Corsair Gaming Inc Stock

Good afternoon. and welcome to Corsair Gaming's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's prepared remarks, we will conduct a question and answer session. To ask a question at that time, please press star, then 1 on your telephone keypad. I would now like to turn the call over to David Pascal, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Tila, our Chief Executive Officer, and Gordon Mattingly, our Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion contains forward-looking statements, including but not limited to our guidance for the third quarter and full year 2026, potential future growth in certain product categories, and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions. These forward-looking statements are based on our current assumptions and expectations. Actual results could differ materially. Please refer to the risk factors in our most recent annual report on Form 10-K filed with the SEC, our subsequent SEC filings, and today's earnings press release for full discussion of the factors that could cause our actual results to differ. We undertake no obligation to update these forward-looking statements. Additionally, we will discuss certain non-GAAP financial measures today.

Definitions and reconciliations to the most comparable GAAP measures are included in our earnings press release and the investor presentation posted to our investor relations website at ir.corsair.com. With that, I'd like to now turn the call over to Corsair's CEO, Ti La. Ti, please go ahead. Thank you.

Thank you, David, and good afternoon, everyone. We are pleased to report strong results for Q2. Our core business outperformed expectations, and we are raising our outlook for the rest of the year. Based on our recent performance, Corsair is becoming a more profitable, more cash-generative company. We are improving the quality of our revenue, gaining share in the right categories, and building platforms for growth beyond the traditional PC cycle. I want to share the five numbers that tell the story. Gross profit for the quarter grew 21% year-over-year.

Gross margin hit a company record of 33.2%. Gamer and creator peripherals revenue for the quarter grew 13% year-over-year. Gross profit in that segment grew 27% year-over-year, and gross margin reached 44.9%. We cut operating expenses for the quarter by 6.1 million year over year. more of our gross profit gains reached the bottom line. Operating cash flow for the quarter grew 148% year-over-year to $74.8 million and we are raising our full year 2026 outlook which Gordon will review in a few minutes. Let's talk about Gamer and Creator Peripheral Segment. This segment was again, I'll stand out.

Revenue grew 13% year-over-year to $115.9 million. Gross profit grew 27% year-over-year to $52 million. margin expanded to 44.9%. This is the mixed shift we've been working toward, faster growth in categories that carry stronger margins and deeper customer relationships. Phenatech remained a key driver, supported by new products, wider distribution, and strong direct-to-consumer sales. Phenatech has also carried gross margins above the segment average, so its growth improved both scale and quality. But building on that with the acquisition of TrackRacer, a complementary sim racing hardware brand with a strong direct-to-consumer model, it broadens our product range, extends our distribution, and brings experienced leadership into our SIEM solution group. Our licensing strategy is also growing the Fanatec platform.

We recently announced a partnership with Nissan, adding another global automotive brand alongside our existing motorsport relationships. These partnerships reinforce Fanatec as the premium platform for sim racing. Elgato, Stream Deck, and Marketplace are evolving from creative tools into a broader workflow platform. In the first half of 2026, Elgato Marketplace revenue and transactions each more than doubled year over year. submissions grew more than 300%. The marketplace added more than 500,000 new accounts, which is impressive growth on all metrics. The flywheel is working. More users attract more developers, more products increase the value of Stream Deck, and that value drives the growth of Stream Deck. both hardware demand and recurring revenue. AI-assisted development is making it easier to build new profiles and plug-ins, which we believe should speed this up further.

This quarter, we made a minority investment in Bitfocus, a professional show control software company already integrated with Stream Deck. This extends Elgato from the creator desktop into broadcast, live events, and control rooms. These are all higher-value professional environments with a coordinated go-to-market path. As part of the agreement, Corsair and BitFocus also established a partnership under which Stream Deck Studio and the broader Stream Deck range will serve as preferred and primary control services across BitFocus customer deployments. We are excited to build on our relationship and expand our growth opportunities. In the gaming components and systems segment, revenue in this segment declined 9% year-over-year to $198.5 million as elevated memory pricing continues to delay DIY PC builds. We believe this demand is deferred, not lost.

When builders have historically delayed an an upgrade, the need didn't disappear. It built up and it returned as pricing and the product cycle normalized. Even so, segment gross profit grew 17% year-over-year to $52.2 million, and gross margin expanded 570 basis points year-over-year to 26.3%. Memory net revenue grew 17% year-over-year on strong supply chain execution and share gains in North America. Our memory inventory is now properly sized and supply availability remains adequate. System was a bright spot too, with solid year-over-year growth in AI workstations. This isn't a pivot. It's a natural extension of capabilities we've built over decades in high-performance system design, customization, overclocked memory, advanced water cooling, and power delivery to support the system. the hottest GPUs.

We are targeting the roughly $22 billion desktop AI PC market, focused first on prosumers and small and medium businesses that want local compute, data security, and lower cloud cost. The significance of this opportunity to the company's operation remains early, and GPU allocation is tight. Accordingly, we believe revenue contribution will pick up in the latter part of 2027 and beyond. Looking ahead, our investments remain focused on strategic revenue growth with accretive margin. ecosystem value with recurring revenue, and workstation market opportunity. This is why we chose to direct capital toward M&A and strategic partnerships this quarter, including TrackRacer and BitFocus, which we believe will extend our platforms and further diversify our business. We will continue to prioritize these opportunities where we see the clearest path to durable, higher margin growth while remaining disciplined on price and integration risk. With GTA 6 expected to launch in Q4 2026, we see a meaningful tailwind for console products and are positioned to capture demand around one of the industry's most anticipated releases.

With that, I will turn it over to Gordon to take you through the financials. Gordon? Thank you.

Thank you, T, and good afternoon, everyone. The second quarter showed strong conversion of gross profit improvement into earnings and cash generation. We're excited about our progress and the momentum we are building in our business as we continue to execute and build shareholder value. I'll provide some additional color on the quarter in our outlook before opening the call for any questions. Revenue for the second quarter was $314.3 million, above the assumed midpoint of our guidance range and down 2% year-over-year. Growth profit increased 21% year-over-year to $104.3 million, and growth margin expanded 640 basis points year-over-year and 50 basis points sequentially to a company record of 33.2%. GAAP operating income improved to $7.6 million from an operating loss of $16.9 million a year ago.

Gap net income was $9.1 million, compared with a net loss of $20.3 million in the prior year quarter. Gap diluted EPS was $0.06 compared with a loss of $0.16 a year ago. Adjusted EBITDA increased to $30.8 million from $8.1 million a year ago, and adjusted EBITDA margin expanded to 9.8% from 2.5%. Non-gap diluted EPS increased to 23 cents from 1 cent. During the second quarter of 2026, the company recognized the benefit of approximately $15.6 million to GAAP gross profit from refunds of tariffs previously paid under the International Emergency Economic Powers Act. This delivered approximately 500 basis points of benefit to gross margin. Net income benefited by approximately $14.9 million.

Adjusted EBITDA by approximately $14.3 million. And non-GAAP diluted earnings per share by 13 cents. Excluding this benefit, GAAP net loss would have been $5.7 million. And GAAP diluted loss per share would have been 7 cents. Adjusted EBITDA would have been 16.7 cents. million and non-GAAP diluted earnings per share would have been nine cents, both above the high end of the company's guided ranges at $15.5 million and seven cents respectively. Following receipt of these amounts, the company is materially complete with the tariff refund process, although it may receive immaterial administrative adjustments or interest in future periods. Gamer and creator peripherals revenue grew 13% year-over-year to $115.9 million.

Segment gross profit increased 27% to $52 million, and gross margin expanded to 44.9% from 40%. The improvement reflects growth in higher margin categories, including sim racing, and continued momentum across gaming peripherals and streaming products, as well as the tariff refund. Gaming components and systems revenue declined 9% year-over-year to $198.5 million, reflecting the market-wide pressure from elevated memory pricing on DIY builds and standalone components. Despite the lower revenue, we were still able to increase segment gross profit by 17% to $52.2 million, and gross margin expanded 26.3% from 20.6%. Strong performance in memory, led by strong demand, market share gains, and continued strong supply chain management helped drive this improvement, along with the refund benefits. Systems also show year-over-year momentum led by AI workstation demand. Direct consumer or D2C represented 20% of revenue in the quarter.

B2C is a priority for us because it carries better unit economics, gives us richer end-user data, and creates a deeper relationship with our customers while benefiting our cash conversion. Fanatec and Track Racer also increased our presence in this structurally attractive channel. Operating expenses declined $6.1 million year over year to $96.7 million. That discipline allowed more of the gross profit improvement to reach operating income and adjusted EBITDA. Cash provided by operating activities increased 148% year-over-year to $74.8 million, reflecting both strong earnings and disciplined working capital management across inventory, receivables, and vendor terms. Notably, in the first six months of the year alone, we generated more operating cash flow than in all of 2025 and 2024 combined. This is a clear sign of the traction we are gaining in this area and one we plan to build on.

Cash and restricted cash increased $74.1 million sequentially to $193.9 million at the end of the second quarter. And with total debt balance of $118.7 million, we ended the quarter with a net cash position of approximately $75.1 million. Our stronger balance sheet increases our flexibility to invest in organic growth, pursue disciplined strategic acquisition, purchase shares when attractive and manage leverage appropriately. We will continue to pursue a combination of those levers as we work to expand growth and profitability and drive shareholder value. I will now turn to the guidance. For the third quarter of 2026, we expect net revenue to be in the range of $320 to $350 million. Adjusted EBITDA to be in the range of $18 to $21 million.

And non-GAAP diluted EPS to be in the range of $0.09 to $0.12. The outlook assumes continued low double-digit year-over-year growth in gamer and creator peripherals, led by Fanatec, Elgato, and Stream Deck, with the a higher margin mix and continue direct consumer progress supporting consolidated gross margin. Gaming components and systems are expected to be down low double digits year over year and will remain pressured by elevated memory pricing and delayed DIY demand, although supply availability is expected to remain adequate. For the full year 2026, we are raising our outlook. We now expect net revenue to be in the range of 1.4 to 1.47 billion dollars Adjusted EBITDA to be in the range of 121 to $131 million. and non-GAAP diluted EPS to be in the range of 85 to 94 cents. Our full year 2026 outlook for net revenue represents an increase of approximately $35 million at the assumed midpoint of our updated guidance range, compared to our prior guidance range of $1.33 billion to $1.47 billion. The assumed midpoint of our adjusted EBITDA range is also up approximately $19 million compared to the assumed midpoint of our prior guidance range of $100 to $115 million.

To close, we are encouraged with our continued business momentum and the progress we are making to increase the quality of Corsair's earnings. diversified portfolio of leading brands continues to perform strongly. We are entering the second half with stronger financial capacity, improving mix, and a broader set of growth opportunities. We believe that combination positions us well to compound earnings and cash flow and create long-term shareholder value. Operator, that concludes our formal remarks. You can now open the call up for Q&A.

Thank you. We will now open the line for questions. To ask a question, please press star and then 1 on your telephone keypad. To withdraw your question, please press star and then 2. Please limit yourself to one question and one follow-up. pause for a moment to compile the Q&A roster. Our first question is from Erin Lee of Macquarie. Please go ahead.

Hey, good afternoon. Thanks for taking the question. I wanted to start with guidance. The midpoint of the 2026 EBITDA guidance range went up by about $19 million, which is more than the $14 million tariff benefit and the TQ beat versus the midpoint of the guide, which would imply a strengthening of the back half outlook. So can you just talk about what's changed in your expectations for the second half and what the major drivers are?.

Yes, sure, you're absolutely right, Aaron. This is Gordon speaking. the guidance of about $90 million. If we look at the midpoints, the Q2, the beat was roughly $17 million, of which $14 million was attributable to the tariff, so roughly about $2.5 million from Q2. And then for the rest of the year, the updated guidance is a reflection of the combination of the improved business performance we're seeing with our organic business. a small amount from the track racer acquisition, but pretty immaterial there. But it's those things really combining that make up the $19 million increase at the midpoint.

Okay, got you, that's helpful. And then with regard to the track racer acquisition, Can you just talk a bit about the growth potential, the integration timeline, and any synergy benefits with Fanatec or the broader organization? Sure.

Yes, so with regards to, hey Erin, good to hear from you. With regards to the integration phase, it should be a pretty quick one. We think it's going to take about three to six months to integrate our system infrastructure. What's going to be really meaningful is just really getting the roadmap alignments between the two business units. We've folded SimRacing into one unit. if you want to call it that way. And the track racer products will fold underneath the Fanatec brand umbrella Benetech is known for all of the electronics, like wheel, wheelbase, pedals, anything that requires software. And TrackRacer is all mechanicals, cockpit, and accessories.

So it's rare that we are able to find two very complementary product lines. and combined together into a very meaningful range for us. and really increase our presence in the market. continue to be growing very nicely and this is a very good acceleration for us.

Okay, awesome. Thank you very much and really nice quarter.

Thank you. Ladies and gentlemen, just a reminder to ask a question. Please press start. and then 1 on your telephone keypad. The next question we have is from Drew Crum of B Reilly Securities. Please go ahead.

Okay, thanks. Good afternoon, everyone. I want to ask another question on the guidance, but specific to revenue. I'm just going off the midpoint of the ranges. It looks like you beat the first half by 11 million and raised by 35 million. So curious as to what the source of the 24 million raise for 3Q, 4Q, what that's, you know, what's driving the more optimistic view on the second half.

Hey Drew, Gordon here. I'll take that question. You're right with the analysis and it really is a combination of a few things. Mostly the increase in the guide for the second half is just from the organic business. There's quite a lot that's driving that. If you look ahead, we've got GTA 6 launching in Q4, which is a tailwind for our console and peripherals business, the holiday, Fanatec, new products, wider distribution, and this in partnership. Elgato Marketplace has more than doubled in the first half, and memory continues to gain share in North America. Those really are the catalysts from an organic perspective.

And then we have, relatively, a relatively small amount from the TrackRacer acquisition. I would look at TrackRacer for Q3 as Q3 revenue being purely organic, just given the fact that it's already a month in from close and we're going through the integration process. Modest contribution in Q4, but really it's 2027 where we're looking to see greater contribution from that. So that's really where that increase is coming from in the second half.

Okay, that's helpful. And then if I heard correctly, you're expecting gaming components and systems to be down low double digits, the balance of the year. Can you parse performance memory and what your expectations are for gross margin for that business. Thanks.

I won't break memory out specifically, but you're absolutely right, low double-digit growth as we've been projecting all the way this year. Initial guidance for the year reflected that. Q1, Q2 guidance reflected that. Remainder of the year, we're still looking at the same outlook from a growth margin perspective. I would guide you for memory. It's in our Q, 23.4% growth margin in Q2. I would guide Q3, roughly similar. Some moderation of that in Q4.

I would expect high teens probably for Q4 for memory. Just some abatement in the margin profile there. For the overall component segment... I would say roughly in the low 20-ish percentage range is reasonable for the rest of the year. Yes.

I just wanted to add to that, Drew, the way that we look at the gaming components and system segments. While the gaming component DIY portion of that segment is seeing pressure due to high price point from semiconductor and DRAM specifically, we actually were able to diversify that segment with memory business and system business. And both of those categories are experiencing good growth. And in a way, it minimized the impact of DIY. So we're pretty pleased that we're in a position where we're not seeing a bigger impact than others in the market.

Got it. Okay. Thanks so much. Thanks Drew.

The next question we have is from Colin Sebastian of Bode. Please go ahead. Hey, good afternoon, everyone. This is Colin Olliette. I'm for Colin Sebastian. So you talked about for the DIY that the demand there is more deferred, not lost, kind of as elevated memory pricing delays the build. What are you seeing in terms of whether through the sell-through or the channel inventory that kind of supports that deferral rather than maybe maybe permanent substitution or kind of just lost on that subject? And then what will kind of happen on pricing for that to return to growth?.

Hi, this is T. I'm going to take this question. So with regards to the DIY segment, let's just talk about the channel inventory first. So we came into the year with a bit of an elevated inventory in Q1, and that pretty much normalized through Q2 sales as we were able to successfully calibrate the run rate. with what's available in the channel. And we do see a little bit more promotional activities just due to the price point being fairly high. But on the other hand, we see that people are just more calibrating the situation with pricing, waiting for a change whether or not that's going to go back down. Cuz a lot of people, when they buy into PC components, especially around memory, it goes up and down all the time. at the end of Q2, we see a lot of settled down in terms of accepting the fact that the price is actually not going to go down, but it's going to start to move up again based on forecast. And I think that we see steady run rates started to pick up and the demand for AI computing is also started to come in.

People are using more larger language model to do a lot more. Now with capability of AI continue to expand. And so this is a tailwind. This is something that we're looking forward to 2027, where the demand started to pick up again. And in terms of ASP, I mean, it's gone up quite a bit, as you all know. And I think that it will continue to rise a little bit more toward the end of the year. So the longer you wait to build your machine, the more expensive it's going to get.

So people are also going to start to realize that as well. Thank you very much and great work. Thank you.

Ladies and gentlemen, just a final reminder, if you wish to ask a question, you may press star and then 1 on your telephone keypad. We will pause for a moment to see if we have any further questions. It seems we have no further questions, and with that we have reached the end of the question.

I will now hand back to Corsair CEO, Tila, for closing remarks. Thank you all for joining us today. We are pleased with the progress we delivered in the first half of 2026 and remain focused on carrying that momentum through the balance of the year. We look forward to updating you again when we report our third quarter results. And have a good evening.

Thank you. This concludes today's conference call. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, and welcome to Corsair Gaming's First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recordings.

With that, I would like to turn over to David Pasquale with Investor Relations. Please proceed.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Thi La, our Chief Executive Officer; and Gordon Mattingly, our Chief Financial Officer.

Before we begin, I'd like to remind you that today's discussion contains forward-looking statements, including, but not limited to, our guidance for the second quarter of 2026 and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions. These forward-looking statements are based on our current assumptions and expectations. Actual results could differ materially.

Please refer to the risk factors in our most recent annual report on Form 10-K filed with the SEC as well as today's earnings press release for a full discussion of the factors that could cause our actual results to differ. We undertake no obligation to update these forward-looking statements. Additionally, we will discuss certain non-GAAP financial measures today. Definitions and reconciliations to the most comparable GAAP measures are included in our earnings press release and the investor presentation posted to our Investor Relations website at ir.corsair.com.

With that, I'd like to turn the call over to our CEO, Thi La. Please go ahead, Thi.

Thank you, David, and good afternoon, everyone. We delivered a strong start to 2026. This quarter reflects real progress in the transformation of this business, and I will frame what the results show before Gordon takes you through the details.

The headline is this: first quarter record gross margin, both adjusted EBITDA and EPS well above the high end of our guidance and a meaningful improvement in profitability versus a year ago. We also generated strong cash flow, reduced net debt to near 0 and returned capital to shareholders via our share repurchase. What I want to convey is that this is more than one strong metric. It is the whole company moving in the right direction at the same time. In Gamer and Creator Peripherals, we had another excellent quarter. Revenue grew 10% year-over-year, and we absorbed real tariff headwinds in the process.

The growth is structural, not cyclical, and I want to explain why. Stream Deck, our solution that combines workflow control software with a hardware innovative interface puts powerful automation literally at your fingertips. What we have built on top of that is the flywheel, a marketplace for plug-ins and digital products that connects developers with users, and it is working. underscoring our success and momentum, our Elgato Marketplace delivered double-digit sequential growth in new accounts and digital products this quarter.

We are also excited to see the rise of AI-assisted development, accelerating that flywheel further, lowering the barrier for a new generation of builders. Critically, Stream Deck is no longer just a stand-alone device. We have deployed the ecosystem across our product lines with keyboards, mice and other Corsair peripherals now integrating directly with Stream Deck, turning the software layer into a connected tissue across our hardware portfolio.

This integration alongside the Elgato marketplace provides unique benefits to our customers and the results show in our Q1 2026 market share gain. Wave Next is our most ambitious hardware and software integration to date, unifying audio workflows into a single ecosystem with onboard DSP and intuitive tactile control. Sim Racing also had a strong quarter. We recently signed a strategic partnership with Formula 1, naming Fanatec as a licensed F1 brand partner and F1 Esports Official Partner for the F1 Sim Racing World Championship.

Fanatec was showcased at the Miami [ Grands Prix ] recently. This validates our position at the top of the market and opens meaningful doors for brand reach and product authenticity going forward. In gaming components and systems, revenue declined 10% year-over-year, and I want to be direct about why we are in a non-GPU upgrade cycle compounded by challenging memory pricing dynamics. Semiconductor supply constraints have added further headwinds on both availability and consumer demand. These are industry-wide dynamics, not Corsair specific, and we expect them to persist through near term.

What I want you to focus on is how we managed through it. Despite the revenue decline, we grew gross profit 18% year-over-year to $65.7 million and expanded gross margin 670 basis points from 21.7% to 28.4%. Gordon will give you the specifics, but the point is that our team delivered real margin improvement under dynamic pressure. That reflects operational discipline and a deliberate shift toward higher-margin products.

Within the segment, we're also seeing early but real demand for AI-focused workstations, particularly from prosumers and SMB customers who need high-performance locally run AI compute. This is a large and growing market, and it plays to Corsair's and ORIGIN PC's strengths. We are encouraged by the early signals and believe this has the potential to become a more meaningful contributor as adoption matures, though we want to be measured in our expectations until semiconductor availability is more established. Stepping back, the strategy we've been executing against is that Corsair's profitability improves as we continue to grow our higher-margin gaming and creator segment, leveraging our platform ecosystem and continue to exercise operational discipline.

This quarter is a proof point that our strategy is working. Our 2026 priorities are clear. First, improve the quality of growth, leaning into higher-margin categories and scaling our ecosystem where we see strong momentum. Second, grow the Elgato marketplace and recurring revenue to drive lifetime value engagement and margin enhancement. Third, scale direct-to-consumer because higher-margin channels and better customer data make other parts of the business smarter.

With that, I will turn it over to Gordon to take you through the financials. Gordon?

Thank you, Thi, and good afternoon, everyone. Before I get into the numbers, I want to frame what this quarter's results represent.

We are working to transform Corsair into a consistently profitable cash-generative business, underpinned by our diversified portfolio of market-leading brands. This quarter, we saw several benefits of that transformation and diversification simultaneously contributing to our strong results. These include consistent market leadership in memory products, an accelerating pace of innovation in higher-margin peripherals, platform growth in Elgato, direct-consumer expansion and disciplined expense and working capital management. Our team will continue to prioritize progress and improvements across all these areas.

Now turning to our results. Revenue for the first quarter was $354.5 million, above the midpoint of our guidance. Gross profit increased 13% year-over-year to $116 million, reflecting strong execution within both our segments, while gross margin expanded to a first quarter record of 32.7%. Our Gamer and Creator Peripheral segment gross profit grew 8% to $50.3 million despite year-over-year tariff-related headwinds with segment gross margin of 40.8%. Our Gaming Components and Systems segment gross profit grew 18% to $65.7 million, with segment gross margin expanded significantly from 21.7% to 28.4%.

This is an increase of 670 basis points, which was driven by our strong supply chain execution, favorable memory pricing and sequential market share gains. Though we do expect margin normalization over time, we are very pleased with the expansion we delivered in Q1. Our higher-margin Gamer and Creator Peripheral segment also grew to 35% of our Q1 revenue mix, up from 30% a year ago, which helped lift our blended company gross margin, a trend that we expect to continue.

I want to call out one additional driver of margin quality. Our direct-to-consumer channel grew to 20% of Q1 revenue, up from 17% a year ago. That 3-point mix shift matters. Direct-to-consumer carries structurally higher margins than our wholesale and retail channels. As a result, this growth flowed directly into gross profit. It's a deliberate part of our strategy, and we continue to make good progress on it.

Disciplined operating expense management with flat year-over-year expenses enabled gross profit growth to flow entirely through to adjusted EBITDA. As a result, adjusted EBITDA grew to $35.8 million, up 58% year-over-year and above the high end of our guidance at 10.1% of revenue. This marks our second consecutive quarter of double-digit adjusted EBITDA margin.

Earnings per share improved significantly, coming in at $0.11 on a GAAP basis and $0.27 on a non-GAAP basis compared to a loss in the prior year period. Turning to the balance sheet and cash flow. We generated $29.7 million in cash from operations in Q1, driven by strong earnings with balanced working capital management. This translated into good progress on the balance sheet with our cash and restricted cash increasing sequentially by $20.9 million to $119.7 million. Importantly, we ended the first quarter with a near 0 net debt position. This will give us even greater flexibility to deploy our capital across the business and maximize future shareholder returns.

In line with that, during the first quarter, we repurchased approximately $5 million of stock under our recent $50 million authorization. This reflects our view that our shares represent a highly compelling investment opportunity. We intend to continue to deploy our capital optimally, whether investing in organic growth, executing M&A, deleveraging the business or returning capital to shareholders.

Now turning to our guidance. For the second quarter of 2026, we expect net revenue to be in the range of $295 million to $320 million, adjusted EBITDA to be in the range of $12.5 million to $15.5 million and non-GAAP EPS to be in the range of $0.05 to $0.07 per share. We expect revenue to be down by about 4% year-over-year at the midpoint of our guided range with expected low teens year-over-year growth in our Gamer and Creator Peripheral segment, offset by a more cautious outlook for gaming components and systems, driven by the ongoing global semiconductor shortages and related demand dynamics.

The sequential decline in our revenue from Q1 reflects the normal seasonal pattern of our business. Adjusted EBITDA is expected to grow more than 70% year-over-year at the assumed midpoint of our guided range as we continue to focus on margin expansion and operating expense management. We also reaffirm our previously issued full year guidance, reflecting continued confidence in our outlook. To close, we delivered a strong first quarter with solid top line performance relative to expectations, significant profit growth together with meaningful balance sheet improvement and cash generation.

As we look ahead, our priorities remain clear: continued optimization of our product mix towards higher-margin categories and sales channels, disciplined cost management and driving consistent profitable growth across our diversified portfolio of market-leading brands. We believe the progress we've made positions us well to build on this momentum through the remainder of 2026, and we remain confident in our ability to execute against our strategy as we deploy our capital optimally to deliver long-term value for our shareholders.

Operator, that concludes our formal remarks. You can now open the call for Q&A.

[Operator Instructions] Your first question today comes from Aaron Lee from Macquarie.

Nice job on the quarter. I wanted to talk about -- maybe to start with guidance. So obviously, you beat the high end of EBITDA guidance in the first quarter.

So can you just talk a bit about the decision to keep the full year outlook the same? Does that just kind of reflect -- it's early in the year, so no reason to kind of move that around? Or any other puts and takes that we should be mindful of?

You got it absolutely right. If you look at revenue for Q1, we're a little bit above the midpoint of guidance. But from a revenue perspective, no reason to change the annual guide, we're on track.

From a profit perspective, you're absolutely right. It's pretty pleasing for us to have already banked 33% of the annual guide, 25% of the way through the year. But we just back to what you said at the outset, we're pretty early on through the year. The macro situation is a little bit uncertain. So we just feel that it's right to maintain the guide that we issued before, and we remain confident in that guidance.

Okay. Perfect. And then I wanted to ask about AI. You made some pretty interesting comments about the opportunity there. Can you just talk about your strategy to penetrate this TAM? And is this something that would require significant time or investment to unlock? Or can you be pretty nimble?

Aaron, on AI workstation, this is a product line that we launched about 2 quarters ago. And at the beginning, the category was still pretty new. There were a lot of education that needs to be done.

Since then, a lot more LLM models became available to the market and people are a lot more familiar with using AI to do the work, to establish very complex business model. And alongside with that, we started to see a much stronger awareness of the benefit of AI computing. And then furthermore, the concern around security and the ability to just do local computing with AI, it's a lot higher and the demand started to surface for our particular solution.

So a lot of the performance that we see in Q1 for the systems side is really stemming from the awareness and the need of these new consumers, we call them prosumers as well as SMB wanting to invest in the category. The category itself, we shared the TAM data in our earnings. It's a big market. It's just a question is, number one, the acceleration time line and the availability of semiconductor.

Your next question comes from Drew Crum from Stifel.

I just wanted to get your additional thoughts on updated expectations for when you think semiconductor supply will improve for your business. I think the language that you used was it would be constrained near term. But just any more detail there and how you're thinking about it beyond '26? And then I have a follow-up.

At this point, the data that we use is pretty much very consistent with what the market is saying is sometime in '27. Although in terms of availability, for us, we will continue to be able to have access to memory, especially DRAM. The big question is around pricing because you do see demand basically track ASP memory, for example. So for us, when we talk about availability of semiconductor, it just means that the supply-demand picture is more balanced, and you will see ASP normalize, and that's going to bring in, we believe, at this point, a much bigger acceleration in computing. And for our business, that's very beneficial to see people coming back into the market. I think we just see right now just this pent-up demand on waiting for the ASP to normalize.

Got it. Okay. And then my follow-up is pertaining to the improvement in mix from DTC at 20% of revenue. I think this has been a key initiative for the company for several years now. Are there specific drivers to move that percentage higher? And do you have an intermediate or longer-term target in terms of what it can represent as a percentage of your total revenue?

Yes. We had made a deliberate goal to get the DTC business to 25%, and we communicated this a few quarters ago. And since then, we've grown from 18% now to 20% for exiting this Q1. That came from a number of activities or investments. The first one is M&A, right? A lot of our M&A companies are very strong in DTC. Number two is product strategy, where we put products on DTC versus the broader channel. And we increased marketing investment for our DTC business.

The store that we opened in the Bay Area is the first retail format that we have for Corsair and all of our brands, and that's shown to be very successful. And we also kicked off AI commerce or AI e-commerce investment to basically adopt to consumers' shopping behavior with the most recent change, and that's also been paying off.

[Operator Instructions] Your next question comes from Colin Sebastian from Baird.

This is Zach on for Colin. So you disclosed the double-digit sequential growth in a few KPIs for the Elgato Marketplace. So just stepping back, what type of applications are gaining the most traction with users? And how are you thinking about the longer-term opportunity there?

Yes. We actually see a pretty broad range of products that are being submitted recently, and it's ranging from content creation, extensive use of Adobe Photoshop, for example, to gaming applications, so different kind of profiles to help you game better and even broadcasting, voice, video control and including streaming software.

And because the use case is so diverse and the Stream Deck platform is very flexible, I think people are very active in terms of adding content all the time. And the bottleneck is almost to where we can curate the content and make it published fast enough. So there's -- this is the beauty of the solution is it can be anything.

I think we lost Zach? Are we still on?

Yes, that was my only question.

[Operator Instructions] There are no other questions at this time. This does conclude our question-and-answer session. I would now like to turn the conference back over to CEO, Thi La, for any closing remarks.

Thank you all for joining us today. We're proud of the start that we make in 2026 and look forward to updating you on our continued progress when we report Q2 results. Have a good evening.

Good afternoon, and welcome to Corsair Gaming's Fourth Quarter and Full Year 2025 Earnings Conference Call.

As a reminder, today's call is being recorded, and your participation implies consent to such recordings.

[Operator Instructions]

With that, I'd like to turn the call over to David Pasquale with Investor Relations. Please proceed.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference Call for the Fourth Quarter and Full Year ended December 31, 2025.

On the call today, we have Corsair's CEO, Thi La; and CFO, Gordon Mattingly. Thi will review highlights from the quarter and the year. Gordon will then review the financials and our outlook. We will then have time for any questions.

Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion, may include forward-looking statements related to the expected future results for our company, including our 2026 financial outlook and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs or other statements that may be considered forward-looking.

These forward-looking statements are based on management's current expectations and assumptions. Our actual results may differ materially from our projections due to a number of risks and uncertainties.

The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings.

Note that until our 10-K has been filed, these numbers are preliminary and are subject to change. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release we issued after the market closed today prior to this call.

With that, I'll now turn the call over to Corsair's CEO, Thi La. Please go ahead, Thi.

Thank you, David, and thank you all for joining us today. We closed 2025 with strong execution across the business and meaningful progress on the strategy we have been building over the past year. In the fourth quarter, revenue came in as expected, while profitability exceeded the upper range of our forecast.

We delivered strong gross margin expansion and meaningful operating leverage despite a very dynamic operating environment. For the full year, revenue grew 12% to approximately $1.47 billion. Gross profit increased 30% and adjusted EBITDA grew more than 80%, reaching over $100 million.

We also delivered our highest full year gross margin as a public company. That combination of growth, margin improvement and discipline is what we set out to achieve in 2025.

In addition, I am excited to welcome Gordon Mattingly as Corsair's new CFO. Gordon joined us in December 2025, and he is already making a positive impact with our leadership team. He brings deep experience in scaling global consumer technology businesses and leading successful transition toward platform and recurring revenue models.

Just as importantly, as a public company CFO, Gordon shares our focus on building clear, transparent financial reporting and stronger investor communications for Corsair. You will hear directly from him in a few moments.

Turning to our business performance. In gaming components and systems, we delivered strong growth for the full year, led by memory and core components, supported by solid demand for the segment as enthusiasts continue to upgrade their performance PCs.

Corsair strategically invested in memory inventory to protect consumer demand despite broader market concern about semiconductor supply constraints. In gamer and creator peripherals, we delivered full year growth driven by demand from both creators and sim racing enthusiasts. Fanatec and Elgato were important contributors and both brands continue to strengthen their position in their respective markets.

In line with the broader market, we did see softer holiday demand in North America in gaming peripherals, offset by stronger international performance. We expect demand to improve as we move through 2026, especially with the highly anticipated GTA 6 launch in Q4.

Fanatec, in particular, is integrating extremely well. During 2025, we strengthened Fanatec's operations, improved quality and support and advanced our road map with technologies that raise the bar for performance and usability. Product availability has improved.

Channel engagement is increasing and consumer adoption continues to accelerate as we drive growth in one of the fastest expanding areas of our business. Looking forward, I want to spend a moment on what we showcased at CES 2026 because it directly reflects where Corsair is going. We have one of the strongest CES product lineups in our history, and the customer and partner response was extremely encouraging.

At the center of our showcase was Stream Deck, which is positioned as a must-have control layer across gaming, content creation, productivity and emerging AI workflows through voice control Stream Deck.

We introduced the GALLEON 100 SD, our CES innovation award-winning keyboard that integrates Stream Deck directly into a high-performance mechanical keyboard to deliver an immersive and customizable experience.

This has quickly become one of the most successful launches in our portfolio and represents early validation that our platform-based strategy can make an impact. We also demonstrated early support for AI-enabled workflows, deeper software integrations and new local AI computing platforms to our workstation and Edge AI systems.

What stood out to us most at CES was how much our ecosystem strategy resonates with customers. We are reducing friction for users and making complex workflows, whether for gaming, streaming, production or local AI easier to access and control. Another very important milestone for us this quarter was the opening of our first Corsair retail store. We opened our first experience-driven retail location at Westfield Valley Fair Mall in Santa Clara.

This is not a traditional retail store. We designed a fully immersive and fun experience showcasing the Corsair ecosystem across gaming, sim racing and creator workflows. The response has been outstanding with strong opening day demand and consistent healthy traffic and conversion since.

Strategically, this store represents an important step in our plan to deepen consumer engagement and grow brand awareness. Now I'd like to share our top priorities for 2026. First, improving the quality of growth through mix, integrated platforms and innovation.

We are prioritizing growth in higher-margin gaming, sim racing and creator categories and ecosystem platforms, supported by a steady cadence of innovative product launches.

At the same time, we will continue to leverage both our scale and execution strength in the Components and Systems segment to drive revenue and grow market share. Our foundation continues to be strengthening each quarter, giving us a diverse platform to scale and capture incremental opportunities.

Second, driving margin expansion through operational discipline and creator marketplace. We are focused on driving margin expansion through smart inventory management to navigate a tight semiconductor landscape, combined with a nimble manufacturing strategy to improve cash flow.

We also plan to scale the Elgato Marketplace with the goal of growing recurring revenue for both Corsair and our community of makers while tapping into new sources of revenue as we expand into new industry verticals.

Third, scaling our direct-to-consumer business to deepen engagement. In 2025, we made strong progress expanding our direct-to-consumer business to nearly 20% of our revenue with double-digit growth in web traffic and impactful social engagement alongside the launch of the immersive retail store. These efforts are strengthening consumer relationships, improving conversion rates and generating insights that support product development and go-to-market execution. With that, I'll turn it over to Gordon to walk through the financials.pening of our first Corsair retail store. We opened our first experience-driven retail location at Westfield Valley Fair Mall in Santa Clara.

This is not a traditional retail store. We designed a fully immersive and fun experience showcasing the Corsair ecosystem across gaming, sim racing and creator workflows. The response has been outstanding with strong opening day demand and consistent healthy traffic and conversion since.

Strategically, this store represents an important step in our plan to deepen consumer engagement and grow brand awareness. Now I'd like to share our top priorities for 2026. First, improving the quality of growth through mix, integrated platforms and innovation.

We are prioritizing growth in higher-margin gaming, sim racing and creator categories and ecosystem platforms, supported by a steady cadence of innovative product launches.

At the same time, we will continue to leverage both our scale and execution strength in the Components and Systems segment to drive revenue and grow market share. Our foundation continues to be strengthening each quarter, giving us a diverse platform to scale and capture incremental opportunities.

Second, driving margin expansion through operational discipline and creator marketplace. We are focused on driving margin expansion through smart inventory management to navigate a tight semiconductor landscape, combined with a nimble manufacturing strategy to improve cash flow.

We also plan to scale the Elgato Marketplace with the goal of growing recurring revenue for both Corsair and our community of makers while tapping into new sources of revenue as we expand into new industry verticals.

Third, scaling our direct-to-consumer business to deepen engagement. In 2025, we made strong progress expanding our direct-to-consumer business to nearly 20% of our revenue with double-digit growth in web traffic and impactful social engagement alongside the launch of the immersive retail store. These efforts are strengthening consumer relationships, improving conversion rates and generating insights that support product development and go-to-market execution. With that, I'll turn it over to Gordon to walk through the financials.

Thank you, Thi, and good afternoon, everyone. Before I get into the numbers, I want to briefly say how excited I am to be here. What attracted me to Corsair is the combination of strong global brands, a highly engaged customer base and a clear opportunity to work with Thi and the leadership team to evolve the business into a higher quality, more predictable and increasingly platform-driven company.

Since joining, everything I have seen has reinforced my belief in the opportunities that lie ahead of us. I look forward to working closely with our investors and analysts to provide consistent insight into our business, our brands and our long-term growth opportunities.

Transparency and regular communication will be an important focus for Thi and me going forward as we build on the company's history of innovation and product excellence.

Now turning to our results. We ended 2025 in a strong financial position. For the full year, revenue increased 12% to approximately $1.47 billion. Gross profit increased 30% to approximately $426 million and adjusted EBITDA increased more than 80% to approximately $101 million and exceeded the high end of our guidance.

These results reflect the strength of our core business, M&A success and growth in our direct-to-consumer business, which we plan to build on in 2026.

In the fourth quarter, revenue increased 6% year-over-year to approximately $437 million. Gross profit increased more than 30% year-over-year, and adjusted EBITDA increased more than 60% year-over-year. These results reflect strong execution across our supply chain and continued operating discipline.

From a segment perspective, Gaming Components and Systems delivered strong double-digit growth in both the fourth quarter and the full year, driven by strength in memory and core components. Gamer and creator peripherals delivered single-digit full year growth, led by continued momentum in sim racing and creator products, including Fanatec and Elgato, while lower demand in the North American market was largely responsible for the low single-digit revenue decline in the fourth quarter.

Turning to the balance sheet. During the fourth quarter, we increased our cash balance by just under $33 million while strategically investing in inventory, which we believe positions us for profit momentum in 2026.

Financially, we will continue to focus on 3 priorities: first, margin expansion and profitability through product mix, platform-led offerings and disciplined operating expense management.

Second, working capital discipline, which allowed us to make strategic inventory investments in 2025, which we believe will position us well for early 2026 and which we believe will also enable us to capitalize on other opportunities in the future.

Third, disciplined capital allocation. During 2025, we reduced our debt by over $50 million and continue to strengthen our financial flexibility. Today, we also announced Corsair's first share repurchase authorization of up to $50 million. The repurchase program is effective immediately, does not have an expiration date and is subject to market conditions, applicable laws and regulatory guidelines.

This reflects our view that Corsair shares represent an attractive use of capital alongside continued investment in both organic and acquisition-led growth. Now turning to our guidance. For full year 2026, we expect net revenue to be in the range of $1.33 billion to $1.47 billion, adjusted EBITDA to be in the range of $100 million to $115 million, non-GAAP EPS to be in the range of $0.58 to $0.74 per share.

For the first quarter of 2026, we expect net revenue to be in the range of $335 million to $365 million, adjusted EBITDA to be in the range of $25 million to $30 million and non-GAAP EPS to be in the range of $0.18 to $0.22 per share.

For the assumed midpoint of the ranges that we are giving as guidance for both the first quarter and the full year 2026, this reflects about a 5% decrease in revenue year-over-year with expected double-digit growth in our Gamer and Creator Peripherals segment, offset by a more cautious outlook for our Gaming Components and Systems segment, driven by the current global semiconductor shortage.

Adjusted EBITDA is expected to grow year-over-year as we focus on margin expansion and operating expense management. To close, I would emphasize that Corsair has proven that its model can generate attractive margins and operating leverage. The opportunity ahead of us is to scale that model more consistently through platforms, recurring revenue, stronger execution and clearer communication with the investment community. Operator, that concludes our formal remarks. You can now open up the call for Q&A. year-over-year with expected double-digit growth in our Gamer and Creator Peripherals segment, offset by a more cautious outlook for our Gaming Components and Systems segment, driven by the current global semiconductor shortage.

Adjusted EBITDA is expected to grow year-over-year as we focus on margin expansion and operating expense management. To close, I would emphasize that Corsair has proven that its model can generate attractive margins and operating leverage. The opportunity ahead of us is to scale that model more consistently through platforms, recurring revenue, stronger execution and clearer communication with the investment community. Operator, that concludes our formal remarks. You can now open up the call for Q&A.

[Operator Instructions]

Our first question comes from the line of Aaron Lee with Macquarie.

Congrats on the strong quarter. I wanted to start with -- starting with guidance. I appreciate you guys giving the full year guidance range. That's helpful. Last quarter, you talked about embedding some conservatism in guidance.

Is that something you're -- you've done with the guidance ranges provided today as well? And how much visibility or confidence do you have in the full year 2026 guidance range, just given everything that's going on in the market currently?

Yes, that's a great question. With respect to the guidance, I would say we -- as we just described, we're looking at double-digit growth in the peripheral segment.

We're taking certainly what we consider to be a conservative outlook for the Components segment, just in light of the semiconductor shortages. I think if you look at the guidance ranges, I think the difference between the high end and the low end is really how that plays out.

So yes, hopefully, that answers your question. But yes, we're applying a forecast methodology and approach to guidance that I adopted at previous companies that was pretty successful, so, yes.

Perfect. That's helpful. Appreciate that. And then you obviously had really strong components margins during the quarter. Is that mainly reflecting the higher margin you're getting on memory products? Or were there any other drivers to call out there? And how sustainable do you think those margin levels are going forward?

I wanted to, yes, answer this question. So I'm just trying to coordinate a little bit. Thank you. So actually, throughout the year, our components margin segment continued to improve year-on-year. And we do see benefits from a number of fronts.

So we see, especially with the growth of sim racing, that's really helped contributing positively to the margin for the quarter. Memory, of course, was the major contributors to the margin lift in the quarter because the price has gone up substantially starting from October to December.

And every time you see an acceleration like that, we tend to see favorable inventory margin. But on the other hand, we also do see great traction on the rest of the product lines in terms of NPIs, in terms of mix shift between Components and Gaming Peripherals segment.

Our next question comes from the line of Anthony Stoss with Craig-Hallum Group.

Just following up on that last question. Maybe can you give us the memory revenue in the quarter? And then I have a couple of follow-ups.

Yes, sure. Happy to. Memory revenue grew 24% year-over-year to $156 million, and the gross margin was 35%.

We've had this conversation, I think, over the last couple of months. And clearly, having an inventory memory ahead of the big steep increase in prices helped you folks.

How much inventory do you have left of, let's say, cheaper than current market rate memory? And do you have enough maybe to carry you deep into 2026?

I think this situation for us right now, the way that we view our business for memory as we are pretty much running the memory business for the past 30 years now, we believe we have a stronger position than most others in the consumer space to maneuver through challenges or tough market like what we see today.

And our goal is really to continue to acquire inventory to support the demands from our enthusiasts as we are probably one of the bigger brands now since the exit of a couple of other brands from consumer memory. And the number is reflected in our forecast for 2026.

So that's probably doesn't include any potential upside that we might be able to work through for the rest of the year. So you should just look at our '26 forecast as reflective of where we think we are.

And then last question for Gordon. Maybe you can help fill some of the blanks for your full year guide, what you expect total OpEx to be maybe for 2026, like even a range, same thing.

What's the expected gross margin for the full year to kind of get to the midpoint of your EBITDA guide?

Yes, sure. On the gross margin side of the question, I think we're probably looking at relatively flat gross margin within the actual segments. We're going to see some mix benefit, obviously, because we guided double-digit growth in Peripherals, which is obviously the higher-margin segment.

So we'll see some nice benefit to gross margin there, more than offsetting the tariff headwind, the full year tariff headwind, which is about another $12 million year-over-year. So I'd see a little bit of upside in gross margin. And then on the OpEx side of things, we're probably looking around 3% to 4% reduction in OpEx year-over-year. So we're getting some pretty good operating leverage with that incremental gross profit year-over-year.

Yes. And I want to add to that, that within 2025, as we shared before, one of the key initiatives for us is really to control OpEx and really optimize all of the M&A that we went through in the past few years. And I think we've done a good job in terms of reducing OpEx and really driving revenue with what we already have within our investment.

Our next question comes from the line of Drew Crum with B. Riley.

Gordon, welcome. You discussed accelerating investment to support your peripherals business in Elgato. Is this all organic? Does it contemplate M&A? And with presumably a positive mix shift, is there a longer-term or notional gross margin you think this business is capable of achieving given this approach?

I can take this question. So definitely, the growth for Gaming Peripherals and Creator segment came from organic investment, and that came from just expanding the product categories for sim racing, for example, and growing recurring revenue through the Elgato marketplace.

And the second thing is we will continue to evaluate opportunity for M&A, if it makes sense, and then growing our D2C business. And our D2C business is beneficial from a number of points. First is consumer engagement and getting valuable data to help build better products. The second thing is just generating more margin in general because we control the channel.

And then maybe just one follow-up. Thi, I think in your preamble, you mentioned Grand Theft Auto VI providing a benefit to the peripherals business. Understanding that the majority of your mix is sourced from PC and the fact that Take-Two is yet to announce a PC version of the game. Can you just help us understand what parts of your business should see a lift from that launch in '26?

Yes. There are 2 parts of our business. One is the controllers business through the SCUF brand, and that is basically all console-related space. We have PC controllers, but the bulk of the business is console. The other part of the business is video capture to Elgato. For example, with the recent Switch 2 launch in the mid of 2025, we did see a very nice lift for our capture card business because people are streaming more new content, and that's an opportunity for us to leverage that engine and drive more 4K capture cards.

[Operator Instructions]

Our next question comes from the line of Doug Creutz with TD Cowen.

Just in terms of the semiconductor situation that's creating pressures across the industry, what kind of forward visibility do you have into that? Is it something where you see it getting better or worse in real time, and that's the amount of visibility you have? Or presumably at some point in the future, things start to loosen up? Are you going to know a few months ahead of time when that's going to happen?

Thank you for the question. For us, the visibility in terms of the bigger pictures, we're getting this very similar information to everyone else in terms of fab capacity and AI data center consumption and current projection, I think everyone probably already see the same data is that the market will continue to be tight for the next couple of years.

But for us, we don't just rely on output of semiconductors alone. We basically have a lot of ways to acquire inventories and produce inventory as we do have a manufacturing center in Taiwan that built DRAM modules. And the visibility that we use is basically just market intel out a couple of quarters, and we continue to operate based on the information that we use for the past 30 years, and that seems to be working so far.

Our next question comes from the line of Matthew McCartney with Wedbush Securities.

This is Matt on for Alicia Reese. Just want to clarify a couple of things on guidance, specifically on the memory side. Just am I understanding correctly that you're not embedding a margin lift on the memory side for the 2026 guide?

We are looking at relatively flat margins in our Components segment year-over-year. So we've got near-term visibility into 2026. We're assuming only kind of modest gross margin lift compared to steady state in the latter part of the year. So we're forecasting what we have near-term visibility into, which nets out to roughly flat gross margin year-over-year for the segment. Does that answer your question?

Yes, yes, I just understood -- I understand the cadence right, it's flattish in the back half. Is that correct? Or is it something else?

Flat for the year.

Flat for the year. Okay. And then just as far as like your inventory position right now and I guess going into last quarter, I know you're pretty strong there. It looks like shortages did increase. Can you just talk about where you stand today in terms of your memory inventory?

We are -- I think we did a Q1 signal and also full year signal, and we're comfortable with where we are right now with the projection we provided.

Great. And then just last question, just on Elgato and the recurring revenue stream that you want to build there. Can you give us a baseline of where that business is today in terms of recurring revenue, what sort of percentages and if possible, targets with where you're looking to get?

Yes. In terms of recurring revenue model that we're working on, a lot of the visitors that we have on the Elgato marketplace, downloading content and using content, we have over 2 million users actively posting content and downloading content.

Now the [indiscernible] in the next 6 months is really to construct with Gordon's help, basically a recurring revenue model to basically drive that. And we won't be able to get into further details, I would say, until probably in a couple of quarters from now. The current revenue is meaningful to the point where it's what the effort for us to actually kick this off as a longer strategy.

We do have a solution that's already selling into the B2B channel today as well and a lot of interest in terms of using our Stream Deck solution. So that is exciting for us.

[Operator Instructions]

There are no further questions at this time. I'd like to pass the call back over to Thi for any closing remarks.

Thank you, everyone, for joining us on the call today and for your continued support. If you have any follow-up questions, please contact our Investor Relations department. We look forward to updating you next quarter. Thank you, and have a good evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Hello, everybody. Thank you for joining Tim Long, Barclays IT hardware and comm equipment analyst. Happy to have the management team of Corsair with us here today. So we got Thi La, CEO; and Gordon Mattingly, CFO. Happy to have them both here. I know there's a lot going on in the world.

So maybe, Thi, if we start with you, pretty new to the CEO role, too still. So talk a little bit about kind of strategic vision and kind of lessons learned so far in key focus areas.

Yes. So my vision for the company is to evolve Corsair and now house of brands from a premium hardware company into an enthusiast lifestyle platform that supports gaming, streaming, content creation SIM sports and also productivity and we are looking at building out an ecosystem -- connected ecosystem based on hardware, software and services for consumer to have a great experience. One example is if you look at the Elgato product road map, you can actually use a very smart control device cost stream deck. And from there, you can control 4K video source as well as very high-quality audio mixing and also smart lighting.

And so an individual can create a professional broadcast studio from their home with our solution.

Okay. Great. And what are kind of the priorities to help you get towards this kind of evolution of the company.

Yes. So a number of priorities, 3 precisely for us. So short term is margin acceleration. And in that, we are definitely improving or optimizing product mix leaning towards more high margin, high-value product family. Second one is being really disciplined around OpEx leveraging our AI platform that we built internally to scale. And the third one is to grow our direct-to-consumer business model further. And this is going to be the top priorities for our new CFO, Gordon as well, and he will speak more to that later. The second priority is to scale up our revenue platform.

Today, we are already making great progress with recurrent revenue through the Elgato product suite as well as the Elgato marketplace. And we see great potential in really growing this to be a meaningful part of our P&L in the future. So this is where we are investing our money. And the next thing is the Fanatec product suite we are adding services such as sim coaching to help you drive better and it's getting really good reception from the market. And the third piece is really investing in our direct e-commerce platform to add additional capability for personalization and customization, and that would then give us the opportunity to deliver even more options to consumers.

The last one is just expanding further on our core business, then this is basically the components business as well as the gaming peripheral business. The TAM is pretty large. And for us to grow, it's just accelerating innovation and product cadence so that we can deliver faster products to the market and gain market shares. And recent Circana data is showing that we are gaining market share. So we're happy with the progress there. We are also investing in underserved channel like Asia and Latin America and year-on-year growth so far has been very promising.

Okay. Great. Maybe last on this topic, then we'll get to Gordon a little bit. How do you view M&A fitting in? And you have a lot of -- strategic directions are going on here? How do you incorporate M&A or build versus buy and investment? Like how do you see that calculus working?

The M&A strategy has always been an integral part of our business in terms of growth strategy. And we will continue to evaluate opportunities that give us channel acquisition, either consumer or B2B and brands that are complementary from a product standpoint to brand value. And as you may know that we as a company in terms of M&A performance, we've been doing a decent job in terms of realizing great value for us and for the acquired brands when we acquired a company. A recent example is Fanatec where we are seeing great acceleration in terms of synergy and the results so far has been over our expectation.

Okay. Great. So Gordon, I guess you've been CEO for a few days -- CFO for a few days now. So you know a lot. Talk to us a little bit about kind of what drove you to Corsair and a little bit of your background that you think helps transitioning to this company?

Yes, sure. I mean first and foremost, I'm really excited to partner with Thi and really to execute the strategic vision that Thi just outlined over the next few years. That's first and foremost. Funny enough, Corsair is a company that I knew from quite a while back. First thing was some of my finance team at a previous company left me to go to Corsair. So I was aware of the name and then I looked into it more and obviously became familiar with the brand strength, the innovation engine, just great, great products. And then coming in, doing my research and going through the process, there's just so much momentum and so much opportunity in the company for incremental growth and profit, whether it's GPU, PC refresh cycles, new gaming titles so much what Thi already talked about, Elgato momentum, the Fanatec integration, expansion of direct to consumer, both now online and through our own actual store.

And then longer term, super excited about potential consumer SaaS recurring revenue opportunities. And my background where I had nearly 20 years of experience, NETGEAR and Arlo I think, really helped particularly having overseen a business model transition from hardware to consumer SaaS, I think, really helps me really to position Corsair as a higher multiple cash-generating business. And as I come in, my kind of top priorities are first and foremost, looking to drive more predictable growth, margin expansion as Thi already mentioned, continuing with disciplined capital allocation and then really focusing on greater transparency for investors.

Okay. Great. Yes, it seems there's a lot of different vectors here you've got to execute on. So have you developed a plan yet or are you still figuring it out?

Yes. I mean if I look across 3 areas of profitability, working capital management, capital allocation, as I look at profitability, the focus, as Thi already mentioned, is to look at margin expansion. There's definitely lots of opportunities there. Margin expansion while continuing to manage OpEx super efficiently. And with that, we should see EBITDA expansion. That's the first thing. Obviously, on working capital, continuing to manage that with a disciplined approach we have done in the past to maximize cash and obviously, to be able to execute on strategic opportunities as they present themselves. That's super important. We've done a great job in recent quarters of paying down our loan. I expect that to continue. And on capital allocation, we're going to continue to invest opportunistically, obviously, looking to maximize returns and long-term shareholder growth.

Okay. Great. Maybe touching on the Q4 outlook, which is probably just a little bit on the conservative side. A lot of moving parts with consumer spending plus memory and chipsets. And so maybe walk us through the near-term dynamics that are influencing the demand environment. And then as we work through that, what does the curve look like?

Yes. It's definitely a very interesting year for me coming into this position as the new CEO. First, we got this entire tariff situation coming in, in Q2. And now with semiconductor signaling shortages for GPUs and DRAM or just memory in general, is creating such a high pressure for the entire market. But I do see that Corsair is going to be in a better space or in a better place than most others and the reason for that is we've been in this business for over 30 years, making high-performance memory modules. Our manufacturing capability and our engineering capability is vast and we're also very fast. So in a market where memory price is searching to unprecedented level, we're able to turn our road map to introduce more affordable products to consumer within the course of few weeks so this is something that we do very well.

But beyond this, though, we have other product segments that do not depend on memories to grow, for example, Elgato streaming product as well as the Corsair gaming peripherals and Fanatec driving -- sim driving accessories, all these are growing nicely with or without memory. I do see the opportunity that is more of the share of wallet. So if people cannot spend as much money in building PC or buying PC then that budget is going to go into accessories or accessorizing your gaming setup or sim setup. So for us, I mean this is -- it's a balance between short-term issues, but can turn into great opportunities for Corsair as well.

Okay. And what are you seeing on the consumer behavior side? It's kind of all over the board lately for most -- playing in this world.

Yes. I mean last week, it was more like shock and sponge. So everyone is concerned and thinking that because of AI expansion in the data center, the chipmakers are a bit deserting the consumer space. But I think that things are going to settle down. And Corsair, as the enthusiast consumer brands would take it upon us to really help to ease the pain by making solutions more available to consumers. We have deep relationship with chipmakers because of the 30 years in the business. And the problem that we see right now is it's going to go away. It's not going to be around forever, but the consumer business is healthy and will be around forever. So we strongly believe that chipmakers will support Corsair with allocation to support this space.

Okay. And in tougher macro times, how do you view like promotional activity and in tight demand environments or supply environments, how do you view inventory maybe for both of you. Takes a little bit different type of management.

Yes, absolutely. So from a pricing promotion standpoint, it's a very interesting dynamic because of the tariff situation. So a lot of people are not seeing as much of a discount this year when it comes to Black Friday, Cyber Monday. In terms of memory, of course, given the products allocations are so tight. So you're not going to see that much pricing promotion. Corsair have taken a position in memory inventory when we announced our Q3 earnings, just to make sure that we are positioning ourselves to support future demands for a number of months out.

Okay. Great. And I guess you got -- Gordon, you got a balance inventory with the cash flow and capital return.

Yes. I mean we do a really good job of working capital management. And actually, that stands in really good stead to what Thi was just talking about for us to be able to opportunistically look at memory and make sure we've got a good inventory position there. The track record we have of really efficient working capital management helps us to be opportunistic there.

I wanted to add that we are very focused on sells out as a key metric. So we often, if not weekly review the ins and outs of our inventory to make sure that we're not overinflating channel inventory, especially with recent shortages, there might be some people wanting to get a little bit more inventory for themselves and we work really hard to control that.

Okay. And those numbers, the sell-out data has been...

Very balanced, yes.

Okay. Good. Maybe just talk about some of the growth drivers. Can you talk a little bit about gaming and peripheral upgrade cycles as it relates to new gaming titles, it seems there's a steady flow, but how do we think about that correlation? And what should we be watching?

Yes, the way we look at gaming titles is, first of all, the publishers always will be working with NVIDIA, for example, in AMD or Intel to make sure that the game titles are taking advantage of the latest game engine in terms of video rendering site to deliver that mesmerizing image quality and because the games are so compelling, it is a very popular game, people would want to upgrade their graphics engine to run the game and that would tie to more power meaning power supply and more cooling meaning water cooling from us for example and then on the gaming peripheral side, we continue to improve technology, so you can game faster, more accurate. And if you are competitive gamers and you would want to upgrade your gaming devices. And the second part of it is gaming platforms such as the Nintendo Switch 2 or new PlayStation, new Xbox will drive a slew of content release, and that would drive streaming demand in terms of new content, and that would pull a lot of video capture sales for example from Elgato as well as all of the rest of the streaming part where that we're selling today.

Okay. And you mentioned the GPU cycles, what do you normally see for like duration and impact of upgrades to GPU quality?

So historically, gaming or GPUs, I would say, releases about every 2 years. So NVIDIA would have new products usually around Q1 or Q4 every other year. And with that during the first year of product releases, we will see double-digit growth for components and systems. And then the next year would settle down to the single digit and then the cycle will repeat itself. Now with data center demand being very high, we haven't seen any change from NVIDIA direction, but we would expect that, that cycle will not change.

Okay. Great. And then I think you mentioned briefly Fanatec and sim racing. Can you talk about kind of opportunities and where we are in the curve for some of those?

Yes. So the sim racing category is about a $1 billion TAM in 2024, and it was growing double-digit or even triple digit before that every year. And this year, we also see the same exciting momentum. So the opportunity for us is road map expansion and we are going to be releasing a lot of exciting products in '26 and beyond. We are also investing in product engineering resource to really push that. And then we can extend that investment into new category like farm sims as well as flight sim to increase the TAM.

Okay. Great. Maybe one I think you mentioned once or twice, AI in here, we're at a tech conference so we got to talk AI. Maybe talk a little bit about kind of how you're viewing it internally at Corsair. And how does the product road map and the transition that's going on, how does the broader industry move towards more AI play into those dynamics at Corsair?

Yes. AI for us is near and dear. I mean we see it from 2 different perspectives. So internally, we have a lot of AI capability at this point that we built out to support our business growth. Externally, we are seeing the adoption or I would say, the explosive adoptions of AI in terms of application and use cases that requires people to have a much more powerful machine for either machine learning or building out their own personal LLM model. And the reason why you want it to be personal because of concerns around security and IP protection.

People are concerned now in terms of putting their invention on the cloud so they wanted to have their edge computing, local edge computing and we see this as an advantage for us to enter the space with a solution like the AI workstation that we recently released is compact and extremely powerful. And in a market where supply is very tight. It opens the window for Corsair to enter into a channel that we don't quite participate today.

Okay. Excellent. I did want to go back to something we were talking about at the beginning kind of this transition from a hardware based company to more lifestyle company. Maybe for both can chime in. What does that take from a -- whether it's R&D or sales, marketing, go to market? Like what has to change on the investment and expertise standpoint at Corsair to make this transition work?

You wanted to take that first and then I would pick up from there.

Yes. I mean from my experience, it's a mindset shift. It's a mindset shift across the company. And really is driving that and thinking about it every single day. And instead of it being a hardware first company, we need to start thinking about how can we actually leverage our advantage and think about recurring revenue models and how can we push that internally. I think that, and I think it's experimentation, things you're not always quite sure how things are going to play out. But I think running probes and seeing how those probes work out super, super important. So there's got to be a kind of thought process around experimentation with it. But I think it's just reiterating that message being super focused on it as a team and then just continuing to stay the course. And it takes a while. It's a bit like an oil tanker, but long term, the benefits are pretty impactful.

So for us, like Gordon said, it takes that dedication and consistencies and investments. But if you look at how we transition from a premium hardware company to a lifestyle enthusiast platforms, in a way, I look at it more from a catalog shopping to more of a use case shopping. And part of that is how do we communicate that use case so it involved a website migration to really deliver that message. It involves retail strategy in terms of how we show up in-store to sell the solution. For example, right now, we just opened up the very first Corsair experience store in Valley Fair, and that's the Westfield mall in Santa Clara. And if you go into the store, you will see that the entire Corsair product suite come together as the platform very nicely.

And we are extremely pleased because the engagement with consumers is extreme high and also the traffic has been tremendous. So we're watching the investment very closely for future expansion. The other thing is consumer shopping is changing and it's beneficial to us. So if you look at the traditional way of shopping, you go on Amazon and you say, "I'm looking for a keyboard, for example, that can do X, Y, Z, but now you go to ChatGPT and you said, "Hey, I'm interested in being the best gamer for Call of Duty, what are you recommending in terms of solution for me and those are solutions shopping or platform shopping that we are definitely already delivering today, and we're going to leverage that engine to incorporate this capability, what we call the prompt capability into our e-commerce platform to really push that further.

Okay. Great. Maybe just 1 last one here. This whole transition to more recurring models. Are there parts of the portfolio where that's more low-hanging fruit and easier to do. And are there some that are going to be a bigger lift. Maybe if you can kind of walk us through some of the buckets that's easier to get -- accomplish that.

Yes, absolutely. The Elgato marketplace, for example, we are already interacting with over 2 million active users and are generating recurring revenue and now it's just a matter of taking that and investing capability and resources to grow the content on the platform and grow partnership on the platforms so that we can reach more audience and scaling that up. We really think that this is one of the most obvious opportunity for Corsair to grow recurrent revenue. And other solutions that we are working on in terms of AI workstation, they're all vertical solution with machine learning, LLM models that we are working with partners to deliver everything in 1 box to consumers. And then there is SaaS strategy to tie with that road map.

Okay. Yes, I think we're coming up on time. Anyway, thank you both for the time today, and thank you, everybody, for joining.

Yes. Thank you, everyone, for joining us today. Appreciate it.

Ladies and gentlemen, good afternoon, and welcome to the Corsair Gaming's Third Quarter 2025 Earnings Conference Call.

As a reminder, today's call is being recorded, and your participation implies consent to such recording.

[Operator Instructions]

With that, I would now like to turn the call over to David Pasquale with Corsair Investor Relations. Thank you. Sir, please begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference Call for the Third Quarter ended September 30, 2025.

On the call today, we have Corsair's CEO, Thi La; and CFO, Michael Potter. Thi will review highlights from the quarter. Michael will then review the financials and our outlook. We will then have time for any questions.

Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion, may include forward-looking statements related to the expected future results for our company and are, therefore, forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Note that until our 10-Q has been filed, these numbers are preliminary. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release we issued after the market closed today.

With that, I'll now turn the call over to Corsair's CEO, Thi La. Please go ahead, Thi.

Thank you, David, and thank you all for joining us today. Q3 was another strong quarter for Corsair. We delivered double-digit year-over-year revenue growth and even stronger profit expansion, demonstrating disciplined execution and operational focus. These results reinforce that we are delivering on our promise, bringing more innovative products to market with a faster cadence and benefiting from strong consumer acceptance. We are seeing excellent traction across our latest product launches, such as the Vanguard 96 gaming keyboard, Saber Pro FPS ultra-lightweight mouse and Valor Pro Premium customizable controller.

All of these were praised by the gaming community as offering great value with the right features for competitive and enthusiast players. The feedback and early sales performance confirm that our recent product road map is solid and will position us well into 2026. In our Components and Systems segment, revenue grew over 15% year-over-year, fueled by demand for high-performance PC builds and upgrades around the NVIDIA 5000 series GPUs. Customers continue to invest in high-wattage PSUs, 360-millimeter water cooling and high-capacity DDR5 memory. The launch of our award-winning Air 5400 chassis further strengthens our position as a leader in DIY solutions, giving builders a major step-up in both cooling performance and aesthetics. Our DDR5 memory lineup also broke multiple overclocking world records this quarter, a testament to our strength in performance DRAM engineering.

We are also pleased with our Elgato brand, which continues to drive the broader creator ecosystem through the success of its marketplace flywheel. Growing adoption of Stream Deck, supported by an active creator community and increasing integration with leading applications and content creation platforms is creating meaningful long-term momentum. As our network of industry partners expands, we are unlocking new use cases and software opportunities that strengthen the ecosystem and reinforce Elgato's position as the go-to platform for creators.

We have also made great progress on M&A integration, where we are expanding both our product road map and global reach. Fanatec's partnerships with leading motorsport brands, including BMW, Porsche, Red Bull and Sparco highlight our position as a trusted innovator in sim racing. Together, we are delivering authentic, high-performance experiences that bridge real-world racing and simulation.

Fanatec's strong presence at the SimRacing Expo in Dortmund, Germany underscored the accelerating demand we see in Europe and the U.S. We received very positive community response and strong engagement for our latest Podium DD Direct Drive wheelbase and podium pedals precision pedal set. We developed these in collaboration with professional drivers to design in the most realistic experience possible for SIM drivers. We see Sim Sports as a multiyear growth driver and have more exciting products in development heading into 2026 and beyond.

With a strong racing brand and global expansion opportunities, we feel good about our position in the market. Looking ahead, we remain focused on executing every key element of our business strategy and building smarter products faster for our community of gamers, creators and professionals. We continue to manage operating expenses with discipline to improve our bottom line, while still supporting the strategic investments that drive future growth.

Lastly, our AI road map opens exciting opportunities for Corsair to participate at multiple levels from computing, content creation, usability to performance tuning, all of which position us for long-term growth.

With that, I will turn it over to Michael to walk through the financials.

Thanks, Thi, and good afternoon, everyone. As Thi noted, this was another strong quarter for us. We grew profitability faster than revenue in the quarter, underscoring the significant operating leverage within our business model. Our balance sheet remains strong, and we are in a great position to support enthusiast demand across our entire ecosystem, while continuing to invest in the long-term initiatives that will drive our growth.

In terms of the specifics, Q3 2025 net revenue increased 14% to $345.8 million compared to $304.2 million in Q3 2024. For the first 9 months of 2025, net revenue increased 15% to $1.04 billion from $902.8 million in the year ago period.

European markets contributed 40% of our Q3 2025 revenues compared to 34% in Q2 2025, while the APAC region was 13% of our Q3 2025 revenues compared to 14% in Q2 2025. Turning now to our segments. The Gamer and Creator Peripherals Segment contributed $112.7 million of net revenue during the third quarter compared to $102 million in Q3 2024. For the first 9 months of 2025, Gamer and Creator Peripherals Segment revenue increased to $327.3 million compared to $303.2 million in the first 9 months of 2024. The Gaming Components and Systems Segment contributed $233.1 million of net revenue during the third quarter compared to $202.2 million in Q3 2024.

Memory products contributed $117.2 million in Q3 2025 compared to $97 million in 3Q 2024. For the first 9 months of 2025, Gaming Components and Systems segment revenue increased to $708.4 million from $599.6 million in the first 9 months of 2024, with revenue from memory products increasing to $363.2 million from $303.6 million. Overall gross profit in the third quarter increased 33.6% to $93.1 million compared to $69.7 million in Q3 2024, reflecting our continued execution and increased contribution from higher growth products and channels.

Gross margin increased 400 basis points to 26.9% compared to 22.9% in Q3 2024. This reflects the positive uplift from our improved product mix. Overall gross profit increased to $281.3 million for the first 9 months of 2025 compared to $219.4 million in the first 9 months of 2024. Gross profit in the Gamer and Creator Peripherals segment increased to $44.3 million compared to $39 million in Q3 2024. Gross margin increased to 39.3% compared to 38.3% in Q3 2024. The Gaming Components and Systems segment gross profit increased to $48.8 million compared to $30.6 million in Q3 2024. Gross margin increased to 20.9% compared to 15.1% in Q3 2024. Our memory products gross margins in this segment were 16.8% for the third quarter compared to 10.7% in Q3 2024.

Third quarter SG&A expenses were $82 million compared to $74.1 million in Q3 2024, but down from $85.3 million in Q2 2025 as we support our higher revenue, but remain diligent in our cost controls. Third quarter R&D expenses were $16.7 million compared to $16.5 million in Q3 2024. This was down from $17.5 million in Q2 2025. We remain committed to the controlling operating expenses, while supporting the company's long-term growth opportunities. GAAP operating loss improved to $5.6 million in the third quarter of 2025 compared to a GAAP operating loss of $20.9 million in Q3 2024.

Third quarter adjusted operating income was $13.5 million compared to adjusted operating income of $2.4 million in Q3 2024. Adjusted operating income was $40.8 million for the first 9 months of 2025 compared to $14 million in the first 9 of 2024. Third quarter net loss attributable to common shareholders was $9.5 million or $0.09 per diluted share as compared to a net loss of $58.4 million or $0.56 per diluted share in Q3 2024. On an adjusted basis, third quarter net income was $6.8 million or $0.06 per diluted share compared to an adjusted net loss of $30.3 million or $0.29 per share in Q3 2024.

For the first 9 months of 2025, adjusted net income was $20.4 million or $0.19 per diluted share compared to adjusted net loss of $27.6 million or $0.27 per share in the first 9 months of 2024. Finally, the third quarter adjusted EBITDA increased 236% to $16.2 million compared to $4.8 million in Q3 2024. For the first 9 months of 2025, adjusted EBITDA increased 117% to $47 million compared to $21.6 million in the year ago period.

Turning now to our balance sheet. We ended Q3 with a cash balance, including restricted cash of $65.8 million. We built inventory ahead of the seasonally strong Q4. Overall, we continue to maintain a healthy balance sheet with sufficient cash to fund the development of our expanding product portfolio and growth plan. We ended Q3 with $123.4 million of debt at face value, and our $100 million working capital revolver remains available.

Our outlook. In terms of the full year 2025, we are updating our guidance to reflect greater clarity around the market dynamics and ongoing changes in the global trade policy developments. Net revenue is expected to be in the range of $1.425 billion to $1.475 billion. Adjusted operating income to be in the range of $76 million to $81 million. Adjusted EBITDA is projected between $85 million and $90 million. This adjustment gives a conservative outlook for Q4, primarily to account for a tight DDR5 memory market and reflects customers' latest spending patterns. While Corsair has a strong mitigation plan in place for memory availability, we believe it's prudent to temper expectations on the upside in this category.

Gaming and Creator Peripherals continue to grow year-over-year, tracking in the high single digits for 2025. As gamers focus on high-end PC builds, particularly with the adoption of NVIDIA 5000 series GPUs starting in late Q2, we expect peripheral upgrades to follow as new builds normalize, supporting continued momentum into 2026. As a reminder, when we model income taxes, we do not take a benefit for losses in our GAAP results. In Q3 2024, we took a $32.5 million noncash valuation allowance. Since then, we have been not booking a credit that would create further tax assets related to a loss carryforward, which is usual for this type of accounting. Typically, we would not start recognizing this benefit until you return to profitability. In addition, despite $12 million in unforeseen tariff costs since May, Corsair delivered meaningful margin progress through agile supply chain management, proactive sourcing, pricing actions and disciplined spending. Corsair expects to exit 2025 with a solid year-over-year improvement in EBITDA margin. We believe this positions Corsair for sustained profitable growth in 2026.

With that, we're now happy to open the call for questions. Operator, will you please open the call for Q&A.

[Operator Instructions]

The first question comes from the line of Aaron Lee from Macquarie Asset Management.

As it relates to guidance, you referenced estimated consumer spending patterns in the release. Any more color you can put behind that just in terms of your expectations? And can you comment on how trends looked as you progressed through the quarter and into October, please?

Yes. Good to hear from you, Aaron. So with regards to that particular comment, what we see is the availability of the NVIDIA GPU is really only hitting us towards the end of Q2 and Q3 is when the consumer spending was starting to come for the DIY components categories as well as system. And the spending pattern is more on the component and systems segment first. That's where you see the nice growth year-on-year, double digit.

And basically, where we see is that the delay in increased spending for Gaming Peripherals and Creator segment into Q4 and 2026. It still show a nice number year-on-year for us, but we see that as just a priority in terms of investment. Now I do have to say that we do see that when we start at the beginning of the year, we were looking at double-digit growth for gaming, but for the North American market, it's more like a single digit versus a double digit at this point.

Got it. Great. That's helpful color. And then on the memory market, do you have any visibility into how long the tightness there could last? And at what point do you decide it's appropriate to start mitigating? And how quickly can you implement the mitigation plans?

Yes, that's a great question. And probably late Q3, we are starting to see signs, and I'm sure you have heard it from other industry partners as well that the DDR5 memory is going to be tight towards the end of this year and probably first half of next year. We have already taken action probably at the beginning of Q3 at this point. You can see that from our cash position where we definitely are investing in inventory to help drive the rest of the year as well as, well into next year. And we feel pretty good about our position at this point in terms of memory supply as well as our ability to just drive growth year-on-year, but we're being conservative because seeing that where the market is a bit tight, we don't want to be overly ambitious in terms of our numbers.

We take the next question from the line of Alicia Reese from Wedbush Securities.

If we could double-click a little bit more on the memory, the guidance with regard to the DDR5. Now can you give us a little bit more color on the conservatism? I suppose what you are looking at in terms of worst case/best case scenario and how that plays out through the fourth quarter?

Yes. So actually, memory contributed meaningfully to Q3 in the last -- you know, memory is actually kind of like 1/3 of our revenue in some quarters. And right now, the -- we're seeing some benefit from margin expansion, especially due to the fact that we have decent inventory positions and the pricing has been going up. In general, when the memory market started to move upward in terms of pricing, we usually see some margin benefits from that. And in terms of inventory, we're feeling pretty good about our position. And as I mentioned before. So our conservatism is, as I mentioned, just stem from the fact that if we look at the situation, if it's going to be a couple of quarters out with a lot of people jumping in to mitigate it, we don't want to assume any potential upside just yet, right, at this point.

But the demand is actually quite healthy at this point. I would say that we cannot fulfill all of the upside coming in. But on the other hand, we're not worried about the number that we have committed to.

We take the next question from the line of Drew Crum from B. Riley Securities.

Michael, your commentary on tariff costs, $12 million, I just want to clarify that's an unmitigated number. Also, what are you anticipating through the balance of the year? And any preliminary thoughts as to where your tariff exposure or costs will be in '26? And then I have a follow-up.

Well, thanks for the question, Drew, and welcome back to the call. It's good to hear your voice again.

Good to be back.

Yes, that's the unmitigated and that's our number for this year, what our expectations are. We mitigated almost all of it, as we've indicated before, just to give an indication of some of the headwinds we fought against. And I don't know if Thi has anything else you'd like to add to that.

Yes. Drew, very nice to meet you under any capacity. I think what we wanted to kind of start out the year -- I mean, I wanted to kind of relate back to when we start out the year, and we didn't plan for any tariff when we set the 2025 numbers. And since then, lots of changes in the policies, and we were happy to say that we were able to mitigate pretty much most, if not all, of the tariff impact. And as the company is really focusing on building up our margin portfolio and really trying to kind of increase our efficiencies in product launch cadence as well as operational efficiencies and M&A synergies, we feel pretty good about 2025 overall.

And our latest signal for the rest of the year basically is a testimony to the effort that we have in terms of supply chain mitigation as well as product pricing mitigation. So I just wanted to kind of share that with you, but you can see the accomplishment here.

Got it. Okay. Very helpful. And then, Thi, it looks like I peaked at your 10-Q, it looks like your U.S. business lagged other regions during 3Q. And I know one of your competitors last week flagged weaker consumer demand in the domestic market during their 3Q. I'm curious if your comments concerning the North American market being up single digits versus double digits earlier in the year, what that contemplates as far as the holiday quarter is concerned?

Yes. So for Q3 for us, we see that both Europe as well as Asia market is growing double digit and North America specifically grew single digit. That was the comment that I made earlier on, and we see that this region is growing a little bit slower than the other region. We are still seeing Corsair performing better than market, especially with the 15% and the 10% segment growth. So we're feeling good about our ability to gain market share during this time. But my comment is basically reflecting that North America, in particular, is slower than the other 2 regions.

We take the next question from the line of Rian Bisson from Craig-Hallum Capital Group.

It's Rian on for Tony Stoss. I'm just curious kind of on the Elgato side. I mean now that it's been kind of a full quarter with the Nintendo Switch 2 selling and it's selling very well. If there's anything you could speak to about maybe Streamdeck or Capture Cards that could be trending better than expectations just with an expansion into the Nintendo Switch 2 market?

Yes. Very nice to meet you, Rian, and welcome on board. I wanted to speak to the Elgato Capture Cards, in particular, the 4K Capture Card that we launched in around June time frame, right in line with the Switch 2, and since then, we definitely have seen double-digit growth, if not triple-digit growth for the categories in terms of people liking to be able to stream with the new platform. And same thing, Streamdeck alongside with that is doing fairly well. We see point of sales growing double digit year-on-year. We're making great progress with the platform. Also, the marketplace is growing in terms of contents and plug-ins. And we see that creators is definitely using the platform to either post their plug-ins or to even monetize for their plug-ins and the number of daily average users is growing very nicely for us.

[Operator Instructions]

We take the next question from the line of Doug Creutz from TD Cowen.

It's kind of a big picture question. I read a story the other day that Steam's active user base had roughly doubled over the last 5 or 6 years. And I remember several years ago, you guys had an Analyst Day where you talked about your expectations for growth in the PC gaming market. And they were sort of consistent with that, maybe a low double-digit growth rate. When I look at your Components and Systems segment revenue, where it's likely going to come out this year relative to where it was in 2019, it's only up about 15%, which -- there seems like there's -- somewhere there's a lot of leakage between the overall growth rate of the industry and what you guys are seeing on the system side.

Obviously, your peripherals performance has been higher, but there's also been a lot of M&A in that segment. So maybe could you talk about why the divergence in the growth you've seen versus the growth the industry has seen and what you can do to get the 2 back into sort of parity?

Thank you and good to hear from you. So the way that we see the market is actually 2 very different segments, right? So you've got the publishers, the software revenue through game titles. And then you also have the hardware revenue through either people buying gaming PC from manufacturer like HP, Dell. And then they can build PCs through us. So these are like the DIY folks, and that's the Gaming Components and Systems segment.

So we, in general, forecast our business alongside with hot game releases to be about a single-digit growth with the exception of when you have an NVIDIA graphic cards launch, then that's when we started to see the big pop in terms of double-digit growth. So this year, because of the 5000 series launches, we were predicting that a lot of people will be rebuilding their PC, and that's where we see the spike. To play some of these titles, you don't really need to have a new PC every single time. So we see the growth of game titles, unless you have a very exciting titles like Fortnite, for example, that requires a very good headset, for example, to play.

It's basically just pretty much track more like a single-digit growth. And the next title for us that's going to be driving a lot of hardware sales, we believe, is the GTA VI when that is becoming available for PC because to play that game, the graphics content requires extremely high resolutions, and there will be a lot of CGI content being created at that time. So this is where we can see another double-digit acceleration.

[Operator Instructions]

We take the next question from the line of Colin Sebastian from Baird.

This is [indiscernible] on for Colin Sebastian. Now that Fanatec is integrated into the core business and gaining traction with partners and consumers, are you thinking about the SimRacing opportunity any differently than at the initial acquisition?

Yes. Thank you for coming in. We actually are very excited about the Fanatec opportunity from a number of different fronts. So the first one is just expanding the current product road maps. When we acquired Fanatec, some of the solution that they have on their portfolio has been quite old, and we just started to unlock all of that solution we'll be releasing, starting from now until the next number of quarters, just refreshing all those products would drive incremental revenue for us.

The other opportunity for us for Fanatec would be to enter new category, for example, coaching and performance tracking with some of the partners. For example, you can use AI to guide and monitor your driving style and then giving you advice so that you can gain that extra second, right? But that has been a pretty popular features for community. The second thing is entering additional categories such as the Flight sim and also farm sim. There are a number of verticals that we have not really tapped into, and these are all going to be incremental revenue source for us.

[Operator Instructions]

As there are no further questions, I would now hand the conference over to Corsair CEO, Thi La, for her closing comments.

Thank you, everyone, for joining us on the call today and for your continued support. If you have any follow-up questions, please contact our Investor Relations department. We look forward to updating you next quarter. Thank you, and have a good evening.

Thank you. Ladies and gentlemen, the conference of Corsair Gaming has now concluded. Thank you for joining us, and you may now disconnect your lines.