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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-03-01 · 143 added, 148 removed, 207 unchanged (58% of the section changed)

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

In 2020, we also added a digital services layer to our offerings to enhance the customer experience by integrating esports, coaching, stream deck marketplace, customer care and extended warranty into our offerings.

We group our products into two categories (segments):

We also offer digital services to enhance the customer experience by integrating esports, coaching, stream deck marketplace, customer care and extended warranty into our product offerings.

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

Gamer and creator peripherals.

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

Gaming components and systems.

Includes our high-performance power supply units, or PSUs, cooling solutions, computer cases, DRAM modules, as well as high-end prebuilt and custom-built gaming PCs, among others.

Further information on our industry, our market opportunity and competitive strengths is presented in Part I, Item 1, “Business” of this Annual Report on Form 10-K.

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 .

We are committed to continuing to grow in our current markets as well as new markets by leading in the development of innovative technologies and by entering into new categories through organic growth or acquisition.

In the last two years, we have entered into four 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.

We continue to expand our product portfolio and in 2022, we launched 125 new products.

Our go-to-market model has continued to grow with an increased mix of direct-to-consumer sales representing 13.7%, 10.7%, and 8.6% of total our net revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Since 2018, we have completed eight acquisitions, including our acquisition of 51% of the share capital of Elgato iDisplay Holding LTD.

and its related companies (collectively, “iDisplay”), a leader in electronic development and design specializing in display technology, in January 2022.

The iDisplay acquisition allows us to direct the development and integration of iDisplay’s display-based touch-screen technologies into our products for creators, gamers and streamers.

iDisplay’s results of operations are fully consolidated with Corsair with effect from January 1, 2022 .

Our net revenue was $1,375.1 million, $1,904.1 million, and $1,702.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

We had net income (loss) of $101.0 million, $103.2 million and $(8.4) million, respectively.

We had net income (loss) of $ (54.4) million, $101.0 million, and $103.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Net cash provided by operating activities was $66.4 million, $20.2 million, and $169.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.

We continue to experience a shift in net revenue towards a more significant mix of our higher margin gamer and creator peripherals segment, which represented 34.0%, 31.7% and 26.8% of total net revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

As our product portfolio continues to expand, our go-to-market model has also been evolving with an increased mix of direct-to-consumer sales representing 10.7%, 8.6% and 2.7% of total net revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Our net revenue increased 55.2% in 2020, as compared to 2019, primarily due to a larger number of consumers gaming and working from home as a result of the COVID-19 pandemic.

Going into 2021, while the lockdowns and shelter-in-place restrictions were gradually lifted, our net revenue continued to grow by 11.8%, despite the negative impact from the global supply chain and logistics challenges as well as the shortages of reasonably priced GPUs, which led to a decrease in demand for self-built gaming PCs and systems and its related components.

We also experienced higher cost of goods sold in 2021 primarily related to expenses on freight and logistics due to supply chain and logistics issues.

The full extent of the impact of COVID-19 pandemic remains uncertain, which has and may continue to negatively impact our net revenue and gross margin.

While we experienced the aforementioned challenges in 2021 caused by the COIVD-19 pandemic, our 2021 revenue and gross profits represented strong growth from 2019, pre-pandemic, by 73.5% and 129.1%, respectively.

In the last 18 months, we have entered into three large new markets:

microphones and cameras for content creators and gaming monitors for both gamers and content creators.

In addition, we have launched 141 new products in 2021.

Over the longer term, we believe we will be able to continue to grow in new markets as well as the markets that we participate in through innovation and leading technologies and entry into new categories via organic growth or acquisition.

Since 2018, we have completed eight acquisitions, including our acquisition of a 51% of the share capital of iDisplay Technology, or “iDisplay”, a leader in electronic development and design specializing in display technology, in January 2022.

In the fourth quarter of 2022, we issued 5,045,455 shares of common stock at a price of $16.50 per share in a registered underwritten public offering pursuant to our effective shelf registration statement on Form S-3, filed with the SEC on July 22, 2022 and declared effective on August 1, 2022 (“2022 Shelf Registration Statement”).

We received total net proceeds of approximately $81.0 million, after deducting underwriting discounts, commission and offering expense.

Further information on our industry, our market opportunity and competitive strengths is presented in Part I, Item 1, “Business” of this Annual Report on Form 10-K.

Key Factors Affecting Our Business

Our results of operations and financial condition are affected by numerous factors, including those discussed in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and those described below.

Impact of Macroeconomic Conditions .

Our business and financial performance are significantly impacted by worldwide economic conditions.

Global macroeconomic challenges, such as the effects of the ongoing war between Russia and Ukraine, the COVID-19 pandemic, supply chain constraints, market uncertainty, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment, have impacted our business and financial performance.

Throughout 2022, these conditions adversely impacted our net revenue and resulted in higher cost of sales due to increased shipping and production costs.

Such conditions also resulted in excess inventory in our distribution channels that led to us recognizing higher inventory impairment related charges in 2022 in order to rationalize our inventory levels to align with the reduced revenue in the period.

These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics in our markets and have had significant impacts on our financial results.

Starting in early 2020, due to 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.

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.

This in turn resulted in a decline in demand for our products since the second half of 2021.

In February 2022, Russia invaded Ukraine resulting in, among other things, broad economic sanctions being imposed on Russia, which has further increased existing global supply chain, logistics, and inflationary challenges.

Although our business in Russia and Ukraine was not material to our results, we believe the war has degraded the consumer sentiment in Europe and coupled with the unexpected worldwide inflationary pressures and the negative impacts from the strengthening of the U.S.

dollar, has dampened consumer spending, which contributed in part to the decrease in our net revenue in 2022, compared to 2021.

We have experienced and may in the future continue to experience supply chain challenges, including longer production and shipping times, and increased shipping and logistics costs, each of which has negatively impacted our gross margins, as well as the need to purchase long-lead time items ahead of demand due to supply constraints.

In addition, we are exposed to fluctuations in foreign currency exchange rates.

Some of our international sales are denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S.

dollars and the currencies in which we conduct sales in foreign countries may negatively impact our revenue.

For example, our net revenue for the year ended December 31, 2022 was in part negatively impacted by the strengthening of the U.S.

dollar against the Euro and the British Pound.

In addition, we generally pay our employees located outside the United States in the local currency, with a significant portion of those payments being made in Taiwan dollars and Euros, and such expenses were positively impacted in 2022 by the strengthening of the U.S.

dollar against these currencies.

As a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies, in particular the Chinese Yuan, Euro and British Pound.

The extent of the impact of macroeconomic conditions, the COVID-19 pandemic, and geopolitical tensions on our business, sales, results of operations, cash flows and financial condition will depend on future developments, which are not within our control and are highly uncertain and cannot be predicted.

We will continue to evaluate these risks and uncertainties and further our mitigation plans.

Impact of Industry Trends .

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Gaming continues to become increasingly social and streaming viewership is more widely adopted along with increasing numbers of content creators.

We believe this trend, which has accelerated in the current environment, will continue and we are well positioned to serve the streaming market with best-in-class tools for content creation.

This trend, which has accelerated in the past few years experienced a setback in 2022 primarily due to challenging macroeconomic conditions and the ongoing war between Russia and Ukraine.

Nonetheless, we have seen some recovery in the fourth quarter of 2022.

Accordingly, we believe that the acceleration trend will resume in 2023 and that we are well positioned to serve the streaming market with best-in-class tools for content creation.

Introduction of new high-performance computing hardware and sophisticated games .

We believe that the introduction of more powerful CPUs and GPUs that place increased demands on other system components, such as memory, power supply or cooling, has a significant effect on increasing the demand for our gear.

The shortage of reasonably priced GPUs since the second half of 2021 had a negative impact to our gaming component revenue.

Starting from the third quarter of 2022, we saw the availability of reasonably priced GPUs begin to normalize and bring along some positive effects to the market.

In addition, we believe that our business success depends in part on the introduction and success of games with sophisticated graphics that place increasing demands on system processing speed and capacity and therefore require more powerful CPUs or GPUs, which in turn drives demand for our high-performance gaming components and systems, such as PSUs and cooling solutions, and our gaming PC memory.

As a result, our operating results may be materially affected by the timing of, and the rate at which computer hardware companies introduce, new and enhanced CPUs and GPUs, the timing of, and rate at which computer game companies and developers introduce, sophisticated new and improved games that require increasingly high levels of system and graphics processing power, and whether these new products and games are widely accepted by gamers.

As a result, our operating results may be materially affected

by the timing of, and the rate at which computer hardware companies introduce, new and enhanced CPUs and GPUs, the timing of, and rate at which computer game companies and developers introduce, sophisticated new and improved games that require increasingly high levels of system and graphics processing power, and whether these new products and games are widely accepted by gamers.

Impact of Product Mix .

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Impact of Customer Concentration .

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

Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with eRetailer Amazon accounting for 26.7%, 24.6% and 25.1% of our net revenue for 2021, 2020, and 2019, respectively, and sales to our ten largest customers accounting for approximately 51.7%, 52.7%, and 51.6% of our net revenue for the same periods, respectively.

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

Further, a limited number of retailers and distributors represent a significant portion of our net revenue, with e-retailer Amazon accounting for 26.0%, 26.7%, and 24.6% of our net revenue for 2022, 2021, and 2020, respectively, and sales to our ten largest customers accounting for approximately 52.3%, 51.7%, and 52.7% of our net revenue for the same periods, respectively.

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

As a result of this concentration and the lack of long-term agreements with our customers, a primary driver of our net revenue and operating performance is maintaining good relationships with these retailers and distributors.

To help maintain good relationships, we implement initiatives such as our updated packaging design which helps eRetailers such as Amazon process our packages more efficiently.

To help maintain good relationships, we implement initiatives such as our updated packaging design which helps e-retailers such as Amazon process our packages more efficiently.

Further, given our global operations, a significant percentage of our expenses relate to shipping costs.

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

In 2021, we had several product introductions that had a favorable impact on our net revenue and operating results, such as the introduction of our new K65 mini RGB keyboard, Elgato’s new accessories including our new Facecam, Corsair DDR5 memory and new high-performance gaming controllers including SCUF Reflex, Reflex Pro and Reflex FPS, among others.

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

We believe our net revenue was favorably impacted by the release of 125 new products in 2022.

While we intend to continue to develop and release new products, there can be no assurance that our new product introductions will have a favorable impact on our operating results or that customers will choose our new gear over those of our competitors .

Impact of Seasonal Sales Trends.

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.

H istorically, 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 spending patterns of gamers.

Our net revenue has generally been lowest 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.

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, and 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.

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.

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.

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.

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 .

Impact of Fluctuations in Currency Exchange Rates .

We are subject to inherent risks attributed to operating in a global economy.

Some of our international sales are denominated in foreign currencies and any unfavorable movement in the exchange rate between U.S.

dollars and the currencies in which we conduct sales in foreign countries, in particular the Euro and the British Pound could have an adverse impact on our net revenue.

In addition, we generally pay our employees located outside the United States in the local currency, with a significant portion of those payments being made in Taiwan dollars and Euros.

As a result of our foreign sales and operations, we have other expenses, assets and liabilities that are denominated in foreign currencies, in particular the Chinese Yuan, Euro and British Pound.

Impact of COVID-19.

Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets.

Since early 2020, we have experienced some business disruptions due to COVID-19, including the stoppage in our factories in early 2020, disruption in our supply chain and increased distribution costs in 2021, which led to increases in operating costs such as the significantly elevated ocean freight costs we incurred in the second half of 2021 as compared to the same period of 2020.

These negative financial impacts have been offset by revenue growth in 2020 and 2021, 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.

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.

Such easing of restrictions likely has, and will continue to, result in consumers returning to other alternative forms of entertainment and interaction.

This in turn has, and could continue to, result in a decline in demand for our products.

The full extent of the impact of the COVID-19 pandemic on our business, results of operations, cash flows and financial position will depend on future developments, which are highly uncertain and cannot be fully predicted.

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

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 supply constraints, GPU shortages, shifts in customer behavior and the continuing impacts of the COVID-19 pandemic .

Impact of Fluctuations in Integrated Circuits Pricing.

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Cost of Revenue

and certain allocated costs related to facilities and information technology, or IT, and personnel-related expenses and other operating expenses related to supply chain logistics.

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

Operating Expenses

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General and administrative costs consist primarily of personnel-related expenses for our finance, legal, human resources, IT and administrative personnel, as well as the costs of professional services related to these functions and allocated overhead costs.

We expect our total sales, general and administrative expenses to increase in absolute dollars as we continue to actively promote and distribute a higher volume of our products and also due to the anticipated growth of our business and related infrastructure, including increase in legal, accounting, insurance, compliance, investor relations and other consulting costs.

Product development .

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These costs relate primarily to compensation of personnel and consultants involved with product design, definition, compatibility testing and qualification, as well as depreciation costs of equipment used, prototype material costs and allocated overhead costs.

We expect our product development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and enhancing existing products.

Interest Expense

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

Interest Expense, Net

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

Interest income earned on our cash and cash equivalents balance are included within interest expense, net as an offset to interest expense.

Other (Expense) Income, Net

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

Other (expense) income, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in foreign currencies, net fair value gains and losses from our foreign currency forward contracts and impairment loss on available-for-sale security.

Income Tax (Expense) Benefit

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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest represents the share of the net income of iDisplay attributable to the 49% ownership interest of iDisplay we did not acquire.

Results of Operations

In this section, we discuss the results of our operations for the year ended December 31, 2022, compared to the year ended December 31, 2021.

For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please

refer to Part II , Item 7, “ Management's Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K filed with the SEC on March 1, 202 2 .

The following tables set forth the components of our consolidated statements of operations, in dollars and as a percentage of total net revenue, for each of the periods presented.

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Total operating expenses

Operating income

Operating income (loss)

Other (expense) income:

Interest expense

Other expense, net

Interest expense, net

Other (expense) income, net

Total other expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Income tax benefit (expense)

Net income (loss)

Net income attributable to noncontrolling interest

Net income (loss) attributable to Corsair Gaming, Inc.

Year Ended December 31,

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Other (expense) income:

Interest expense

Other expense, net

Interest expense, net

Other (expense) income, net

Total other expense, net

Income (loss) before income taxes

Income tax (expense) benefit

Income tax benefit (expense)

Net income (loss)

Components of Results of Operations

Net income attributable to noncontrolling interest

Net income (loss) attributable to Corsair Gaming, Inc.

Comparison of Years Ended December 31, 2022 and 2021

Year Ended December 31,

(in thousands)

Net revenue increased $201.7 million, or 11.8%, in 2021 as compared to 2020.

This was due to a 20.0% increase in sales for our gamer and creator peripherals segment and an 8.1% increase in sales for our gaming components and systems segment.

This increase in sales was largely due to increased demand for our products in 2020 and the first half of 2021 driven by the COVID-19 pandemic, with such growth beginning to slow down in the second half of 2021, partly due to the easing of the COVID-19 shelter-in-place restrictions resulting in the reopening of most outside entertainment.

In addition, our second half 2021 revenue was negatively

impacted by the global supply and logistic s constraints caused by the COVID-19 pandemic, as well as the shortage of reasonably priced GPUs.

Net revenue increased $605.2 million, or 55.2%, in 2020 as compared to 2019.

This increase was due to strong revenue growth in both segments.

We believe the increased demand of our products was generally due to a larger number of consumers gaming and working from home due to the COVID-19 pandemic in 2020, in addition to existing customers upgrading their systems and gear for a better gaming and/or streaming experience, and to a lesser extent, the inclusion of post-acquisition revenues from our acquisitions of SCUF and Origin.

Net revenue decreased $529.0 million, or 27.8%, in 2022 as compared to 2021.

The decrease was primarily due to deteriorated macroeconomic conditions in 2022, including the adverse impacts from the war between Russia and Ukraine, inflationary trends and volatility in exchange rates, which resulted in a decline in the demand for most of our products, particularly in the Europe and Middle East Region.

The decrease in 2022 net revenue was also in part due to a slow-down in demand as a result of more entertainment options becoming available due to the easing of the COVID-19 shelter-in-place restrictions, starting in the second half of 2021.

Gross Profit and Gross Margin

Year Ended December 31,

(in thousands)

(in thousands, except percentages)

Gross margin decreased to 21.6% in 2022 from 27.0% in 2021.

The decrease was driven primarily by an increase in logistics costs which were largely driven by global shipping and logistics challenges caused by the COVID-19 pandemic, and increased promotional activity.

These negative impacts were partially offset by an increase in gross margin from an improved product mix with more sales from the higher margin gamer and creator peripherals segment.

Gross margin increased to 27.3% in 2020 from 20.4% in 2019.

The increase in gross margin was primarily driven by increased sales volume, an improved product mix with more higher margin products being sold in 2020 as compared to 2019 and less promotional activity.

This increase was partially offset by increased air freight costs driven primarily by tightness in inventory supply due to the COVID-19 pandemic in 2020.

As the global shipping and logistics challenges continue into 2022, we expect our 2022 gross margins to remain pressured by elevated logistics costs.

This decrease was primarily attributable to an unfavorable shift towards a higher mix of net revenue from our lower margin gaming components and systems segment, an increase in inventory impairment and related charges in 2022 due to the inventory rationalization plan to align our inventory balance with the revenue level in 2022, increased promotional activity and logistics costs and increased amortization of intangible assets from the iDisplay acquisition.

Sales, General and Administrative (SG&A)

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Sales, general and administrative

SG&A expenses increased $58.7 million, or 22.8%, in 2021 as compared to 2020.

The increase was primarily due to a $22.4 million increase in distribution costs primarily driven by an increase in sales volume as well as higher freight costs due to the global supply chain and logistics constraints caused by the COVID-19 pandemic, a $18.3 million increase in personnel-related costs due to headcount growth and higher stock-based compensation, a $5.3 million increase in director and officer insurance policy fees, a $5.2 million increase in marketing and advertising expenses, mainly due to increase in sponsorships and digital marketing programs, and a $3.5 million increase in credit card fees due to increased sales through our webstore.

SG&A expenses increased $94.0 million, or 57.6%, in 2020 as compared to 2019.

The increase was primarily due to the inclusion of $29.1 million of SCUF’s post-acquisition SG&A expenses, including debt refinancing costs for funding the SCUF acquisition and acquisition and integration costs related to the SCUF Acquisition, a $27.4 million increase in distribution costs including outbound freight and the costs to operate our distribution hubs due to increased sales volume, a $24.3 million increase in personnel-related costs due to headcount growth and higher bonus expense, a $6.0 million increase in marketing expenses and a $4.4 million increase in fees primarily related to increased credit card fees due to increased sales through our webstore and fees from our insurance policies.

SG&A expenses decreased $30.7 million, or 9.7%, in 2022 as compared to 2021.

The decrease was primarily due to an $18.6 million decrease in distribution costs, including outbound freight costs, that was primarily driven by decreased sales volume, a $4.2 million decrease in personnel-related costs mainly due to lower bonus expense, and a $6.7 million decrease in marketing and advertising expenses.

Product Development

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Product development expenses increased $6.2 million, or 10.3%, in 2022 as compared to 2021.

The increase was primarily due to a $6.9 million increase in personnel-related expenses due to headcount growth and higher stock-based compensation, a $1.4 million

increase in consultant and contractor expense supporting our business development efforts and a $ 1.9 million increase in other product development related costs to support our continued innovation and broadening of our product portfolio .

Product development expenses increased $12.5 million, or 33.3%, in 2020 as compared to 2019.

The increase was primarily driven by a $5.7 million increase in personnel-related expenses due to headcount growth and higher bonus expense, the inclusion of $5.8 million of SCUF’s post-acquisition product development expenses and a $5.5 million increase in other product development related expenses.

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

Interest Expense and Other Expense, Net

The increase was primarily due to a $3.8 million increase in amortization of intangible assets acquired in the iDisplay acquisition and a $1.9 million increase in allocation of facility-related costs and corporate IT-related costs.

Interest Expense, Net and Other (Expense) Income, Net

Year Ended December 31,

(in thousands)

Interest expense

Other expense, net

Interest expense decreased $17.5 million, or 49.7%, in 2021 as compared to 2020.

The decrease was primarily due to lower interest expense paid in 2021 for our First Lien Term Loan as a result of the partial and full repayment of such loan in 2020 and 2021, and no interest paid for our Second Lien Term Loan due to the full repayment of such loan in 2020.

Additionally, to a lesser extent, the decrease was due to the lower interest rate on our new Term Loan (defined below) executed in September 2021 which replaced our First Lien Term Loan (defined below).

These decreases in interest expense were offset partially by higher losses incurred on debt extinguishment in 2021 compared to 2020 as the total debt amount extinguished in 2021 was higher than in 2020.

Interest expense decreased $0.4 million, or 1.2%, in 2020 as compared to 2019.

The decrease was primarily due to lower interest expense paid in 2020 for our First Lien Term Loan and Second Lien Term Loan as a result of the partial extinguishment of our First Lien Term Loan and full extinguishment of our Second Lien Term Loan as well as a decrease in interest from borrowings from our line of credit.

The decrease in interest expense was partially offset by an aggregate of $4.2 million write-off of deferred debt discounts and issuance costs associated with extinguishments of our term loans and a $0.5 million loss recognized for the change in fair value of our interest rate cap contracts.

Other (expense) income, net relates primarily to the gains and losses resulting from the impact of foreign exchange rate changes on our cash, accounts receivable and intercompany balances denominated in currencies other than the functional currencies in our subsidiaries.

Interest expense, net

Other (expense) income, net

Interest expense, net decreased $8.5 million, or 48.0%, in 2022 as compared to 2021.

The decrease in interest expense, net was primarily due to a lower principal balance on our Term Loan (defined below) executed in September 2021 which replaced our First Lien Term Loan (defined below) and lower average interest rate in 2022 compared to 2021.

In addition, interest expense, net decreased in 2022 as compared to 2021 due to a $4.9 million loss on debt extinguishment in 2021, whereas there was no such loss in 2022.

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

The change in other income (expense), net in 202 2 as compared to 202 1 was primarily due to the impact from the strengthening of the U.S.

dollar against the Euro, British Pound and the Chinese Yuan , which was offset partially by the impairment loss incurred in 2022 on o ur available-for-sale security.

Income Tax (Expense) Benefit

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

Our effective tax rates were tax expense of 11.9% and 15.4% for 2021 and 2020, respectively.

The change in effective tax rate for 2021 as compared to 2020 was primarily due to excess tax benefits from stock-based compensation as well as the recognition of a $3.1 million tax benefit resulting from the change in management’s assessment of the realizability of our California deferred tax assets as a result of the increased U.S.

profitability.

Our effective tax rates were tax expense of 15.4% and tax benefit of 37.4% for 2020 and 2019, respectively.

The change in effective tax rate for 2020 as compared to 2019 was primarily due to an increase in income before income tax compared to 2019, the change in the mix of income and losses in the various tax jurisdictions in which we operate, the recognition of a $4.6 million tax benefit resulting from the change in management’s assessment of the realizability of certain deferred tax assets as a result of the reorganization of our organizational structure in connection with our IPO, and a $0.6 million one-time benefit from the change in tax law resulting from the enactment of the Coronavirus Aid, relief and Economic Security Act (“CARES Act” ) in the first quarter 2020.

Our effective tax rates were tax benefit of 15.4% and tax expense of 11.9% for 2022 and 2021, respectively.

The change in effective tax rate for 2022 as compared to 2021 was primarily due to a decrease in tax benefit recorded in 2022 related to excess tax benefits from stock-based compensation because of a lower volume of options exercised by employees due to the decline in our stock price in 2022, a change in the mix of income and losses in the various tax jurisdictions in which we operate, and the release of valuation allowance against California deferred tax assets in 2021.

Segment Results

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Gamer and Creator Peripherals Segment

Net revenue of the gamer and creator peripherals segment increased $107.8 million, or 20.0%, in 2021 as compared to 2020 due to revenue growth across almost all product categories.

In particular, the Elgato branded content creator products was our fastest growing category in this segment and accounted for approximately one-third of the segment’s revenue.

We believe revenue growth in this segment was driven in part by the COVID-19 shelter-in-place orders that prompted consumers to spend more time working and gaming at home and gamers seeking to improve their performance by upgrading their gear.

The volume of the products shipped in this segment was lower in the second half of 2021 than the first half of 2021 primarily due to global supply and logistics constraints caused by the COVID-19 pandemic.

Net revenue of the gamer and creator peripherals segment increased $245.2 million, or 83.4%, in 2020 as compared to 2019 primarily due to strong sales growth in sales of Elgato branded streaming products, we believe driven in part by the COVID-19 shelter-in-place orders as consumers spend more time working and gaming at home, and the inclusion of SCUF post-acquisition revenue.

Net revenue of the gamer and creator peripherals segment decreased $209.4 million, or 32.4%, in 2022 as compared to 2021.

The decrease was primarily due to the decline in consumer demand in Europe due to the war between Russia and Ukraine, inflationary economic pressures and currency pressure from the strengthening of the U.S.

dollar against the Euro and British Pound, causing some of our products to be more expensive in Europe.

The decrease was also partly due to the easing of COVID-19 shelter-in-place restrictions resulting in more entertainment options becoming available, starting in the second half of 2021.

Gaming Components and Systems Segment

Net revenue of the gaming components and systems segment increased $93.9 million or 8.1%, in 2021 as compared to 2020.

We believe the revenue growth was driven in part by the COVID-19 shelter-in-place orders, particularly, for our PSUs and pre-built systems.

The revenue growth in this segment was partially offset in the second half of 2021 due to the shortage of reasonably priced GPUs which curtailed the demand for new PC builds and related components, as well as global supply and logistics constraints caused by the COVID-19 pandemic.

Net revenue of the gaming components and systems segment increased $360.0 million, or 44.8%, in 2020 as compared to 2019 primarily as a result of strong sales growth across all products due to continued strong market demand, we believe driven in part by the COVID-19 shelter-in-place orders, and to a lesser extent, the inclusion of Origin post-acquisition revenue.

Net revenue of the gaming components and systems segment decreased $319.6 million, or 25.4%, in 2022 as compared to 2021.

The decrease was primarily driven by the decline in consumer demand in Europe due to the war between Russia and Ukraine and inflationary economic pressures.

In addition, the decrease in 2022 net revenue was also attributable to the shortage of reasonably priced GPUs which curtailed the demand for new PC builds and its components, as well as supply and logistics constraints caused by the COVID-19 pandemic.

The availability of reasonably priced GPUs began to normalize in the third quarter of 2022 and together with the new technology platforms launched by Nvidia, AMD and Intel during such period, led to an increase in demand for our components and systems products in the second half of 2022.

Segment Gross Profit and Gross Margin

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Gamer and Creator Peripherals Segment

The gross profit of the gamer and creator peripherals segment increased in 2021 by $35.2 million, or 18.5%, as compared to 2020, largely due to the revenue growth of 20.0% in the same period.

Gross margin decreased by 40 basis points primarily due to increased logistics costs caused by the COVID-19 pandemic disruptions and increased promotional activity.

These negative impacts to the gross margin were partially offset by the strong growth in the sales of our higher margin Elgato branded content creator products and better leverage on our fixed cost from higher sales volume year-over-year.

The gross profit of the gamer and creator peripherals segment increased in 2020 by $108.4 million, or 133.2%, as compared to 2019, largely due to the strong revenue growth of 83.4% in the same period.

The 7.5% increase in gross margin was primarily driven by the addition of higher margin SCUF products and the strong growth in sales of higher margin Elgato branded content creator products, coupled with less promotional activities.

The gross margin of the gamer and creator peripherals segment decreased 6.2% in 2022 as compared to 2021, primarily attributable to an increase in inventory impairment and related charges in 2022 due to the inventory rationalization plan to align our inventory balance with our revenue in 2022, as well as increased logistics costs and promotional activity, and increased amortization of intangible assets from the iDisplay acquisition.

Gaming Components and Systems Segment

The gross profit of the gaming components and systems segment increased in 2021 by $13.2 million, or 4.8%, compared to 2020, primarily due to the revenue growth of 8.1% in the same period.

The 70 basis points decrease in gross margin was primarily attributable to our memory products due to lower selling prices as a result of competitive pricing pressure in addition to increased freight and logistics costs across this segment caused by the COVID-19 pandemic disruptions.

The gross profit of the gaming components and systems segment increased in 2020 by $132.8 million, or 92.9%, compared to 2019, primarily due to the strong revenue growth in the same period.

The 5.9% increase in gross margin was primarily driven by a higher margin product mix and less promotional activities.

Risks and uncertainties related to the COVID-19 pandemic remain and until the supply chain and logistics constraints ease and GPUs become more available, our revenue and gross margin for both segments may continue to be negatively impacted.

The gross margin of the gaming components and systems segment decreased 4.7% in 2022 as compared to 2021, primarily attributable to product mix, an increase in inventory impairment and related charges in 2022 due to the inventory rationalization plan to align our inventory balance with our revenue in 2022, as well as increased logistics costs and promotional activity .

As risks and uncertainties related to macroeconomic conditions and the COVID-19 pandemic continue to evolve , our revenue and gross margin for both segments may continue to be negatively impacted.

Liquidity and Capital Resources

Our principal sources of liquidity have been the payments received from customers purchasing our products, the borrowings under our Credit Agreement (defined below) and the net proceeds we received from our IPO completed in September 2020.

Our principal uses of cash generally will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our products, capital expenditure, repayments of debt and related interest, income tax payments and future investments in business and technology.

On September 29, 2022, one of our subsidiaries entered into an accounts receivable Factoring Agreement with a third-party financial institution, or the Factor.

Pursuant to the terms of the arrangement, we sell certain of our customer receivables on a non-recourse basis to the Factor.

Our obligations to the Factor, related to advances from the Factor, are secured by certain assets of our subsidiary.

The cost of factoring is not expected to have a material effect to our overall liquidity, financial condition or results of operations.

Our principal uses of cash generally will include purchases of inventory, payroll and other operating expenses related to the development and marketing of our products, capital expenditure, repayments of debt and related interest, income tax payments, future investments in business and technology, and selective mergers and acquisitions.

As of December 31, 2022, we had cash and restricted cash, in aggregate of $154.1 million, including $15.6 million held by our foreign subsidiaries .

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We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the United States to have a material effect on our overall liquidity, financial condition or results of operations.

We believe that the a nticipated cash flows from operations based on our current business outlook, combined with our current levels of cash balances at December 31, 2021, supplemented with the borrowings under our Revolving Credit Facility will be sufficient to fund our principal uses of cash for at least the next twelve months.

We believe that the anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash balances at December 31, 2022, supplemented with the borrowings under our Revolving Credit Facility will be sufficient to fund our principal uses of cash for at least the next twelve months.

In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on the demand for our products.

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

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

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

Our liquidity is subject to various risks including the risks identified in the section titled “ Risk Factors ” in Item 1A and market risks identified in the section titled “ Quantitative and Qualitative Disclosures about Market Risk ” in Item 7A, each of which is incorporated herein by reference.

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Cash Flows from Operating Activities

Net cash provided by operating activities for 2021 was $20.2 million and consisted of net income of $101.0 million and non-cash adjustments of $60.0 million and offset partially by a net use of cash of $140.8 million from changes in our net operating assets and liabilities.

Net cash provided by operating activities for 2022 was $66.4 million and consisted of non-cash adjustments of $58.8 million and a net cash inflow of $61.5 million from changes in our net operating assets and liabilities, offset partially by a net loss of $53.9 million.

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

The net cash inflow from changes in our net operating assets and liabilities was primarily related to a decrease in inventory purchases and decrease in account receivables.

These cash inflows were partially offset by a decrease in accounts payable mainly due to timing of payments and purchases as well as a decrease in the accrual for sales returns, customer incentives, freight costs and bonus expenses.

Net cash provided by operating activities for 2021 was $20.2 million and consisted of net income of $101.0 million and non-cash adjustments of $60.0 million, offset partially by a net use of cash of $140.8 million from changes in our net operating assets and liabilities.

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

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These cash outflows were partially offset by increases in the accrual for sales returns and customer incentives, income tax payable and bonus accrual .

Net cash provided by operating activities for 2020 was $169.0 million and consisted of net income of $103.2 million, non-cash adjustments of $50.8 million and $14.9 million from changes in our net operating assets and liabilities.

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

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

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

Cash Flows from Investing Activities

Cash used in investing activities was $47.0 million for 2022 and consisted of $26.3 million capital expenditure including renovation and furnishing of our new headquarters in Milpitas, California, as well as purchases of equipment and software, $19.5 million for the iDisplay acquisition (net of cash acquired), and $1.0 million for the investment in an available-for-sale convertible note.

Cash used in investing activities was $20.5 million for 2021 and consisted of $11.0 million for the purchase of capital equipment and software, $4.7 million for the payment of deferred and contingent consideration primarily related to the Origin business acquisition, and $4.8 million for acquisitions of immaterial businesses.

Cash used in investing activities was $10.3 million for 2020 and consisted of $9.0 million for the purchase of capital equipment and software and $1.3 million for acquisitions of immaterial businesses.

Cash Flows from Financing Activities

Net cash provided by financing activities was $72.6 million for 2022 and consisted primarily of $81.7 million net proceeds from the issuance of common stock in connection with our underwritten public offering in the fourth quarter of 2022 pursuant to the 2022 Shelf Registration Statement, and $7.0 million proceeds received from the issuance of shares through our employee equity incentive plans.

These cash inflows were partially offset by $9.5 million repayment of debt and debt issuance costs, $4.3 million payment of dividends to noncontrolling interest, $1.5 million payment of taxes related to net share settlement of equity awards and $0.4 million for the payment of contingent consideration.

During 2022, we also borrowed $701.5 million from our revolving credit facility to fund our operations, and the full amount was repaid in 2022.

Net cash used in financing activities was $65.4 million for 2021 and consisted primarily of $328.2 million repayments of debt and $0.4 million payment of taxes related to net share settlement of equity awards.

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During 2021, we also borrowed $63.5 million from our revolving credit facility to fund our operations and the full amount was repaid in 2021.

Cash used in financing activities was $79.1 million for 2020 and consisted of $190.4 million repayments of debt and $8.5 payment of offering costs.

These cash outflows were partially offset by $118.6 million proceeds received from the issuance of common stock in connection with our IPO, after deducting underwriting discounts and commissions, and $1.3 million proceeds received from the issuance of shares through our employee equity incentive plans.

Capital Resources

C apital Resources

Credit Agreement (Term Loan and Revolving Credit Facility)

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The new Credit Agreement provides for a total commitment of $350.0 million, consisting of a $100.0 million revolving credit facility (“Revolving Credit Facility”) and a $250.0 million term loan facility (“Term Loan”).

The net proceeds from borrowings

under the Term Loan of $248.5 million (net of $1.5 million of debt discount) were used to repay all amounts outstanding under the First Lien Term Loan on September 3, 2021.

The net proceeds from borrowings under the Term Loan of $248.5 million (net of $1.5 million of debt discount) were used to repay all amounts outstanding under the First Lien Term Loan on September 3, 2021.

The Credit Agreement is available for a period of five years, maturing September 2026, and provides for additional incremental facilities up to a maximum aggregate principal amount of $250.0 million, subject to the satisfaction of certain conditions.

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subsidiaries and secured by a security interest in substantially all assets of the Company and the guarantor subsidiaries, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.

The Credit Agreement contains covenants with which we must comply during the term of the agreement, which we believe are ordinary and standard for agreements of this nature, including 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).

The Credit Agreement also includes events of default customary for facilities of this nature and upon the occurrence of such events of default, among other things, all outstanding amounts under the Credit Agreement may be accelerated and/or the lenders’ commitments terminated.

In addition, upon the occurrence of certain events of default, the interest on the Term loan and Revolving Credit Facility can increase by 2.0%.

As of December 31, 2021, we were not in default under the Credit Agreement.

As of December 31, 2021, total principal outstanding of the Term Loan was $248.8 million and the available and uncommitted capacity under the Revolving Credit Facility was $99.5 million.

On June 30, 2022, we entered into a First Amendment of the Credit Agreement (“First Amendment”) which, among other changes, resulted in the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) being utilized as a replacement rate for LIBOR.

Consequently, following the First Amendment, the Term Loan and Revolving Facility will each bear interest at our election at either (a) BSBY plus a percentage spread (ranging from 1.25% to 2.25%) based on our total net leverage ratio, or (b) the base rate (as described in the Credit Agreement) as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month BSBY plus 1.0%) plus a percentage spread (ranging from 0.25% to 1.25%) based on our total net leverage ratio.

In addition, pursuant to the First Amendment, the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) was also amended to increase to 3.50 to 1.0 between the quarters ending September 30, 2022 through and including March 31, 2023, and such ratio will revert to 3.00 to 1.00 from the quarter ended June 30, 2023 and each quarter thereafter;

provided, that upon the occurrence of a Qualified Acquisition (as defined in the Credit Agreement), such ratio can be increased to 3.50 to 1.0 temporarily provided all the requirements set forth in the Credit Agreement are met.

On September 29, 2022, we entered into an accounts receivable Factoring Agreement with the Factor.

In connection with the Factoring Agreement, we also entered into (i) a Second Amendment (“Second Amendment”) to the Credit Agreement to permit the transactions contemplated by the Factoring Agreement and (ii) an Assignment of Factoring Proceeds and Intercreditor Agreement with the Factor and the administrative agent under the Credit Agreement to establish the respective rights of the Factor and the Credit Agreement Agent in and to the related factoring collateral.

On November 28, 2022, we entered into a Third Amendment (“Third Amendment”) to the Credit Agreement which provides for, among other things:

(i) a decrease in the required minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to 2.50 to 1.00 for the quarters ending on and after March 31, 2023 through and including December 31, 2023;

(ii) an increase in the maximum permitted Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to 3.75 to 1.00 for the quarters ending December 31, 2022 and March 31, 2023, stepping down to 3.50 to 1.00 for the quarter ending June 30, 2023, and 3.25 to 1.00 for the quarters ending September 30, 2023 and December 31, 2023;

and (iii) a modified pricing grid providing for an increased margin (ranging from (x) 1.50% per annum to 3.25% per annum for loans bearing interest at the Bloomberg Short-Term

Bank Yield (BSBY) rate, and (y) 0.50% per annum to 2.25% per annum for loans bearing interest at the base rate, in each case depending on our Consolidated Total Net Leverage Ratio) for the period of December 31, 2022 through December 31, 2023.

As of December 31, 2022, we were not in default under the Credit Agreement, and the total principal outstanding of the Term Loan was $240 million and the available and uncommitted capacity under the Revolving Credit Facility was $100 million.

Contractual Cash and Other Obligations

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Other purchase obligations (4)

Contingent consideration in connection with a

business acquisition

Contingent consideration in connection with a business acquisition

Amounts represent the principal cash payments as of December 31, 2022, of our Term Loan based on the repayment schedule according to the Credit Agreement and the expected interest payments associated with the Term Loan.

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

Amounts represent an estimate of purchase obligations related to inventory, of which $17.5 million is related to purchase orders issued to iDisplay, in which we have acquired a 51% controlling financial interest effective January 1, 2022 and therefore, these obligations no longer exist as of the acquisition date.

Amounts represent an estimate of purchase obligations related to inventory.

Amounts represent contractual obligations from our operating leases for offices and warehouse spaces.

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Our consolidated financial statements are prepared in accordance with U.S.

Generally Accepted

Accounting Principles ("GAAP") , which requires us to make estimate s , judgment s and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods.

Generally Accepted Accounting Principles (“GAAP”), which requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods.

Our estimates are based on our historical experience and on various other factors that we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions.

Actual results may differ significantly from th o se estimates , which could have a material impact on our business, results of operations, and financial condition .

Actual results may differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.

We believe the accounting policies below are critical in the portrayal of our financial condition and results of operations , and involve management’s most difficult, subjective, or complex judgments.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis