samsung, a manufacturer of DRAM ICs, had an approximately 43% share of the worldwide DRAM IC market, compared to approximately 28% for Hynix and approximately 23% for Micron in each case for the same period.
+Added: According to the most recent external market share data for the trailing twelve months average, ended September 30, 2022, Samsung, a manufacturer of DRAM ICs, had an approximately 42% share of the worldwide DRAM IC market, compared to approximately 28% for Hynix and approximately 24% for Micron in each case for the same period.
However, should supply from any of these vendors be limited, there can be no assurance that we would be able to meet our needs by purchasing DRAM ICs produced by other manufacturers or from agents and distributors.
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The COVID-19 disease has spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.
−Removed: For example, starting in mid-March 2020, the governor of California, where our headquarters are located, issued shelter-in-place orders restricting non-essential activities, travel and business operations for an indefinite period of time, subject to certain exceptions for necessary activities.
−Removed: Such orders or restrictions have resulted in our headquarters closing, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our operations.
−Removed: The spread of COVID-19 has and could continue to seriously harm our business.
+Added: The spread of COVID-19 has harmed and future outbreaks of COVID-19 could continue to harm, our business.
Current and potential impacts include, but are not limited to, the following:
−Removed: the extended closures in early February 2020 and slow ramp up of capacity of many factories in China and other countries in Asia where many of our products and the components and subcomponents used in the manufacture of our gear created, and could continue to create, supply chain disruptions for our gear;
−Removed: supply and transportation costs have increased, and may continue to increase, as alternate suppliers are sought;
−Removed: labor shortages within delivery and other industries due to extended worker absences could create further supply chain disruptions;
+Added: Strict COVID-19 pandemic-related safety measures in Asia, for example, where many of our products and the components and subcomponents used in the manufacture of our gear created, have created, and could in the future create, supply chain disruptions for our gear;
extended employee absences could negatively impact our business, including potential reductions in the availability of the sales team to complete sales and delays in deliverables and timelines within our engineering and support functions;
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significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity, including our ability to repay the indebtedness outstanding from our credit facilities.
−Removed: 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 such as the elevated ocean freight costs we incurred in the second half of 2021, which led to increases in operating costs.
−Removed: As a result of the COVID-19 pandemic, we are continuing to experience logistics challenges globally.
−Removed: These negative financial impacts have been offset by strong revenue growth year-over-year
−Removed: partly due to an increase in demand for our gear as more people are 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.
−Removed: In contrast, as the COVID-19 pandemic subsides, it has, and could continue to , result in shelter-in-place and other similar restrictions being eased.
−Removed: Such easing of restrictions likely has, and will continue to , result in consumers returning to other alternative forms of entertainment and interaction.
−Removed: This in turn has, and could continue to, result in a decline in demand for our products.
−Removed: The extent to which the COVID-19 outbreak, including the spread of more contagious and deadly variants, ultimately impacts our business, results of operations, cash flows 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.
−Removed: 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.
+Added: Starting in early 2020 in connection with the COVID-19 pandemic, we experienced an increase in demand for our gear as more people were under shelter-in-place restrictions, which limited people’s access to alternative forms of entertainment and social interaction, and thus increased the demand for home entertainment and connecting with others through content creation at the start of the pandemic.
+Added: In contrast, as shelter-in-place and other similar restrictions were eased beginning in 2021, many consumers returned to other alternative forms of entertainment and interaction.
+Added: This in turn has resulted in a decline in demand for our products since the second half of 2021.
+Added: The extent to which the COVID-19 outbreak, including the spread of more contagious and deadly variants, ultimately impacts our business, results of operations, cash flows and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the continued 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 after healthy and safety restrictions are put in place from time to time.
+Added: Since the outbreak of the COVID-19 pandemic, we have experienced, and may continue to experience significant impacts to our business as a result of its continuing global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
+Added: The ongoing war between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
+Added: In February 2022, Russian military forces invaded Ukraine.
+Added: In response, Ukrainian military personnel and civilians are actively resisting the invasion.
+Added: Although the length, impact and outcome of the war is highly unpredictable, this war has contributed to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as an increase in cyberattacks and espionage.
+Added: Russia's recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have also led to an unprecedented expansion of sanction programs imposed by the United States, the European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People's Republic and the so-called Luhansk People's Republic.
+Added: The situation is rapidly evolving as a result of the war in Ukraine, and the United States, the European Union and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories.
+Added: In response to Russia’s invasion of Ukraine and the aforementioned sanctions, with effect from February 2022, we ceased the sale of all of our gear in Russia.
+Added: While we do not expect this decision to have a material adverse effect on our business, results of operations or financial condition, such sanctions and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results of operations.
+Added: In addition, the war, sanctions against Russia and Russia’s drastic reduction to the supply of natural gas to Europe in response to sanctions has and could continue to negatively impact the production and sales of consumer electronics due to a variety of factors such as lower consumer confidence, increase the ongoing disruption of supply chains, worsen the current semiconductor chip shortage since Russia and Ukraine are critical suppliers of neon gas and palladium used in chip production, exacerbate energy shortages and high energy prices, and increase cybersecurity threats.
+Added: These impacts have adversely impacted our operations, sales and profitability, and could continue to do so.
+Added: We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our suppliers and customers.
+Added: We have no way to predict the progress or outcome of the war in Ukraine or its impacts in Ukraine, Russia or Belarus as the war, and any resulting government reactions, are rapidly developing and are beyond our control.
+Added: The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.
+Added: Any of the abovementioned factors could affect our business, financial condition and results of operations.
+Added: Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.
A significant portion of our net revenue is generated by sales of DRAM modules and any significant decrease in the average selling prices of our DRAM modules would seriously harm our business.
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In 2022 and 2021, sales to Amazon accounted for 26.0% and 26.7% of our net revenue, respectively.
−Removed: Sales to our ten largest customers accounted for 51.7% and 52.7% of the same periods, respectively, of our net revenue.
−Removed: Our customers typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us from time to time.
+Added: Sales to our ten largest customers accounted for 52.3% and 51.7% of our net revenue in 2022 and 2021, respectively.
+Added: Our customers, including Amazon, typically do not enter into long-term agreements to purchase our gear but instead enter into purchase orders with us from time to time.
These purchase orders may generally be cancelled and orders can be reduced or postponed by the customer.
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Further, while we maintain accounts receivables insurance for many of our customers, we do not maintain such coverage for Amazon and others.
−Removed: As a result, if either Amazon or others were to default on its payment to us, we would not be covered by such insurance, and our business may be seriously harmed.
+Added: As a result, if either Amazon or others were to default on its payment to us, and if we were to have substantial accounts receivables balances with such customers outstanding, we would not be covered by such insurance, and our business may be seriously harmed.
If the financial condition of a key customer weakens, if a key customer stops purchasing our gear, or if uncertainty regarding demand for our gear causes a key customer to reduce their orders and marketing of our gear, our business could be seriously harmed.
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We have limited manufacturing facilities that only assemble our DRAM modules, custom built PCs, custom cooling and controllers, we have no guaranteed sources of supply of products or components and we depend upon a small number of manufacturers, some of which are exclusive or single-source suppliers, to supply our gear, each of which may result in product or component shortages, delayed deliveries and quality control problems.
−Removed: We maintain limited manufacturing facilities that only assemble DRAM modules, custom built PCs, custom cooling and performance controllers, and as a result, we depend entirely upon third parties to manufacture and supply the gear we sell and the components used in our gear such as gaming peripherals and gaming components.
+Added: We maintain limited manufacturing facilities that only assemble certain products such as our DRAM modules, custom built PCs, custom cooling and performance controllers, and as a result, we depend entirely upon third parties to manufacture and supply the gear we sell and the components used in our gear such as gaming peripherals and gaming components.
Our gear that is manufactured by outsourced parties is generally produced by a limited number of manufacturers and in some instances is purchased on a purchase order basis.
For example, each model of our gaming keyboards, gaming mice, gaming headsets, computer cases, PSUs and cooling solutions is produced by a single manufacturer.
−Removed: We do not have long-term supply agreements with some of our manufacturers and suppliers.
+Added: We do not have long-term supply agreements with most of our manufacturers and suppliers.
In addition, we carry limited inventory of our gear, and the loss of one or more of these manufacturers or suppliers, or a significant decline in production or deliveries by any of them, could significantly limit our shipments of gear or prevent us from shipping that gear entirely.
−Removed: Our reliance upon a limited number of manufacturers and suppliers exposes us to numerous risks, including those described below.
−Removed: Risks relating to production and manufacturing.
−Removed: Our business could be seriously harmed if our manufacturers or suppliers ceased or reduced production or deliveries, raised prices, lengthened production or delivery times or changed other terms of sale.
−Removed: In particular, price increases by our manufacturers or suppliers could seriously harm our business if we are unable to pass those price increases along to our customers.
−Removed: Further, the supply of products from manufacturers and suppliers to us could be interrupted or delayed, and we may be unable to obtain sufficient quantities of our products because of factors outside of our control.
−Removed: For example, our manufacturers and suppliers may experience financial difficulties, be affected by natural disasters or pandemics, have limited production facilities or manufacturing capacity, may experience labor shortages or may be adversely affected by regional unrest or military actions, such as the recent tensions between Russia and Ukraine.
−Removed: In addition, we may be slower than our competitors in introducing new products or reacting to changes in our markets due to production or delivery delays by our third-party manufacturers or suppliers.
−Removed: Likewise, lead times for the delivery of products being manufactured for us can vary significantly and depend on many factors outside of our control, such as demand for manufacturing capacity and availability of components.
−Removed: In addition, if one of our exclusive or single-source manufacturers were to stop production, or experience product quality or shortage issues, we may be unable to locate or engage a suitable replacement on terms we consider acceptable and, in any event, there would likely be significant delays before we were able to transition production to a new manufacturer and potentially significant costs associated with that transition.
−Removed: Risks relating to product quality .
−Removed: Our manufacturers or suppliers may provide us with products or components that do not perform reliably or do not meet our quality standards or performance specifications or are susceptible to early failure or contain other defects.
−Removed: This may seriously harm our reputation, increase our warranty and other costs or lead to product returns or recalls, any of which may seriously harm our business.
−Removed: Risks relating to product and component shortages.
−Removed: From time to time we have experienced product shortages due to both disruptions in supply from the third parties that manufacture or supply our gear and our inability or the inability of these third-party manufacturers to obtain necessary components, and we may experience similar shortages in the future.
−Removed: Moreover, procurement of the other components used in our gear is generally the responsibility of the third parties that manufacture our gear, and we therefore have limited or no ability to control or influence the procurement process or to monitor the quality of components.
−Removed: Any disruption in or termination of our relationships with any of our manufacturers or suppliers or our inability to develop relationships with new manufacturers or suppliers as and when required would cause delays, disruptions or reductions in product shipment and may require product redesigns, all of which could damage relationships with our customers, seriously harm our brand, increase our costs and otherwise seriously harm our business.
−Removed: Likewise, shortages or interruptions in the supply of products or components, or any inability to procure these products or components from alternate sources at acceptable prices in a timely manner, could delay shipments to our customers and increase our costs, any of which may seriously harm our business.
+Added: If one of our exclusive or single-source manufacturers were to stop production, or experience product quality or shortage issues, we may be unable to locate or engage a suitable replacement on terms we consider acceptable and, in any event, there would likely be significant delays before we were able to transition production to a new manufacturer and potentially significant costs associated with that transition.
If our proprietary iCUE software or Elgato streaming software suite have any “bugs” or glitches, or if we are unable to update the iCUE software or Elgato streaming software suite to incorporate innovations, our business may be seriously harmed.
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Our gear may suffer from design flaws, quality control problems in the manufacturing process or components that are defective or do not meet our quality standards.
−Removed: Moreover, the markets we serve are characterized by rapidly changing technology and intense competition and the pressure to continuously develop new gear and improvements and bring that gear and improvements to market quickly heightens the risks that our gear will be subject to both quality
−Removed: control and design problems.
+Added: Moreover, the markets we serve are characterized by rapidly changing technology and intense competition and the pressure to continuously develop new gear and improvements and bring that gear and improvements to market quickly heightens the risks that our gear will be subject to both quality control and design problems.
Because we largely rely on third parties to manufacture our gear and the components that are used in our gear, our ability to control the quality of the manufacturing process and the components that are used to manufacture our gear is limited.
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We operate a facility in Taiwan that assembles, tests, packages and ultimately supplies all of our DRAM modules and a significant portion of our cooling solutions, prebuilt and custom gaming systems and custom gaming controllers.
−Removed: We also assemble, test, package and ultimately supply our custom-built PCs in our U.S.
−Removed: facility, and our customized gaming controllers in our U.S.
+Added: We also assemble, test, package and ultimately supply our custom-built PCs and our customized gaming controllers in our U.S.
All of the other gear we sell, including the components used to assemble our DRAM modules, are produced at factories operated by third parties located in China, Taiwan and countries in Southeast Asia.
The fact that all of these facilities, manufacturers, suppliers and factories are concentrated in China, Taiwan and countries in Southeast Asia exposes us to numerous risks.
−Removed: We believe one of the most significant risks associated with this concentration is that production may be interrupted or limited because of labor shortages in southern China and by strains on the local infrastructure.
+Added: We believe one of the most significant risks associated with this concentration is that production may be interrupted or limited because of labor shortages in southern China, restrictive health and safety measures in response to ongoing COVID-19 outbreaks and by strains on the local infrastructure.
In addition, production at facilities located in China, Taiwan or Southeast Asia, including our own manufacturing, testing and packaging facility in Taiwan, and deliveries from those facilities, may be adversely affected by tensions, hostilities or trade disputes involving China, Taiwan, the United States or other countries.
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We rely upon third parties to manufacture our gear and to transport and distribute our gear to our customers.
−Removed: If we do not successfully coordinate the timely and efficient manufacturing and distribution of our gear, our costs may increase, we may experience a build-
−Removed: up in inventory, we may not be able to deliver sufficient quantities to meet customer demand and we could lose sales, each of which could seriously harm our business.
+Added: If we do not successfully coordinate the timely and efficient manufacturing and distribution of our gear, our costs may increase, we may experience a build-up in inventory, we may not be able to deliver sufficient quantities to meet customer demand and we could lose sales, each of which could seriously harm our business.
Our operating results are particularly sensitive to freight costs, and our costs may increase significantly if we are unable to ship and transport finished products efficiently and economically across long distances and international borders, which may seriously harm our business.
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The laws governing customs and tariffs in many countries are complex, subject to many interpretations and often include substantial penalties for non-compliance.
−Removed: Our effective tax rate may increase in the future, including as a result of tax legislation changes, which may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our effective tax rate may be impacted by changes in or interpretations of tax laws in any given jurisdiction, utilization of or limitations on our ability to utilize any tax credit carry-forwards, changes in geographical allocation of revenue and expense and changes in management’s assessment of matters such as our ability to realize the value of deferred tax assets.
−Removed: In particular, the U.S.
−Removed: government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate, the imposition of minimum taxes or surtaxes on certain types of income, significant changes to the taxation of income derived from international operations, and an addition of further limitations on the deductibility of business interest.
−Removed: While certain draft legislation has been publicly released and is under development in Congress at this time, the likelihood of these changes being enacted or implemented is unclear.
−Removed: Our effective tax rate could also increase due to several factors, including:
−Removed: changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
−Removed: changes in tax rates, tax treaties, and regulations or the interpretation of them;
−Removed: changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
−Removed: the outcome of current and future tax audits, examinations, or administrative appeals;
−Removed: the effects of acquisitions.
−Removed: In the past, we have experienced fluctuations in our effective income tax rate which reflects a variety of factors that may or may not be present in any given year.
−Removed: In light of these factors, there can be no assurance that our effective income tax rate will not change in future periods.
−Removed: Accordingly, if our effective tax rate were to increase, it may have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our ability to utilize our net operating losses, or NOLs, carryforwards and certain other tax attributes may be limited.
−Removed: Our ability to utilize our NOL carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOL carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOL carryforwards.
−Removed: Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited.
−Removed: We have experienced ownership changes in the past, and we may experience ownership changes in the future and/or subsequent shifts in our stock ownership (some of which may be outside our control).
−Removed: As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S.
−Removed: federal taxable income may be subject to limitations under Section 382, which could potentially result in increased future tax liability to us.
−Removed: In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Technological developments or other changes in our industry could render our gear less competitive or obsolete, which may seriously harm our business.
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As a result, we may need to invest significant resources in research and development to maintain our market position, keep pace with technological changes and compete effectively.
−Removed: Our product development expenses were $60.3 million and $50.1 million for 2021 and 2020, respectively, representing 3.2% and 2.9% of our net revenue for these periods, respectively.
+Added: Our product development expenses were $66.5 million and $60.3 million in 2022 and 2021, respectively, representing 4.8% and 3.2% of our net revenue for these periods, respectively.
Our failure to improve our gear, create new and relevant categories of gear and adapt to changing business models in a timely manner may seriously harm our business.
−Removed: In addition, recent political and military events in Ukraine, poor relations between the United States and Russia, and sanctions by the United States and the European Union against Russia could have an adverse impact on our research and development efforts as we maintain significant research and development operations in Ukraine.
+Added: In addition, Russia’s invasion of Ukraine, poor relations between the United States and Russia, and sanctions by the United States and the European Union against Russia could have an adverse impact on our research and development efforts as we outsource significant research and development activities to companies in Ukraine.
We order most of our gear from third-party manufacturers based on our forecasts of future demand and targeted inventory levels, which exposes us to the risk of both product shortages, which may result in lost sales and higher expenses, and excess inventory, which may require us to sell our gear at substantial discounts and lead to write-offs.
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This makes it difficult for us to adjust our inventory levels if orders fall below our expectations.
−Removed: Our failure to predict low demand for product can result in excess inventory, as well as lower cash flows and lower margins if we were unable to sell a product or if we were required to lower product prices in order to reduce inventories, and may also result in inventory write-downs.
+Added: Our failure to predict low demand for product can result in excess inventory, as well as lower cash flows and lower margins if we were unable to sell a product or if we were required to lower product prices in order to reduce inventories, and may also result in inventory write-downs such as the $22.5 million inventory impairment and related charges recognized during the second quarter of 2022 .
In addition, the cancellation or reduction of orders by our customers may also result in excess inventory.
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If we do not accurately predict product demand, our business may be seriously harmed.
−Removed: Order cancellations, product returns, price erosion, product obsolescence and retailer and distributor customer and gamer incentive programs may result in substantial inventory and/or receivables write-downs and seriously harm our business.
−Removed: The gear we sell is characterized by rapid technological change and short product life cycles.
−Removed: As a result, the gear that we hold in inventory may be subject to significant price erosion or may become obsolete, requiring inventory write-downs.
−Removed: We may experience excess or unsold inventory for a number of reasons, including demand for our gear being lower than our forecasts, order cancellations by our customers and product returns.
−Removed: In that regard, rights to return products vary by customer and range from the right to return defective products to limited stock rotation rights allowing the exchange of a limited percentage of the customer’s inventory for new product purchases.
−Removed: If the estimated market values of products held in our finished goods and work in process inventories at the end of any fiscal quarter are below our cost of these products, we will recognize charges to write down the carrying value of our inventories to market value.
−Removed: In addition, we provide a variety of rebates to both customers and gamers, including instant rebates, volume incentive rebates, back end rebates and mail-in rebates.
−Removed: We also have contractual agreements and cooperative marketing, promotional and other arrangements that provide rebates and other financial incentives to our retailer customers and gamers.
−Removed: To a limited extent, we also offer financial incentives related to retailer customer inventory of specific products.
−Removed: The aggregate amount of charges incurred as a result of all of these rebates and other financial incentives is offset from our gross revenue.
−Removed: For 2021 and 2020, our gross revenue was reduced approximately by 8% and 6%, respectively, as a result of these rebates.
−Removed: In the future, we also may be required to write down inventory or receivables due to product obsolescence or because of declines in market prices of our gear.
−Removed: Any write-downs or offsets could seriously harm our business.
Our indemnification obligations to our customers and suppliers for intellectual property infringement claims could require us to pay substantial amounts and may seriously harm our business.
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One of our strategies is to grow through acquisitions and we may also seek to grow through other strategic transactions such as alliances and joint ventures.
−Removed: In particular, we believe that our future growth depends in part on our ability to enhance our existing product lines and introduce new gear and categories of gear through acquisitions and other strategic transactions.
+Added: In particular, we believe that our future growth depends in part on our ability to enhance our existing
+Added: product lines and introduce new gear and categories of gear through acquisitions and other strategic transactions.
There is substantial competition for attractive acquisitions and other strategic transactions, and we may not be successful in completing any such acquisitions or other strategic transactions in the future.
−Removed: Acquisitions may be particularly challenging during the COVID-19 pandemic.
−Removed: For example, we will likely not be able to travel to conduct in-person meetings and due diligence sessions with potential target companies.
If we are successful in making any acquisition or strategic transaction, we may be unable to integrate the acquired business effectively or may incur unanticipated expenditures, which could seriously harm our business.
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In addition, foreign acquisitions or strategic transactions with foreign partners involve additional risks, including those related to integration of operations across different geographies, cultures and languages, as well as risks related to fluctuation in currency exchange rates and risks associated with the particular economic, political and regulatory environment in specific countries.
+Added: Our sponsorship of individuals, teams and events within the gaming community is subject to numerous risks that may seriously harm our business.
+Added: We interact with the gaming community in numerous ways, including through the sponsorship of streamers, esports events, tournaments, esports athletes and teams.
+Added: These sponsored events and individuals are associated with our brand and represent our commitment to the gaming community.
+Added: There can be no assurance that we will be able to maintain our existing relationships with any of our sponsored individuals or teams in the future or that we will be able to attract new highly visible gamers to endorse our gear.
+Added: Additionally, certain individuals or teams with greater access to capital may increase the cost of certain sponsorships to levels we may choose not to match.
+Added: If this were to occur, our sponsored individuals, teams or events may terminate their relationships with us and endorse our competitors’ products, and we may be unable to obtain endorsements from other comparable alternatives.
+Added: In addition, if any of our sponsored individuals or teams become unpopular or engage in activities perceived negatively in the gaming community or more broadly, our sponsorship expenditures could be wasted and our brand reputation could be damaged which, in turn, could seriously harm our business.
We need substantial working capital to operate our business, and we rely to a significant degree upon credit extended by our manufacturers and suppliers and borrowings under our revolving credit facility to meet our working capital needs.
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Additional financing may not be available on terms acceptable to us or at all.
−Removed: In particular, our access to other debt financing is limited by the negative covenant in our credit agreement restricting our ability to incur other indebtedness, as well as the financial covenants therein prohibiting our Consolidated Total Net Leverage Ratio from exceeding 3.0 to 1.0 or our Consolidated Interest Coverage Ratio being less than 3.0 to 1.0 (both tested quarterly on a trailing four fiscal quarter basis).
+Added: In particular, our access to other debt financing is limited by the negative covenant in our credit agreement restricting our ability to incur other indebtedness, as well as the financial covenants therein prohibiting our Consolidated Total Net Leverage Ratio from exceeding 3.75 to 1.0 from the quarter ending December 31, 2022 through and including March 31, 2023, 3.5 to 1.0 for the quarter ending June 30, 2023, 3.25 to 1.0 from the quarter ending September 30, 2023 through and including December 31, 2023, and not exceeding 3.0 to 1.0 from the quarter ended March 31, 2024 and each quarter thereafter or our Consolidated Interest Coverage Ratio being less than 3.0 to 1.0 for the quarter ending December 31, 2022, 2.5 to 1.0 from the quarter ending March 31, 2023 through and including December 31, 2023, and 3.0 to 1.0 from the quarter ended March 31, 2024 and each quarter thereafter (both tested quarterly on a trailing four fiscal quarter basis).
As a result, such restrictions could limit, perhaps substantially, the amount of indebtedness we are permitted to borrow under other debt arrangements.
−Removed: To the extent we are required to use additional borrowings under our revolving credit facility or from other sources (if available and if permitted by the credit facility) to provide working capital, it could increase our interest expense and expose us to other risks of leverage.
+Added: To the extent we incur additional indebtedness under our revolving credit facility or are required to incur indebtedness from other sources (if available and if permitted by the credit facility) to provide working capital, it could increase our interest expense and expose us to other risks of leverage.
Any inability to meet our working capital or other cash needs as and when required would likely seriously harm our business, results of operations and financial condition and adversely affect our growth prospects and stock price and could require, among other things, that we reduce expenses, which might require us to reduce shipments of our gear or our inventory levels substantially or to delay or curtail the development, commercialization and marketing of our gear.
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We have incurred significant indebtedness under our credit facilities to fund working capital and other cash needs and we expect to incur additional indebtedness in the future, particularly if we use borrowings or other debt financing to finance all or a portion of any future acquisitions.
−Removed: In addition, the terms of our credit facilities require, and any debt instruments we enter into in the future may require, that we comply with certain restrictions and
+Added: In addition, the terms of our credit facilities require, and any debt instruments we enter into in the future may require, that we comply with certain restrictions and covenants.
These covenants and restrictions, as well as any significant increase in our indebtedness, could adversely impact us for a number of reasons, including the following:
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Restrictions under our credit facilities .
−Removed: We must comply with covenants under our current credit facilities, which require 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 our credit facilities).
−Removed: Our Consolidated Total Net Leverage Ratio and Consolidated Interest Coverage Ratio were 1.1 to 1.0 and 11.5 to 1.0 as of December 31, 2021, respectively.
+Added: We must comply with covenants under our current credit facilities, which require the maintenance of a maximum Consolidated Total Net Leverage Ratio of 3.75 to 1.0 from the quarter ending December 31, 2022 through and including March 31, 2023, 3.5 to .1.0 for the quarter ending June 30, 2023, 3.25 to 1.0 from the quarter ending September 30, 2023 through and including December 31, 2023, and not exceeding 3.0 to 1.0 from the quarter ended March 31, 2024 and each quarter thereafter and a minimum Consolidated Interest Coverage Ratio of 3.0 to 1.0 for the quarter ending December 31, 2022, 2.5 to 1.0 from the quarter ending March 31, 2023 through and including December 31, 2023, and not less than 3.0 to 1.0 from the quarter ended March 31, 2024 and each quarter thereafter (as defined in our credit facilities).
While we were in compliance with all applicable financial covenants under our credit facilities as of December 31, 2022, there can be no assurance that we will not breach these financial covenants in our credit facilities in the future or other covenants in our future credit facilities.
Our credit facilities also include covenants that limit or restrict our ability to, among other things, incur liens on our properties, make acquisitions and other investments and sell assets, in each case, subject to specified exceptions.
−Removed: In addition to the covenants described in the preceding sentence, we are also prohibited from incurring indebtedness other than debt owed to the lenders under our credit facilities, debt associated with certain liens permitted by our credit facilities, certain subordinated debt and other specified exceptions.
+Added: In addition to the covenants described in the preceding sentence, we are also prohibited from incurring indebtedness other than debt owed to the lenders under our credit facilities, debt associated with certain liens permitted by our credit facilities, certain subordinated debt and other specified
Our credit facilities also contain restrictions on our ability to pay dividends or make distributions in respect of our common stock or redemptions or repurchases of our common stock.
We conduct our operations and sell our gear internationally and the effect of business, legal and political risks associated with international operations may seriously harm our business.
−Removed: Sales to customers outside the United States accounted for 61.7% and 62.1% our net revenue for 2021 and 2020, respectively.
+Added: Sales to customers outside the United States accounted for 54.6% and 61.7% our net revenue in 2022 and 2021, respectively.
In addition, substantially all of the gear that we sell is manufactured at facilities in Asia.
2 unchanged sentences
export and import duties, changes to import and export regulations, and restrictions on the transfer of funds;
+Added: fluctuating exchange rates;
political and economic instability;
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difficulties enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States and European countries;
−Removed: the risk that trade to or from some foreign countries, or companies in foreign countries that manufacture our gear or supply components that are used in our gear, may be affected by political tensions, trade disputes and similar matters, particularly between China and Taiwan or between China and the United States or Russia and Ukraine, and the United States and Russia;
+Added: the risk that trade to or from some foreign countries, or companies in foreign countries that manufacture our gear or supply components that are used in our gear, may be affected by political tensions, trade disputes and similar matters, particularly between China and Taiwan, China and the United States, Russia and Ukraine, and the United States and Russia;
United States and foreign trade restrictions, including those that may limit the importation of technology or components to or from various countries or impose tariffs or quotas;
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There can be no assurance that the risks relating to our international operations will not seriously harm our business.
+Added: We are subject to taxation-related risks in multiple jurisdictions, and the adoption and interpretation of new tax legislation, tax regulations, tax rulings, or exposure to additional tax liabilities could materially affect our business, financial condition and results of operations.
+Added: We are a U.S.-based multinational company subject to income and other taxes in the United States and other foreign jurisdictions in which we do business.
+Added: As a result, our provision for income taxes and our effective tax rate may be impacted by changes in or interpretations of tax laws in any given jurisdiction, utilization of or limitations on our ability to utilize any tax credit carryforwards, changes in geographical allocation of revenue and expense and changes in management’s assessment of matters such as our ability to realize the value of deferred tax assets.
+Added: Tax laws are regularly re‑examined and evaluated globally.
+Added: New laws and interpretations of the law are taken into account for financial statement purposes in the quarter or year that they become applicable.
+Added: Tax authorities are increasingly scrutinizing the tax positions of multinational companies.
+Added: or other foreign tax authorities change applicable tax laws, or if there is a change in
+Added: interpretation of existing law, our overall liability could increase, and our business, financial condition and results of operations may be harmed.
+Added: In particular, the U.S.
+Added: government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate, the imposition of minimum taxes or surtaxes on certain types of income, significant changes to the taxation of income derived from international operations, and an addition of further limitations on the deductibility of business interest.
+Added: For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 requires U.S.
+Added: research and experimental expenditures to be capitalized and amortized ratably over a five-year period.
+Added: Any such expenditures attributable to research conducted outside the United States must be capitalized and amortized over a 15-year period.
+Added: In addition, the Inflation Reduction Act of 2022 recently became law and imposes a minimum tax on certain corporations with book income of at least $1 billion, subject to certain adjustments, and a 1% excise tax on certain stock buybacks and similar corporate actions.
+Added: In addition, the Organization for Economic Co-Operation and Development has released guidance and blueprints covering various topics, including a global minimum effective tax rate on certain corporate groups known as “Pillar Two”, and rules governing transfer pricing, country-by-country reporting, and definitional changes to permanent establishment that could ultimately impact our tax liabilities as those guidance and blueprints are potentially implemented in various jurisdictions.
+Added: Our effective tax rate could also increase due to several factors, including:
+Added: changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
+Added: changes in tax rates, tax treaties, and regulations or the interpretation of them;
+Added: changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
+Added: the outcome of current and future tax audits, examinations, or administrative appeals;
+Added: the effects of acquisitions.
+Added: In the past, we have experienced fluctuations in our effective income tax rate which reflects a variety of factors that may or may not be present in any given year.
+Added: In light of these factors, there can be no assurance that our effective income tax rate will not change in future periods.
+Added: Accordingly, if our effective tax rate were to increase, it may have a material adverse effect on our business, financial condition and results of operations.
+Added: Finally, because we have substantial operations in a number of locations worldwide, tax authorities in various jurisdictions may raise questions concerning matters such as transfer pricing, whether revenues or expenses should be attributed to particular countries, the presence or absence of permanent establishments in particular countries and similar matters.
+Added: In addition, we have engaged in a number of material restructuring transactions in various jurisdictions, and the tax positions we have adopted in connection with these restructuring transactions may be subject to challenge.
+Added: Accordingly, a material assessment by a tax authority in any jurisdiction could require that we make significant cash payments without reimbursement.
+Added: If this were to occur, our business may be seriously harmed.
+Added: Our ability to utilize our net operating losses, or NOLs, carryforwards and certain other tax attributes may be limited.
+Added: Our ability to utilize our NOL carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOL carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOL carryforwards.
+Added: Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited.
+Added: As of December 31, 2022, we had NOL carryforwards for U.S.
+Added: federal, state and foreign tax purposes of $2.3 million, $28.2 million, and $33.0 million, respectively.
+Added: Certain of our tax attributes are subject to an annual limitation as a result of our change in ownership in August 2017, but we do not expect our tax attributes to be materially affected by the annual limitation.
+Added: In the event that we experience ownership changes due to future transactions in our stocks, the utilization of NOLs to reduce our future taxable income and tax liabilities may be limited, which could affect our profitability.
System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which may seriously harm our business.
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These threats are constantly evolving, making it increasingly difficult to successfully defend against them or implement adequate preventative measures.
−Removed: These attacks have occurred on our systems in the past and are expected to occur in the future.
−Removed: Experienced computer programmers, hackers and employees may penetrate our security controls and misappropriate or compromise our confidential information or that of our employees or third parties.
−Removed: These attacks may create system disruptions or cause shutdowns.
+Added: These malicious attempts have occurred on our systems in the past and are expected to occur in the future.
+Added: Experienced computer programmers, hackers and employees may penetrate our security controls and misappropriate or compromise our confidential information or that of our employees or third parties, which in turn, may create system disruptions or cause shutdowns.
These hackers may also develop and deploy viruses, worms and other malicious software programs that attack or otherwise exploit security vulnerabilities in our systems.
−Removed: For example, we recently discovered the exploitation by hackers of our subsidiary SCUF’s servers, which may have enabled such hackers to collect information provided by our customers, including payment card information, which is handled by our third-party ecommerce service provider.
+Added: We have taken steps to put in place safeguards designed to protect the security of all the information we process, but despite these efforts, we cannot guarantee that we will not suffer successful security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, ransomware, denial-of-service attacks, human error issues or other similar events that lead to misplaced or lost information, programming and/or other similar issues.
+Added: For example, in early 2021, we discovered the exploitation by hackers of our subsidiary SCUF’s servers, which may have enabled such hackers to collect information provided by our customers, including payment card information, which is handled by our third-party ecommerce service provider.
Such hackers utilized the credentials we had provided to another third-party to inject a script, which was active for a limited amount of time, that collected this information provided by customers.
−Removed: Additionally, for portions of our information technology infrastructure, including business management and communication software products, we rely on products and services provided by third parties.
+Added: Additionally, for portions of our information technology infrastructure, including business management and communication software products, we rely on products and services provided by third parties, a number of which process personal information on our behalf.
+Added: There can be no assurance that the privacy and security related measures and safeguards we have put in place in relation to these third parties will be effective to protect us and/or the relevant personal information from the risks associated with the third-party storage, transmission and other processing of such information.
These providers may also experience breaches and attacks to their products which may impact our systems.
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To defend against security threats, both to our internal systems and those of our customers, we must continuously engineer more secure products and enhance security and reliability features, which may result in increased expenses.
−Removed: Actual or perceived breaches of our security measures, those of third-parties or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our partners, our customers or third parties have exposed, and may in the future could expose us and the parties affected to a risk of loss or misuse of this information, resulting in litigation and potential liability, paying damages, regulatory inquiries or actions, damage to our brand and reputation or other serious harm to our business.
+Added: Actual or perceived breaches of our security measures, those of third-parties or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential information about us, our partners, our customers or third parties have exposed, and, in the future, could expose us and other affected parties to a risk of loss or misuse of this information, resulting in litigation and potential liability, paying damages, regulatory inquiries, investigations or actions, damage to our brand and reputation or other serious harm to our business.
+Added: Due to concerns about data security and integrity, a growing number of legislative and regulatory bodies have adopted breach notification and other requirements in the event that information subject to such laws is accessed by unauthorized persons.
+Added: Complying with the numerous and complex regulations in the event of a data security breach could be expensive and difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability.
+Added: We may also be contractually required to notify customers or other counterparties of a security incident, including a data security breach.
Our efforts to prevent and overcome these challenges could increase our expenses and may not be successful.
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Delayed sales, lower margins or lost customers as a result of these disruptions may seriously harm our business.
−Removed: We may not be able to maintain compliance with all current and potentially applicable U.S.
−Removed: federal and state or foreign laws and regulations relating to privacy and cybersecurity, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business.
−Removed: We are subject to a variety of laws, regulations, and industry standards that relate to the collection, processing, storing, disclosing, using, transfer and protecting of personal data and other data and the privacy of individuals.
+Added: We are currently subject to U.S.
+Added: federal and state and foreign laws, regulations and industry standards relating to data privacy and security, and our failure or perceived failure to comply as well as actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business.
+Added: In connection with certain of our gear, we collect information related to our gamers and streamers.
+Added: This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world.
+Added: Government actions are typically intended to protect the privacy and security of personal information and its collection, storage, transmission, use and distribution in or from the governing jurisdiction and other processing.
+Added: In addition, because various jurisdictions have different laws and regulations concerning the use, storage, transmission and other processing of such information, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seek to enter.
+Added: We are subject to a variety of laws, regulations, and industry standards that relate to the collection, storing, disclosing, using, transfer or other processing and protecting of data about individuals.
These laws and regulations constantly evolve and remain subject to significant change.
In addition, the application and interpretation of these laws and regulations are often uncertain.
−Removed: Because we store, process and use data, some of which contain personal data, we are subject to complex and evolving federal, state and local laws and regulations regarding privacy, data protection and other matters.
−Removed: Many of these laws and regulations are subject to change and uncertain interpretation.
−Removed: federal and state governments and agencies may in the future enact new legislation and promulgate new regulations governing collection, use, disclosure, storage, processing, transmission and destruction of personal data and other information.
−Removed: New privacy laws add additional complexity, requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact trading strategies and availability of previously useful data.
−Removed: In addition, California enacted the California Consumer Privacy Act of 2018, or the CCPA, which came into force in 2020 (and is discussed in further detail below), which has encouraged “copycat” legislative proposals in other states across the country such as Nevada, Virginia, New Hampshire, Illinois and Nebraska.
−Removed: These legislative proposals may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data.
−Removed: We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard, or PCI DSS, a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.
−Removed: Any data security incidents, such as those described above, and/or other issues involving payment card information, can constitute a failure to comply with PCI DSS, which may therefore violate payment card association operating rules and the terms of our contracts with payment networks, processors and merchant banks.
−Removed: Such failure to comply may result in the loss of our ability to accept credit and debit card payments, subject us to fines, penalties, and damages.
−Removed: In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.
−Removed: Compliance with existing and emerging privacy and cybersecurity laws, regulations and industry standards could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation, lead to private litigation against us, and require additional investment in resources, impact strategies and availability of previously useful data any of which could materially and adversely affect our business, operating results and financial condition.
−Removed: The collection, storage, transmission, use and distribution of user data could give rise to liabilities and additional costs of operation as a result of laws, governmental regulation and risks of security breaches.
−Removed: In connection with certain of our gear, we collect data related to our gamers and streamers.
−Removed: This data is increasingly subject to legislation and regulations in numerous jurisdictions around the world.
−Removed: Government actions are typically intended to protect the privacy and security of personal information and its collection, storage, transmission, use and distribution in or from the governing jurisdiction.
−Removed: In addition, because various jurisdictions have different laws and regulations concerning the use, storage and transmission of such information, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seek to enter.
−Removed: Existing privacy-related laws and regulations in the United States and other countries are evolving and are subject to potentially differing interpretations, and various U.S.
−Removed: federal and state or other international legislative and regulatory bodies may expand or enact laws regarding privacy and data security-related matters.
−Removed: For example, the European Union General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018, has led to more stringent operational requirements for processors and controllers of personal data, including, for example, requiring expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained valid consent or have another legal basis in place to justify their data processing activities.
−Removed: The GDPR provides that European Union member states may make their own additional laws and regulations in relation to certain data processing activities, which could limit our ability to use and share personal data or could require localized changes to our operating model.
−Removed: Under the GDPR, fines of up to €20 million or up to 4% of the total worldwide annual revenue of the preceding financial year, whichever is higher, may be assessed for non-compliance.
−Removed: These new laws also could cause our costs to increase and result in further administrative costs.
−Removed: Further, the United Kingdom’s decision to leave the European Union , often referred to as Brexit, means that f rom January 1, 2021, we are subject to the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law.
−Removed: The UK GDPR mirrors the fines under the GDPR, e.g.
−Removed: fines up to the greater of €20 million / £17.5 million or 4% of global turnover .
−Removed: Although there are legal mechanisms to allow for the transfer of personal data from the United Kingdom, EEA and Switzerland to the United States, uncertainty about compliance with such data protection laws remains, and such mechanisms may not be available or applicable with respect to the personal data processing activities necessary to research, develop and market our products and services.
−Removed: For example, legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the EEA or the United Kingdom to the United States could result in further limitations on the ability to transfer personal data across borders, particularly if governments are unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers.
−Removed: Specifically, on July 16, 2020, the Court of Justice of the European Union invalidated Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S.
−Removed: Privacy Shield Framework and guidance following the Decision requires risk assessments to be conducted and, in many cases additional safeguards to be implemented to transfer data under the standard contractual clauses.
−Removed: These recent developments will require us to review and amend the legal mechanisms by which we make and/ or receive personal data transfers to/ in the U.S.
−Removed: At present, there are few if any viable alternatives to the Standard Contractual Clauses.
−Removed: As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
−Removed: We are also subject to evolving European Union and United Kingdom privacy laws on cookies, tracking technologies and e-marketing.
−Removed: In the European Union and the United Kingdom under national laws derived from the ePrivacy Directive, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing.
+Added: Because we store, process and use data, some of which contain personal data, we are subject to complex and evolving federal, state and local laws and regulations regarding data privacy and data security.
+Added: federal and state governments and agencies may in the future enact
+Added: new legislation and promulgate new regulations governing collection, use, disclosure, storage, transmission , destruction or other processing of personal data and other information.
+Added: New privacy laws add additional complexity, requirements, restrictions and potential legal risk, require additional investment in resources for compliance programs, and could impact trading strategies and availability of previously useful data.
+Added: For example, in the United States, the Federal Trade Commission and state regulators enforce a variety of data privacy issues, such as promises made in privacy policies or failures to appropriately protect information about individuals, as unfair or deceptive acts or practices in or affecting commerce in violation of the Federal Trade Commission Act or similar state laws.
+Added: In addition, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (the “CCPA”) creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain information about individuals.
+Added: For example, the CCPA gives California residents rights to access, delete or correct their personal information, opt out of certain personal information use and disclosure and receive detailed information about how their personal information is used.
+Added: Failure to comply with the CCPA creates additional risks including enforcement by the California Attorney General or the California Privacy Protection Agency, limited private rights of actions for certain data breaches and damage to reputation.
+Added: Since the CCPA went into effect, comprehensive privacy statutes that share similarities with the CCPA have been enacted in Virginia, Colorado, Connecticut and Utah.
+Added: Many other states are currently reviewing or proposing the need for greater regulation of the collection, sharing, use and other processing of information related to individuals for marketing purposes or otherwise and there remains increased interest at the federal level as well.
+Added: In Europe and the U.K., we are also subject to foreign legislation, such as the European Union General Data Protection Regulation (the “EU GDPR”), and to the United Kingdom General Data Protection Regulation and Data Protection Act 2018 (the “UK GDPR,” and together with the EU GDPR, the “GDPR”).
+Added: The GDPR imposes comprehensive data privacy compliance obligations in relation to our collection, processing, sharing, disclosure, transfer and other use of personal information, including a principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
+Added: The GDPR has also imposed more stringent operational requirements for companies that are subject to the GDPR, including:
+Added: requiring detailed disclosures about how personal information is to be collected, used and processed;
+Added: demonstrating that appropriate legal bases are in place to justify data processing activities;
+Added: complying with rights for data subjects with regard to their personal information (including access, erasure (the right to be “forgotten”) and portability);
+Added: ensuring appropriate safeguards are in place where personal data is transferred out of the European Economic Area (“EEA”) and the U.K.;
+Added: limitations on retention of personal information;
+Added: and introducing mandatory data breach notification requirements to regulators (and in certain cases, individuals).
+Added: The EU GDPR and UK GDPR also regulate cross-border transfers of personal information out of the EEA and the U.K.
+Added: Specifically, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S.
+Added: Privacy Shield Framework (the “Privacy Shield”), under which personal information could be transferred from the EEA (and the U.K.) to relevant self-certified U.S.
+Added: The CJEU further noted that reliance on the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield) alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis.
+Added: However, President Joe Biden, on October 7, 2022, signed an executive order to implement the new EU-US Data Privacy Framework.
+Added: The new EU-US Data Privacy Framework addresses issues raised in Schrems II, that led the CJEU to invalidate the EU’s adequacy decision for the EU-US Privacy Shield.
+Added: President Biden’s signed executive order has given impetus to the European Commission to prepare a new draft adequacy decision in relation to the US, and then launch its adoption procedure.
+Added: Once the European Commission has adopted the final adequacy decision, expected in March 2023, data can flow freely from the EU to US companies that are certified under the new Privacy Shield framework (“EU-US Data Privacy Protection Framework”).
+Added: Further, the European Commission’s adoption of the final adequacy decision will allow us to rely on the newest standard contractual clauses of June 4, 2021, already implemented in our intragroup, customer and vendor agreements.
+Added: Notwithstanding the above, as the enforcement landscape further develops, and supervisory authorities issue further guidance on personal information export mechanisms, we could suffer additional costs, complaints and/or regulatory investigations or fines;
+Added: we may have to stop using certain tools and vendors and make other operational changes;
+Added: we may have to implement revised standard contractual clauses for existing intragroup, customer and vendor arrangements within required time frames;
+Added: and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our business, operations or financial results.
+Added: We are also subject to evolving EU and U.K.
+Added: privacy laws on cookies, tracking technologies and e-marketing.
+Added: In the EU and the U.K.
+Added: under national laws derived from the ePrivacy Directive, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing.
The GDPR also imposes conditions on obtaining valid consent for cookies, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology.
−Removed: The current national laws that implement the ePrivacy Directive are highly likely to be replaced across the European Union (but not directly in the United Kingdom) by an European Union regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance.
−Removed: While the text of the ePrivacy Regulation is still under development, recent European court decisions and regulators’ recent guidance are driving increased attention to cookies and tracking technologies.
+Added: Recent European court and regulator decisions are driving increased attention to cookies and tracking
+Added: technologies.
If the trend of increasing enforcement by regulators of the strict approach in recent guidance and decisions continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.
−Removed: Regulation of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target users, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users.
−Removed: In addition, the CCPA, which came into force in 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data.
−Removed: For example, the CCPA gives California residents expanded rights to access and require deletion of their personal data, opt out of certain personal data sharing and receive detailed information about how their personal data is used.
−Removed: Failure to comply with the CCPA creates additional risks including enforcement by the California attorney general, private rights of actions for certain data breaches, and damage to reputation.
−Removed: The CCPA may increase our compliance costs and potential liability.
−Removed: Additionally, the Consumer Personal Information Law and Agency Initiative (California Proposition 24), the California Privacy Rights Act was approved by California voters on November 3, 2020.
−Removed: California Proposition 24 would impose additional data protection obligations on companies doing business in California.
−Removed: It will also create a new California data protection agency specifically tasked to enforce the law, which could likely result in increased regulatory scrutiny of California businesses in the areas of data protection and security.
−Removed: The new California Privacy Rights Act takes effect on January 1, 2023 and will apply to information collected on or after January 1, 2022.
−Removed: Further, information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks.
−Removed: Hackers and data thieves are increasingly sophisticated and operating large-scale and complex automated attacks.
−Removed: As cyber threats continue to evolve, we may be required to expend additional resources to further enhance our information security measures, develop additional protocols and/or to investigate and remediate any information security vulnerabilities.
−Removed: We cannot guarantee that our facilities and systems will be free of security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, ransomware, denial-of-service attacks, misplaced or lost data, programming and/or human errors or other similar events.
−Removed: Any compromise or perceived compromise of the security of our systems could damage our reputation, result in disruption or interruption to our business operations, reduce demand for our products and subject us to
−Removed: significant liability and expense as well as regulatory action and lawsuits, which would harm our business, operating results and financial condition.
−Removed: In addition, any failure or perceived failure by us to comply with privacy or security laws, policies, legal obligations or industry standards, or any security incident that results in the actual or alleged unauthorized release or transfer of personal data, may result in governmental enforcement actions and investigations, including fines and penalties, enforcement orders requiring us to cease processing or operating in a certain way, litigation and/or adverse publicity, including by consumer advocacy groups, and could cause our customers to lose trust in us, which could have material impacts on our revenue and operations and could seriously harm our business.
+Added: In light of the complex and evolving nature of EU, EU Member State and U .
+Added: privacy laws on cookies and tracking technologies , it may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users .
+Added: Compliance with existing and emerging privacy and cybersecurity laws, regulations and industry standards could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation, lead to private litigation against us, and require additional investment in resources, impact strategies and availability of previously useful data, any of which could materially and adversely affect our business, operating results and financial condition.
W e may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.
23 unchanged sentences
We are required to test goodwill, intangible assets and other long-lived assets for recoverability and may be required to record charges if there are indicators of impairment, and we have in the past recognized impairment charges.
−Removed: As of December 31, 2021, we had approximately $317.1 million of goodwill, $225.7 million of intangible assets and $73.4 million of other long-lived assets.
−Removed: One of our strategies is to grow through acquisitions of other businesses or technologies and, if we are successful in doing so, these
−Removed: acquisitions may result in goodwill and other long-lived assets.
+Added: As of December 31 , 2022, we had approximately $ 347.7 million of goodwill, $ 216.
+Added: 3 million of intangible assets and $ 84.2 million of other long-lived assets.
+Added: One of our strategies is to grow through acquisitions of other businesses or technologies and, if we are successful in doing so, these acquisitions may result in goodwill and other long-lived assets.
The risk that we will be required to recognize impairment charges is also heightened by the fact that the life cycles of much of the gear we sell are relatively short, which increases the possibility that we may be required to recognize impairment charges for obsolete inventory.
23 unchanged sentences
Further, the terms of many open source licenses have not been interpreted by U.S.
−Removed: courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or commercialize our products.
+Added: courts, and there is a risk that such licenses could be construed in a
+Added: manner that imposes unanticipated conditions or restrictions on our ability to market or commercialize our products.
As a result, we may face claims from third parties claiming ownership of what we believe to be open source software.
In addition, by the terms of some open source licenses, under certain conditions, we could be required to release our proprietary source code, and to make our proprietary software available under open source licenses, including authorizing further modification and redistribution.
−Removed: or requirements could result in litigation and could require us to purchase a costly license or cease offering the implicated products unless and until we can re-engineer them to avoid infringement or release of our proprietary source code.
+Added: These claims or requirements could result in litigation and could require us to purchase a costly license or cease offering the implicated products unless and until we can re-engineer them to avoid infringement or release of our proprietary source code.
This re-engineering process could require significant additional research and development resources.
5 unchanged sentences
We have faced claims that we have infringed, or that our use of components or products supplied to us by third parties have infringed, patents or other intellectual property rights of others in the past and may in the future face similar claims.
−Removed: While we are currently involved in an intellectual property infringement claim, we do not believe such claim will have a material adverse effect on our business.
Any intellectual property claims, with or without merit, can be time-consuming, expensive to litigate or settle and can divert management resources and attention.
18 unchanged sentences
Our failure to comply with present and future requirements under these laws and regulations, or environmental contamination or releases of hazardous materials on our leased premises, as well as through disposal of our gear, could cause us to incur substantial costs, including clean-up costs, personal injury and property damage claims, fines and penalties, costs to redesign our gear or upgrade our facilities and legal costs, or require us to curtail our operations.
−Removed: Environmental contamination or releases of hazardous materials may also subject us to claims of property damage or personal injury, which could result in litigation and require us to make substantial payments to satisfy adverse judgments or pay settlements.
+Added: Environmental contamination or releases of hazardous materials may also subject us to claims of property damage or personal injury, which could result in litigation and require us to make substantial payments to satisfy adverse judgments or
+Added: pay settlements.
Liability under environmental laws can be joint and several and without regard to comparative fault.
We also expect that our operations will be affected by new environmental laws and regulations on an ongoing basis, which will likely result in additional costs.
−Removed: Environmental laws and regulations could also require that we redesign our gear or change how our gear is made, any
−Removed: of which could seriously harm our business.
+Added: Environmental laws and regulations could also require that we redesign our gear or change how our gear is made, any of which could seriously harm our business.
The costs of complying with environmental laws and regulations or the effect of any claims or liability concerning or resulting from noncompliance or environmental contamination could also seriously harm our business.
22 unchanged sentences
As a result, we are a “controlled company” within the meaning of the corporate governance standards of the Nasdaq Global Select Market, or Nasdaq.
−Removed: Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including requirements that:
+Added: Under these rules, a
+Added: company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including requirements that:
a majority of our board of directors consist of “independent directors” as defined under the rules of Nasdaq;
21 unchanged sentences
the outbreak of epidemics or pandemics, such as the coronavirus pandemic;
−Removed: natural disasters, terrorist acts, acts of war or periods of widespread civil unrest, such as any military actions taken as a result of the tensions between Russia and Ukraine;
+Added: natural disasters, terrorist acts, acts of war or periods of widespread civil unrest, such as any military actions taken as a result of the war between Russia and Ukraine;
changes in general market and economic conditions.
8 unchanged sentences
Based upon the number of shares outstanding as of December 31, 2022, we had outstanding a total of 101.4 million shares of common stock.
−Removed: Of these shares, all of the shares of our common stock sold in the initial public offering and in the secondary offering in January 2021, are freely tradable, without restriction, in the public market.
−Removed: As of December 31, 2021, the holders of approximately 54.2 million shares of our common stock, or approximately 57.3% of our total outstanding common stock based upon the number of shares outstanding as of December 31, 2021, will be entitled to rights with respect to the registration of their shares under the Securities Act.
−Removed: Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates.
−Removed: Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
+Added: Of these shares, all of the shares of our common stock sold in the initial public offering, in the secondary offering in January 2021 and in the primary offering in November 2022, are freely tradable, without restriction, in the public market.
+Added: In addition, in July 2022, approximately 54.2 million shares of our common stock that were held by EagleTree were registered pursuant to a Registration Statement on Form S-3.
If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.
34 unchanged sentences
We currently intend to invest our future earnings, if any, to fund our growth.
−Removed: Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.
+Added: Therefore, you are not likely to receive any dividends on your common stock for
+Added: the foreseeable future.
Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock.
21 unchanged sentences
General Risk Factors
−Removed: We may be subject to future tax audits in various jurisdictions, which may seriously harm our business.
−Removed: We operate in multiple jurisdictions, are taxed pursuant to the tax laws of each of these jurisdictions and may be subject to future tax audits in each of these jurisdictions.
−Removed: Because we have substantial operations in a number of locations worldwide, tax authorities in various jurisdictions may raise questions concerning matters such as transfer pricing, whether revenues or expenses should be attributed to particular countries, the presence or absence of permanent establishments in particular countries and similar matters.
−Removed: In addition, we have engaged in a number of material restructuring transactions in various jurisdictions, and the tax positions
−Removed: we have adopted in connection with these restructuring transactions may be subject to challenge.
−Removed: Accordingly, a material assessment by a tax authority in any jurisdiction could require that we make significant cash payments without reimbursement.
−Removed: If this were to occur, our business may be seriously harmed.
Failure to comply with other laws and governmental regulations may seriously harm our business.
Our business is subject to regulation by various federal and state governmental agencies.
−Removed: Such regulation includes the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of the Department of Commerce, the product safety regulatory activities of the Consumer Products Safety Commission, the regulatory activities of the Occupational Safety and Health Administration, the environmental regulatory activities of the Environmental Protection Agency, the labor regulatory activities of the Equal Employment Opportunity Commission and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business.
+Added: Such regulation includes the consumer protection laws of the Federal Trade Commission, the product safety regulatory activities of the Consumer Products Safety Commission, the regulatory activities of the Occupational Safety and Health Administration, the environmental regulatory activities of the Environmental Protection Agency, the labor regulatory activities of the Equal Employment Opportunity Commission and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business.
We are also subject to regulation in other countries where we conduct business.
6 unchanged sentences
Failure to comply with the U.S.
−Removed: Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences that may seriously harm our business.
−Removed: Our gear is manufactured and/or assembled in China, Taiwan, where we maintain a manufacturing facility, countries in Southeast Asia and the United Kingdom and we sell our gear in many countries outside of the United States.
+Added: Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade sanctions and export control laws could subject us to penalties and other adverse consequences that may seriously harm our business.
+Added: Our gear is manufactured and/or assembled in China and, Taiwan, where we maintain a manufacturing facility, as well as countries in Southeast Asia, and we sell our gear in many countries outside of the United States.
Our operations are subject to the U.S.
3 unchanged sentences
In addition, other applicable anti-corruption laws prohibit bribery of domestic government officials, and some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called “facilitation” payments.
−Removed: In addition, we are subject to U.S.
−Removed: and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S.
−Removed: Treasury, Office of Foreign Assets Control, or OFAC.
−Removed: While we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S.
−Removed: trade control laws, our employees or agents may engage in improper conduct for which we might be held responsible.
−Removed: Any violations of these anti-corruption or trade controls laws, or even allegations of such violations, can lead to an investigation and/or enforcement action, which could disrupt our operations, involve significant management distraction, and lead to significant costs and expenses, including legal fees.
−Removed: If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may seriously harm our business, financial condition and results of operations.
+Added: In addition, our business must be conducted in compliance with applicable trade sanctions and export control laws and regulations, such as those administered and enforced by the U.S.
+Added: Department of Treasury’s Office of Foreign Assets Control, or OFAC, the U.S.
+Added: Department of State, the U.S.
+Added: Department of Commerce, the United Nations Security Council and other relevant authorities.
+Added: Such laws and regulations prohibit or restrict certain operations, investment decisions and sales activities, including dealings with certain countries or territories, and with certain governments and designated persons.
+Added: Our global operations expose us to the risk of violating, or being accused of violating, economic and trade sanctions and export control laws and regulations.
+Added: While we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery and trade sanctions and export control laws and regulations, our employees, representatives, distributors or agents may engage in improper conduct for which we might be held responsible.
+Added: Any violations of these anti-corruption and anti-bribery or trade sanctions and export controls laws and regulations, or even allegations of such violations, can lead to an investigation and/or enforcement action, which could disrupt our operations, may expose us to reputational harm, involve significant management distraction and lead to significant costs and expenses, including legal fees.
+Added: If we, or our employees, representatives, distributors or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may seriously harm our business, financial condition and results of operations.
In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.
12 unchanged sentences
In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and may seriously harm our business.
−Removed: We will incur significant expenses as a result of being a public company, which will negatively impact our financial performance.
+Added: We have and will continue to incur significant expenses as a result of being a public company, which have and will continue to negatively impact our financial performance.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company.
16 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.