Corsair Gaming, Inc. (CRSR) Q3 2020 Earnings Call Transcript

Corsair Gaming, Inc. (CRSR 1.53%)
Q3 2020 Earnings Call
Nov 10, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Corsair Gaming third-quarter 2020 earnings call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ronald van Veen, Corsair's vice president of finance, investor relations. Thank you, Mr.

van Veen. You may begin.

Ronald van Veen -- Vice President of Finance, Investor Relations

Thank you. Good morning, everyone, and thank you for joining us for Corsair's financial results conference call for the third quarter ending September 30, 2020. On the call today, we have Corsair's CEO; Andrew Paul; and CFO, Michael Potter. Before we begin, allow me to provide a disclaimer regarding forward-looking statements.

This call, including Q&A portion of the call, may include forward-looking statements related to the expected future results of 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. Today's remarks will also include reference 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. This conference call will be available for replay via webcast through Corsair's investor relations website at ir.corsair.com. And we'll begin with an overview of Corsair, followed by our third-quarter highlights. Michael will then take you through a review of the financials before we proceed to Q&A.

And with that, I'll now turn the call over to Andy.

Andy Paul -- Chief Executive Officer

Thank you, Ronald, and welcome to our first earnings call as a public company. It was great to meet many of you during the course of our IPO roadshow in September, and we look forward to getting to know all of you better as we go forward. Now as some of you may be new to our story, I'd like to spend a few minutes to take you through a brief overview of who we are, what we do and the growing market opportunity we see in front of us. Please note that this overview will make today's call a little longer than what will be typical going forward.

And then I'll provide an overview of our recent progress and performance and then turn the call over to Michael for a financial review of the quarter. We are a leading global provider and innovator of high-performance gear for gamers and content creators. Our gaming gear helps gamers perform at their peak across PC or console platforms and our streaming gear enables creators to produce studio quality content to share with friends or to broadcast to millions of friends. We've served the market for over two decades, and most of our product lines maintain a top three U.S.

market share position, with several in No. 1 positions according to data from NPD group and internal estimates. We have built a passionate base of loyal customers who build and upgrade their gaming PCs using Corsair components, and then use our peripheral products for gaming or streaming. Competitive gaming rewards speed, precision and reliability.

As in other sports, specialized high-performance gear, such as gaming mice, keyboards, headsets and performance controllers, allow digital athletes to perform at their best. Modern games also require significant processing power to render high-resolution graphics and reward the speed and precision of user inputs, driving demand for powerful gaming components and systems. Further, in a world where the ability to create content is democratized and competition for viewer engagement is greater than ever. Content creators, particularly streamers, are increasingly seeking ways to maximize the quality of their video capture and broadcasting, which requires specialized high-performance gear.

Our solution is the most complete suite of gear among competitors and addresses the most critical components for both game performance and streaming. Our product offering is enhanced by our two proprietary software platforms, IQ for gamers and Elgato's streamer suite for content creators. These software platforms provide unified intuitive performance and aesthetic control and customization across their respective product families. As gaming has gone mainstream, streaming has followed, too.

Games are now broadcast over the internet at both the tournament level and by game as a home. Today, 71% of millennial gamers in the U.S. watch gaining video content on streaming platforms for an average of almost six hours a week. Further, there are over six million committed streamers in the world today who fuel the over 12 billion streaming hours watched in 2019 alone.

The global market for PC and streaming gear totaled $36 billion in 2019. Of that, 83% was spending from competitive and committed gamers. These are players who will spend between $1,000 to over $1,800 on gaming hardware and accessories. These are our core customers.

What's incredible is these competitive and committed gamers, while accounts for 83% of spend, only account for 18% of the worldwide total of 524 million PC gamers in 2019, with the remainder being casual gamers, who often do not yet only specialized gear. This highlights the significant growth potential for our team. We see that the average spend of games is still fairly low compared to spending on other sports gear and very concentrated at the high end. As casual game has become competitive and committed gamers, the spending grows.

If the average spend of this group of gamers were to significantly move up, then the market beginning year could grow by multiples. In gaming, where we see the biggest opportunity in market growth is in peripherals because while most entry-level gamers will have access to a console or some sort of PC in their home, they will likely not have specialized peripherals. We have seen the peripheral growth that exploded as teenagers play Fortnite or other online multiplier games on PCs or laptops. Further, as more and more gaming is watched online, gamers aspire to emulate professional streamers, resulting in incremental spending on gear.

Beyond success in gaming, these emerging applications represent a promising avenue for the continued expansion of the streaming gear market opportunity. So moving on to our growth strategy. We intend to grow our business by increasing value to our customers, expanding our market opportunity and further differentiating ourselves from competitors. We believe our brand name, high-performance gear and market position will allow us to capture a large share of this market growth.

And we intend to continue to make significant marketing investments in leading esports teams, athletes, streamers and social media influencers. Other key parts of our growth strategy include continuing to develop innovative, market-leading gaming and streaming gear, we intend to prioritize investment in creating innovative gaming and streaming gear and related software to enhance the customer experience by delivering cutting-edge technology. Secondly, expanding into new gear and services that grow our market opportunity. Since our inception, we have successfully entered a number of new gear categories, including gaming PC peripherals, streaming accessories, console controllers and prebuilt and gaming PCs and laptops.

As the gaming and content creation landscape continues to evolve, we intend to continue to introduce new products and services to address our customers' new and changing needs and to grow our market opportunity. Next, leveraging our software platforms to sell more gear to existing customers. Our software platforms integrate and enhance our ecosystem of gaming and streaming gear, which drives customer loyalty and allows us to successfully sell additional gear to existing customers, strengthening our relationships with end users by increasing direct-to-consumer sales. Through our acquisition of Origin and Scuff in 2019, we acquired two companies whose sales are primarily generated through direct-to-consumer channels.

While sales from this channel are relatively small contributor to our revenues today, we believe direct-to-consumer sales represents a significant avenue to drive growth by facilitating increased engagement with our consumers. And finally, we'll continue to grow market share globally. As a globally recognized brand, we have a footprint that reaches customers in more than 75 countries. We will continue to invest in enhancing our sales and distribution infrastructure to expand our leadership position in the Americas and Europe, and we view Asia as a significant long-term opportunity.

We are a clear market leader in the gaming PC components market, and we have a steadily growing market share in gaming and streaming gear. So with that as a backdrop, I'd now like to review our performance in the quarter. We are very pleased with our strong results in the third quarter, which exceeded our expectations as we achieved net revenues of $457.1 million, a 60.7% year-on-year growth, and we achieved adjusted EBITDA of $63.7 million, which is a year-on-year growth of 184.9%. Looking at the business highlights.

The market for gaming and streaming year continues to grow and strength to strength. There's people who are spending more time at home are learning how to play games better, how to stream content to their friends and how to build high-performance gaming PCs. All of these things require high-performance gains in streaming year and so we are massively benefiting from this trend. In fact, we hope with helping drive this trend.

What we learned in Q3 was that the surge in gaming activity, which started in Q2 now it doesn't appear to be a pull forward in sales. In other words, our growth in Q2 did not come at the expense of Q3 or Q4. Far from it, what we're learning is that the biggest part of the increased demand is coming from first-time buyers. In other words, gamers who have not bore gaming products before.

This is evidenced by strong sales for entry-level products, which means new gamers and streamers are beginning to invest real money on gear to support their hobby for the first time. And there are many more gamers and streamers who have not bought any gear yet. As we mentioned before, most of the TAM at this point is spent by the top 18% of the market, with the remaining 82% of gamers, mostly not having worked much of any gear yet. Our estimates are that in the U.S., where we have very good data, the incremental new buyers that have come into the market this year and started by gaming and streaming gear, represent less than 5% of total U.S.

gamers. Our expectation is that all these new gamers and streamers who are buying our gear for the first time will come back in the following years to upgrade and buy more high-performance products from us. Demand was strongly up in all product lines, most notably in the streaming and gaming segment, where we grew by 129% year on year. But our gaming components and Systems segment also showed huge growth of 38% year on year and is now on a yearly run rate of over $1 billion.

But these incremental new gamers are not just buying peripherals, many of them are buying gaming PCs or buying ready assembled machines as well. During the quarter, we introduced several new high-performance products. These are all listed out in detail in the press release, but they include two new keyboards, including the K100 new flagship products; a new wireless mouse; a new haptic headset; a new range of cases; a new family of CPU cores; and a new gaming PC featuring the new NVIDIA RTX 30 Series GPUs. We expect to continue to launch new high-performance products at a blistering pace, approximately one per week and use these new products to gain market share.

Our new microphone started shipping in volume in Q3 and exceeded our sales expectations. More recently, we acquired the popular app called EpocCam, which allows your iPhone to be considered as a Webcam and connect wirelessly to your PC or Mac. This is one of the most popular apps in the Apple store in the photo and video category. This adds to our video solutions that we already have in the Elgato product portfolio our main products in this category today is our Camblin 4K, which allows people to connect a high-resolution DSLR camera directly to a PC and stream 4k video.

The EpocCam allows your phone to be used as a secondary camera or for many people can be the only camera they use for a casual video interaction with others. We expect to continue to add to our streaming video solutions in the near future. And lastly, we have made two significant steps in our move into coaching and training. Firstly, we've partnered with Pipeline, which is a cause-based education platform to help streamers improve their quality and increase their viewers.

We'll be offering these courses bundled with our Elgato streaming products. Secondly, we just announced the acquisition of Gamer Sensei, which is one of the top platforms for connecting gamers with coaches to help them improve their gameplay. We believe that the coaching and training market around gaming and streaming is largely untapped, and we expect that eventually, it should be a similar market size that we see in other sports and past times such as skiing, golf or tennis, where lessons are always or almost always part of someone's journey to improve their performance. In closing, I'm obviously very pleased with our strong third-quarter results and our progress heading into the end of this year.

We continue to execute on our strategic growth initiatives, and we remain focused on capitalizing on tremendous market opportunity before us. Our recent IPO was a significant milestone for us. Although we are very proud of all that we've achieved so far, we acknowledge that this is just the next step forward in serving our customers, employees and shareholders. Thank you for your time and continued support.

I'll now turn the call over to Michael to discuss our financial results for the quarter.

Michael Potter -- Chief Financial Officer

Thanks, Andy, and good morning, everyone. During the third quarter, we delivered net revenue of $457.1 million, an increase of $172.7 million or 60.7% compared to $284.4 million in Q3 2019. And our strong top line performance was driven by strong growth across both the gamer and content creator peripheral segment and the gaming components and systems segment. We believe the strong revenue growth year-over-year is driven in part by the COVID-19 shelter-in-place orders as consumers spend more time working and gaming at home.

The gamer and creator peripheral segment provided $161.6 million of net revenue during the third quarter, an increase of $90.9 million or 128.8% from $70.6 million in Q3 2019. This was primarily driven by strong growth across all product categories, in particular, sales of our Elgato branded streaming products, in addition to the contribution from SCOP, which we did not own in Q3 2019. The gamer and creator peripherals net revenue was 35.3% of total net revenue an increase of 1,050 basis points from 24.8% in Q3 2019. The gaming components and systems segment provided $295.5 million of net revenue during the third quarter, an increase of $81.8 million or 38.3% on from $213.8 million in Q3 2019, primarily driven by strong growth across all products, including our PSU, cooling, PC cases and DRAM due to the continued strong market demand.

Our memory products contributed $141.3 million of this revenue. Gross profit in the third quarter was $127.9 million, an increase of $67.7 million or 112.4%, from $60.2 million in Q3 2019, primarily driven by the increase in revenue in these periods. As well as the positive margin impact from sales of higher-margin scoff products and streaming gear. Gross profit margin increased by 680 basis points to 28% from 21.2% in Q3 2019.

The gamer and creator peripheral segment gross profit was $60 million, an increase of $40.1 million from $19.9 million in Q3 2019, primarily driven by an increase in revenue in the same periods. Gross profit margin was 37.1% and compared to 28.3% in Q3 2019. The increase in gross margin was driven largely by product mix related to the strong growth in sales of higher-margin streaming products, coupled with less promotional activities and the addition of higher-margin scuff products. As Andy mentioned, we continue to see a mix shift as gamer and creator peripherals contributed 46.9% of total gross profit in Q3 2020 as compared to 33.1% in Q3 2019.

This is a great overall story and formula for continued overall margin expansion as our fastest-growing and highest margin segment also sits in our largest market. The gamer components and systems segment gross profit was $67.9 million, an increase of $27.7 million from $40.3 million in Q3 2019, primarily driven by the increase in revenue in the same periods. Gross profit margin was 23%, compared to 18.8% in Q3 2019. This was due to product mix and less promotional activities.

Gaming Components and systems contributed 53.1% of the total gross profit in Q3 2020 compared to 66.9% in Q3 2019 while our memory products margin in this segment was 18.8% for the quarter. Third quarter SG&A expenses were $65.3 million, an increase of $25.5 million or 64.1% compared to $39.8 million in Q3 2019, primarily driven by SG&A expense from SCUF, an increase in outbound freight cost due to the increase in revenue and an increase in personnel-related expenses. Third quarter product development expenses were $12.9 million, an increase of $3.4 million or 36.5% compared to $9.5 million in Q3 2019, primarily driven by an increase in personnel-related expenses and the acquisition of SCUF. Operating income in the third quarter of 2020 was $49.7 million, an increase of $38.8 million from $11 million in Q3 2019.

Adjusted operating income in the third quarter of 2020 was $61.4 million, an increase of $40.5 million or 193.7% from $20.9 million in Q3 2019. Third-quarter net income was $36.4 million or $0.40 per diluted share as compared to net income of $1.5 million or $0.02 per diluted share in Q3 2019. Third-quarter adjusted net income was $48.5 million or $0.54 per diluted share as compared to adjusted net income of $10 million or $0.13 per diluted share in Q3 2019. Adjusted EBITDA for Q3 2020 was $63.7 million, an increase of $41.4 million or 184.9% compared to $22.4 million for Q3 2019.

Turning now to our balance sheet. On September 25, 2020, we completed the initial public offering of our stock at a price of $17 per share. We, and certain stockholders, completed the sale of 15.1 million shares, including 1.1 million shares issued pursuant to the exercise of the underwriters option purchase additional shares. The IPO raised proceeds net of underwriting fees of approximately $118.6 million for Corsair and $120.7 million for certain selling stockholders.

$86.6 million of Corsair's IPO proceeds were used to pay outstanding debt. As of September 30, 2020, we had cash and restricted cash of $120.1 million, $48 million capacity under our revolving credit facility and total long-term debt of $376.1 million, as of September 30, 2020, consolidated total net debt was $259.9 million. Last 12 months consolidated adjusted EBITDA was $168.9 million, indicating a consolidated net leverage ratio of 1.5 times. Last week, both our rating agencies upgraded the rating on our outstanding debt.

We plan to reduce our debt load over time while preserving cash for growth. Turning now to the guidance for the full year of 2020. Total revenue in the range of $1.616 billion to $1.631 billion, total adjusted operating income in the range of $178 million to $184 million and adjusted EBITDA in the range of $187 million to $193 million. We also expect interest expense to be approximately $5 million per quarter, assuming we don't pay any debt.

We expect to have an effective tax rate of approximately 20% to 22% for Q4 2020, and we expect our full year weighted average diluted shares outstanding of approximately $91 million, with approximately $100 million for Q4 2020. Overall, we are pleased with the progress we have made on our strategic initiatives and performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q&A?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Rod Hall with Goldman Sachs. Please proceed with your question.

Rod Hall -- Goldman Sachs -- Analyst

Yes. Hi, guys. Thanks for the question and congrats on a great first quarter. I wanted to – I guess I wanted to start off, the problem doesn't seem to be demand, its supply.

So wanted to see if you could talk a little bit more about the supply situation, what products are out of stock and what are your expectations for getting things back into stock and so on? And did that have any effect on your balance sheet or other financials? I guess probably not, but just to double check that. And then I'm just curious too, as we head into the holiday season here, what products are selling the best? Can you, I know, Andy, you went through a lot of the new products. What are the one do you have the highest hopes for? How are you doing in the different categories, do you think from a share point of view? Just kind of curious, what's going on competitively now that some of the new products are out there in the market? Thanks.

Andy Paul -- Chief Executive Officer

Yes. Hi, Rod. Nice to hear from you. So a few questions there.

I think from a supply standpoint, I would say that much of the year has been supply constraint. And that's true, not just for us, but either with our competitors as well. So generally, if you've been into a best buy or try to shop on Amazon, you'll see there's a lot of stockouts, a lot of empty shelves. Clearly, we didn't expect to grow 50% this year, right.

So when we set our supply chain up and gave forecast out, we didn't put them in at that level. So really what it comes down to is, a lot of our complex products, peripherals that have got controllers in them, microcontrollers, etc. Some of those lead times are starting to stretch out as long as 16 weeks. Typically even, without shortages, we tend to sort of want to give eight to 12 weeks of visibility to our supply chain.

So the point is that sales in September, the forecast for those are made in May or June, and this was really, Q2 was the start of people really focusing on gaming and streaming and buying gear. So that's a little bit of what happens. Clearly, now we've got much of the year under our belt, we're pretty comfortable or a little bit easier to forecast what's going on. And we're seeing that this is not a sort of pull forward.

In other words, it's not people that would have bought products in Q3, they bought in Q2. There is a big surge in gaming and streaming activity mainly from new people coming into discover gaming and streaming for the first time. So now we've raised our forecast quite considerably in the supply chain. And we're gradually moving the stock levels up.

Now in terms of, what products are selling well, we're pretty happy with all the new products that we've introduced. I think, some of the brand new categories, we just went into the microphone category. We launched that from royal Elgato subsidiary, I think in June started shipping that in July. So Q3 was the first quarter.

Those shipments were really happy with the results of that. We had to double the supply chain almost instantly. Typically in Q4, the things that are more seasonal or those products that tend to be given as gifts and that tends to be peripherals. As I always joke, parents don't tend to buy their kids, power supplies and memory modules for Christmas.

So we don't tend to see as much of a seasonal activity there. But I think out of all the product lines, headset is probably the easiest thing that gets given us as gifts. So we usually see a higher number in Q4 more seasonal nature. So hopefully that answers most of the question.

Other than that, there's no issue on the balance sheet or financials with the supply chain. We know effect of all other – all numbers are bigger.

Rod Hall -- Goldman Sachs -- Analyst

All right. That's great. Thanks, Andy. Yes.

My daughter wants a power supply, but I guess she's a strange one. So anyway, thanks for the many answers. Appreciate it.

Operator

Thank you. Our next question comes from line of Matt Cabral with Credit Suisse. Please proceed with your question.

Matt Cabral -- Credit Suisse -- Analyst

Yes. Thank you. Andy, you mentioned this in your prepared remarks. I think you even hit it on the last question.

But I'm wondering if you could expand a little bit more on just how much of this year's growth you think is from new gamers that maybe have the potential to become more committed over time versus just the existing user base. And I know you said you haven't seen a pull forward impact in Q3, Q4, I guess, as we roll forward to start thinking about next year, I'm just wondering how to balance the risk of maybe some normalization from this year surge in demand versus sort of sustainable underlying levels?

Andy Paul -- Chief Executive Officer

Yes. I mean, obviously, we don't have completely clear crystal balls, right? So the thing, we can see just from the mixed shift this year in particular is that there's a lot more entry level products going out. And when we talk to our retailers, they tell us the same thing. In other words, it's new gamers coming to the shops.

People that have never bought stuff before or people are just discovering streaming. So that's encouraging. Even for experienced gamers that are upgrading, I think, this is not a one-time thing, right. So, what we see in general is like any sport or hobby or pastime, if you have a little bit more time to spend on it, or a little bit more time to learn to get into it in the first place, that's not a short-term effect.

So if, for example, your friends take you skiing and you like skiing, you probably ski for a while and continue to buy game. And this is what we sort of expected going to happen. At least, we hope is going to happen. Is it all these new people that have been introduced, or perhaps game is that had never built a game PC before now, they've discovered how to do it, we'll now upgrade in the future.

So, we think a lot of people is just the beginning of a long-term spend cycle.

Matt Cabral -- Credit Suisse -- Analyst

And then a quick follow-up, why don't you talk a little bit more about what growth and I've got though, it looked like in the quarter, and maybe, just more broadly, where you think penetration of streaming gear sits right now and how much of the opportunity is within your existing customers versus maybe, reaching a different audience than you typically sell to?

Andy Paul -- Chief Executive Officer

Yes. We don't break out; I'll go to product separately. But I mean obviously, we're really happy with that acquisition. And I think we spotted trend in streaming.

The one thing we've learned about streaming in general is that when we first went into this, we imagined that everybody that was streaming was trying to be a YouTube staff and would pay for their gear, out of advertising per season. So it would be like a sort of a small B2B. but in fact, that's not really what's happening when we look at all the number of channels; the vast majority of channels, streaming channels have less than 100 viewers. And so what it's turning into is more of a social sharing mechanisms, sort of a bit like Facebook, where people are just in small groups, sharing gaming content or whatever they're doing with their friends and that means that we've got a massive opportunity, in terms of the number of people that could start streaming.

And the other thing that's happening is that for all of us, even if you're not the game or you don't want to be a YouTube star stream at all, everyone's now getting completely familiar with video calls. I mean, I'd say 90% of the conversations I have now with people I'm using video, rather than just on the phone. So, as everybody gets more comfortable with how that works and how to set it up, I think we'll continue to see more and more people are turning to video streaming gear.

Matt Cabral -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Mario Lu with Barclays. Please proceed with your question.

Mario Lu -- Barclays -- Analyst

Great. Amazing quarter. And thanks for taking the questions. As one on streaming and one on the full-year guide, so the one on streaming, besides the acquisition of the camp, are there any other updates in terms of adding a video camera to the Elgato portfolio? Are there any streaming products that currently you think it's still missing that you could potentially add overtime? And then on the full-year guide, some time that fourth quarter, year-on-year growth of 46% or a 4% growth sequentially; which I believe is below the seasonal pattern historically, of roughly 20% growth sequentially.

So, I guess, Michael, if you can provide more detail on what is embedded in the full-year and 4Q guide, whether it does include some full forward demand, or if it's assuming that the number of new entrance coming to the market is still remaining elevated. Thank you.

Michael Potter -- Chief Financial Officer

Yes. It was two parts of that question. I think, I don't really want to comment too much on new products. clearly, in the streaming world, video is a very important part of it.

Now, one of the products that Elgato is most famous for is a product called Camlink, which sells for about $129. And that allows you to connect a very high-quality DSLR camera to your PC. And we sell a lot of those, surprisingly, a lot of those. So that's what people at the high end tend to do.

The best stream is not using webcams. They're using dealers on cameras. So, we're already in that business, EpocCam was a slightly different application, where we wanted to start exploring some of the mobile applications. And we're going to continue to invest in all streaming gear.

We're trying to maximize our footprint there. So, yes, anything you could imagine that would make sense to do in stream, we're probably already working on. Now in terms of the Q4 cadence, you're absolutely right. Normally Q4 is bigger than Q3.

And obviously, this is a slightly different year. We've got stockouts everywhere. We've got to consider the effects of how much our supply chain can react and it's already pretty stretched. and so that's how we've arrived at the guidance.

As I said, we're not in a situation now where we are demand constrained at all. This is purely a supply driven back half of the year.

Operator

Thank you. Our next question comes from the line of Tom Forte with D.A. Davidson. Please proceed with your question.

Tom Forte -- D.A. Davidson -- Analyst

Great. Thanks for taking my question. congrats on the quarter. When we think about your long-term margin opportunity, and we think about your non-gaming revenue, coaching being an example you gave, how accretive can that be versus maybe, a traditional hardware model and how should we think about your non-gaming revenue in general and how that may drive your hardware revenue as well? Thanks.

Andy Paul -- Chief Executive Officer

Well, when we look at coaching and training, what we realize is that most of the sports or hobbies or pastimes, however you want to phrase this, contain a significant amount of training revenue. In fact, many sports that spend that people have compared to gear and lessons can be 30% of the total revenue. So, we don't know how big that can be. What's clear to us is that the existing market for training and coaching is kind of ranges from free lessons on YouTube to just people on the internet trying to sort of help, right.

But if you can imagine being a golf infrastructure and not being associated with a golf shot or a golf course, or a ski instructor, not associated with the ski slope. it would be very, very difficult to get a lot of business. So we think that the right place for offering coaching and training or lessons is the same place that you go to buy your gear. So, we'll have to see how that works out.

We're pretty bullish about it. We're investing quite heavily as you can see, we've made our first – announced our first acquisitions and partnerships just recently. I'm sure there'll be more. So yes, that's how we think about it.

Now, clearly in terms of how that works with hardware sales, you can just imagine that if you're taking golf lessons and the golf pro suggests you what clubs you should buy. you're probably going to take his advice. And so we expect the same thing. In fact, any higher level of engagement that we can have with our customers is going to be beneficial.

Tom Forte -- D.A. Davidson -- Analyst

Thanks for taking my question.

Operator

Thank you. Our next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK. Thanks. Good morning, guys. So Andy, you recently launched a headset for the Xbox.

Can you talk about the company's plans to expand your presence in the console headset category and any commentary you can offer in terms of general demand you're seeing with product tie to the constant transition and then separately, the 4Q guidance, at least at the midpoint, the implied adjusted EBITDA margin is 10.4% if my math is correct, which would imply a step down from a 13.9% reported in 3Q. I just wonder if you could offer any commentary as to why that that's lower on a sequential basis? Thanks.

Andy Paul -- Chief Executive Officer

Yes. Sure. I'll take those in two parts. So headsets is an interesting one.

It turns out that over the last few years, a lot of retail and etail have been merging headsets; in other words, console and PC, because at the low end, where you've got a three pole jack plug connecting the interface with the same thing. so historically, the notion was that it's good to have licensed products, because for a lot of people, especially in the holiday season that are buying gifts and may not quite understand the interfaces, it's easier to have a package with Xbox on it, and you can only do that some – if you have a license. So, it's really an experiment. You don't have to do that in fact, the biggest guy county specializing in console headsets doesn't necessarily use licenses and most of the products.

So you – it's a bit of an experiment, but yes, we certainly shipped quite a few headsets into the console space that is being bought for the council use.Now, what we expect you in the transition, I think that we're seeing that more with our Scout subsidiary, which is banking controllers that are a 100% going into high-end councils. I'd say this year due to the price points and the limited availability of the new Xbox and PS5, we don't expect the transition to be quite as severe. most people knew that Xbox was compatible for some backwards, and there's a certain amount of compatibility on PS5 plus PS4 as well. So, we don't expect it to be so severe, but we'll find out, you won't really know until people stop to – shopping in black Friday in December.

I think the other part; do you want to take the EBITDA?

Michael Potter -- Chief Financial Officer

So the EBITDA, the difference. First of all, Q3 obviously was a lot stronger than we expected. So, when that happens, you tend to overachieve, because your open is sort of what you expected and everything else with fire. So that helps.

But specifically, for Q4, if you look at the gross margin line, a combination of higher air freight, because bigger demands in Q4 and a lot more than expected demand in Q3, means we've got our air freight more things for our customers. And obviously, there's a little bit more promotional activity traditionally in Q4 than in Q3. On the opex side, if you think this is our first quarter as a public company. So, there's going to be some increased public company expenses there compared to prior quarters.

We're also spending more on product development for new products coming out next year. We're sort of accelerating some spending there and a little bit extra marketing spending around some branding and other initiatives, we're doing. So that's the main components of the difference between the actual Q3 and the implied forecast.

Drew Crum -- Stifel Financial Corp. -- Analyst

Got it. OK. Thanks, guys.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Doug Creutz with Cowen and company. Please proceed with your question.

Doug Creutz -- Cowen and Company -- Analyst

Hey. Thank you and good morning. Big week for gaming, obviously, the new consoles are shipping. And one of the things that reviewers have consistently said about the PS5 is that the haptic feedback controllers are quite impressive.

I was just wondering with your SCUF offline, is that something that you'll be able to do at some point with the SCUF controllers? Is that something you're planning to do? And how important is that you think to being able to maintain your dominant market share position on PlayStation with SCUF? Thanks.

Andy Paul -- Chief Executive Officer

Yes, yes. Good question. It turns out the most of the people that are pretty competitive on console turn a half to golf. And so the people that are really trying to concentrate on in gameplay, it's kind of annoying.

So that's the first thing, but we'll have it. The most of the products that SCUF makes today are modified versions of the PS4 and Xbox, and will be modified versions of PS5. So, we can keep or lose any part of it. Normally, we basically allow people to take the whole haptic module out of the hand grips, and a lot of people do that.

So, it's – we don't think it's a big deal, but we'll have it anyway.

Doug Creutz -- Cowen and Company -- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Tim Nollen with Macquarie. Please proceed with your question.

Tim Nollen -- Macquarie Group -- Analyst

Thanks. A couple of questions, one another follow-up on the consoles coming out. I wonder if it's possible, hopefully quantitatively, but at least qualitatively, maybe to pull together some of the comments you've made thus far and just give us an idea what the console launches of Xbox and PlayStation 5 will mean for your growth i.e. incremental peripheral sales, whatever that might be.

And then secondly, I might have missed this, but is it possible to provide a number on a call-in organic growth number for Q3? Because I know there were some acquired revenues, I guess SCUF was in there. Just what was an organic growth figure for Q3 please?

Andy Paul -- Chief Executive Officer

Yes. OK. Well, we'll come back to the organic growth in a second. In terms of console cycle, this is the first one for us.

And actually, we've watched all the different companies around this space for quite some time, notably Turtle Beach and Mad Catz when they were around. So, we've seen this – and it's always quite different, but I'd say in general, what tends to happen with councils is that when the new councils launch, people spend money on the council, and in the following year, people start buying more accessories for it. Now what I think is going to be unusually, that's – the console comes with one controller, so the first thing people tend to buy is another controller. So that's what we would expect certainly we would think that next year would be a strong year for SCUF than this year.

But having said that, this year was pretty good because there was a lot of people playing games at home. So I don't know if that really answered the question, it's tough to get to super granular on that because it's just too early in the cycle. I will say the numbers that are being talked about PS5 and Xbox-X were pretty – seemed pretty supplied constraints. So I think there is going to be a lot of people still buying PS4 and old Xboxes for a while and the same thing with accessories.

Michael Potter -- Chief Financial Officer

Yes. In terms of the organic versus inorganic. Organic growth was about 51.7%. It's about 9% lower.

So if you take out the items that we had in 2020, that we didn't have in 2019, growth would have been about 9% lower. So consistently for us our growth has been driven heavily by our own products, or if we bought something a couple years ago, our ability to ramp up and move that competitor our channel. So hopefully that answers your question.

Andy Paul -- Chief Executive Officer

And one follow-up, just to clarify on consoles. The only peripheral outside of SCUF that we sell that is largely used by console players is headsets, obviously you don't use a keyboard mouse for the console. And the ASP tends to be much lower on consoles, they're much, typically, much simpler most headsets, just a jack plug going into speakers, so vertical electronics in them. We really can't tell, when people are buying those at retail, whether they're buying them for console PC because it's generally the same product.

So as I said earlier, we did see a fairly big surge this year of entry-level $30, $40 headsets, whether that's by people playing on console or PC, or in fact, both, it's difficult to tell. We have seen in some of the surveys that there is a vast crossover, in other words, something like 70% or 80% of people that are PC gamers also play on console. So it's difficult to – the market is not one of the other.

Tim Nollen -- Macquarie Group -- Analyst

Yes. That all makes sense. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Colin Sebastian with Robert W. Baird. Please proceed with your question.

Colin Sebastian -- Baird -- Analyst

Great. Thanks. Congrats on the IPO again and a strong quarter to kick things off. I wonder how much crossover in sales you're seeing between gaming and streaming product consumers if that's something you're able to measure.

And if there's a reinforcing or beneficial impact there as streamers purchase gaming gear and vice versa, or are they somewhat distinct? And then secondly, looking further ahead in terms of the direct-to-consumer offering, can you talk about how e-commerce fits into that and the roadmap in terms of marketing or technology upgrades required to capture more direct traffic in sales? Thank you.

Andy Paul -- Chief Executive Officer

Yes. Well, let's take those questions in reverse order. So firstly, we just went live yesterday with our CRM system. Traditionally, we've been a channel company as Elgato.

So other than sort of chat-on forum and textbook, calls and that sort of thing, we haven't known too much about our customers. But with SCUF an origin 100% direct-to-consumer and we're trying to ramp up our direct-to-consumer as much as we can just to get higher engagement. So we're going to learn a lot more as all that data flows into our CRM system. We'll be able to see what people are doing individually on the website.

We can also see to a certain extent what products they own to our IQ systems. So direct-to-consumer is important, because obviously, we've got the opportunity to not just sell one thing, but sell an array of products. Now, in terms of crossover, it varies, there is a lot of people that are streamers that have never built a gaming PC. And so the historical customer base is a little bit different.

A lot of streamers are not particularly technical people, but there is some crossover and we're finding more and more gamers want to stream and share to their friends. So I would say when we bought Elgato, the estimates – probably 95% of the people buying streaming gear were streaming live gameplay, as you probably know, the majority of over 90% of the traffic on Twitch's is gaming. But we are starting to see just from social interaction and talking to people that there are a lot of people buying streaming gear for non-gaming activities, whether it's podcasting, cooking, makeup, fitness, those sorts of subjects, so that obviously, those are people that historically wouldn't have been buying our gear.

Colin Sebastian -- Baird -- Analyst

Thank you very much.

Operator

Thank you. We have no further questions at this time. I'd like to turn the floor over to Andy Paul for closing comments.

Andy Paul -- Chief Executive Officer

Yes. So thank you very much. Look, torso we are at the forefront of a massively growing market, since we're gaming, eSports and streaming. And with our own parallel brand and quality of products, we think we're uniquely positioned to take advantage of this exploding market.

Today the global and passionate community of gamers and streamers is engaged in the relentless pursuit of better performance. And we're proud to be a leading provider and an innovator of high performance gear for this new era of entertainment. We are committed to giving gamers and streamers the tools they need to play their best game, produce their best content and have fun doing it. Thank you for your interest in Corsair, and thank you for joining us on the call today.

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Ronald van Veen -- Vice President of Finance, Investor Relations

Andy Paul -- Chief Executive Officer

Michael Potter -- Chief Financial Officer

Rod Hall -- Goldman Sachs -- Analyst

Matt Cabral -- Credit Suisse -- Analyst

Mario Lu -- Barclays -- Analyst

Tom Forte -- D.A. Davidson -- Analyst

Drew Crum -- Stifel Financial Corp. -- Analyst

Doug Creutz -- Cowen and Company -- Analyst

Tim Nollen -- Macquarie Group -- Analyst

Colin Sebastian -- Baird -- Analyst

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