sair Gaming(CRSR) - 2024 Q4 - Annual Report

Business Risks and Market Conditions - The company faces significant risks that could adversely affect its business, reputation, financial condition, and future prospects[60]. - The company operates in a highly competitive market characterized by rapid technological change and aggressive price competition, which could lead to a loss of market share[68]. - Economic conditions, including high inflation and reduced consumer spending, may adversely affect demand for high-performance gaming products[88]. - The war between Russia and Ukraine may prolong GPU shortages due to resource supply disruptions[84]. - Cloud computing adoption could diminish demand for high-performance gaming hardware, posing a risk to the business[87]. - The company faces geopolitical risks due to the concentration of manufacturing in China, Taiwan, and Southeast Asia[108]. - The ongoing wars in Ukraine and the Middle East have contributed to significant market disruptions and volatility in commodity prices[96]. - The company faces risks related to international operations, including political and economic instability, which may harm its business[138]. Sales and Revenue Trends - Sales are influenced by the introduction and success of new high-performance computer hardware, particularly GPUs and CPUs, as well as sophisticated new video games[66]. - The company experienced a decrease in demand for products in the Gaming Components and Systems segment due to a slowdown in the self-built PC market in 2024, with expectations for demand to pick up with the next substantial GPU launch in 2025[66]. - The gaming industry’s growth, including live game streaming and esports, is crucial for the company’s growth prospects, with any decline potentially harming the business[73]. - Seasonal fluctuations in sales are expected, with total unit shipments typically highest in Q3 and Q4, and lowest in Q1 and Q2[81]. - Net revenue for 2024 was $1,316.4 million, a decrease of 9.8% from$ 1,459.9 million in 2023[255]. - Net revenue decreased by $143.5 million, or 9.8%, in 2024 compared to 2023, primarily due to a 20.8% decrease in sales for the Gaming Components and Systems segment, partially offset by a 19.7% increase in the Gamer and Creator Peripherals segment[281]. Product Development and Innovation - The competitive position and success depend on the ability to build and maintain brand strength among gaming enthusiasts, with a focus on continuous innovation and marketing efforts[61]. - The introduction of new and enhanced computer games is essential for sustaining consumer interest in gaming, which directly impacts the demand for the company’s products[67]. - The need for continuous product development increases the risk of defects, which could lead to increased warranty costs and damage to reputation[107]. - Product development expenses were$ 67.5 million and $65.3 million for the years ended December 31, 2024 and 2023, representing 5.1% and 4.5% of net revenue respectively[118]. - The company launched 78 new products in 2024, which positively impacted net revenue[262]. Supply Chain and Manufacturing - Supply chain issues, including raw material scarcity, could lead to increased costs and delays in product production, adversely affecting financial performance[78]. - The company relies on a limited number of suppliers for DRAM ICs, which poses risks if supply is disrupted[95]. - The company has limited manufacturing facilities and depends on third-party manufacturers, which may lead to product shortages and quality control issues[103]. - The company’s operations are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, with potential severe consequences for violations[217]. Financial Performance and Costs - Gross margin improved to 24.9% in 2024 from 24.7% in 2023, compared to 21.6% in 2022[255]. - The company reported a net loss of$ 85.2 million in 2024, compared to a net loss of $2.6 million in 2023[255]. - Cash and restricted cash decreased to$ 109.6 million in 2024 from $178.6 million in 2023[256]. - Sales, general and administrative (SG&A) expenses increased by$ 24.7 million, or 8.7%, in 2024, driven by a $9.3 million rise in distribution costs and an$ 8.9 million increase in legal and professional service expenses[284]. - Total operating expenses increased to $377,551 thousand in 2024 from$ 350,574 thousand in 2023[280]. Customer and Market Relationships - The company relies on effective customer support to maintain customer loyalty and resolve product-related issues, which is critical for brand marketing[62]. - Sales to Amazon represented 30.9% and 30.7% of net revenue in 2024 and 2023, respectively, with the top ten customers accounting for 53.1% and 55.4% of net revenue[102]. - The company relies on third-party ecommerce service providers for online sales, and any failure in their performance could negatively impact sales and reputation[173]. Regulatory and Compliance Issues - The company is subject to complex customs and tariff regulations that could increase costs and affect margins[116]. - The company is subject to various federal and state regulations, and noncompliance could result in significant penalties and harm to its business[214]. - The company has implemented internal controls to promote compliance with anti-corruption laws, but risks remain from employee actions that could lead to investigations[219]. - Compliance with evolving data privacy regulations, such as the California Consumer Privacy Act, poses challenges and potential risks to the company's operations[157]. Ownership and Governance - The company is controlled by a single stockholder, EagleTree, which may have different interests than other stockholders[61]. - EagleTree beneficially owned approximately 53.7% of the common stock as of December 31, 2024, allowing it to control the company's affairs[189]. - The company is classified as a "controlled company" under Nasdaq rules, which allows it to rely on exemptions from certain corporate governance requirements[192]. - The company has anti-takeover provisions in its amended and restated certificate of incorporation that could delay or prevent changes in control or management[201].