Q3 2022 Corsair Gaming Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the cool tastes gaming.
First quarter 'twenty to 'twenty two earnings conference call.
As a reminder, today's call is being recorded.
And your participation implies consent.
To such recording.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press Star then zero on your <unk>.
Telephone keypad.
With that I would now I'd like to turn the countries.
Ronald on Pn course, as vice President of Finance and Investor Relations. Thank.
Thank you Sir please begin.
Thank you good afternoon, everyone and thank you for joining us for <unk> financial results conference call for the third quarter ending September 30.
'twenty two.
On the call today, we have Coursera, CEO , and Paul and CFO Michael power.
Andy will review highlights from the third quarter and the business environment. Michael will then review the financials.
We'll 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 of the call May include forward looking statements related to the expected future results of our company. Therefore forward statements.
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 our other SEC filings.
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 close today with that I'll now turn over the call to Andy.
Thank you Ron and welcome everyone to our Q3 2022 earnings call.
I'm very pleased to report that we achieved a 10% sequential revenue growth.
In Q3, 2022 from Q2, 2022, well continuing to deal with higher than normal inventory levels.
Sales levels from a channel to consumers was significantly above pre pandemic levels in almost all product lines and many were above the year ago level.
As we have reported in recent earnings calls this year has been loved by excessive inventory in the channel, especially in Europe .
We continue to report to make comments on consumer sales from our channel as well as our revenue from sales into the channel.
Provides clarity on the progress we're making.
For example in the U S. We have made great progress in reducing its inventory and stock levels are now closer to a more normal level.
European Channel inventory position remains elevated but is also slowly normalizing.
Our target is to reduce our worldwide channel inventory overhang by roughly $100 million from the start of 2020 twos at the end of this year with a little less more to go in a creative and peripheral segment and our European channel inventory.
As we mentioned in previous quarters.
The self built PC market has been held back over the past two years with high demand for graphics cards from crypto miners on top of increased demand for computers during the pandemic.
Which had caused GPU prices to rise in some cases to double.
Now that crypto mining cannot use gpus as effectively as before.
There's been a decline in demand and prices are back to stand with MSRP or below.
Additionally, in recent months there've been launches of new technology platforms for Nvidia, AMD, and Intel, which looked to be accelerating demand and a self built PC market.
As long as <unk> customers can now build a better and faster gaming PC for a lower cost than they could over the last two years.
The added positive of course, there is the gaming Pcs built with these new platforms need faster memories, such as DDL five larger power supplies with a thousand walk capability, Ohio.
And better cooling technology.
All product categories that we are expert in and I haven't seen the dominant market share.
They have also been several recent games launched show updated that take full use of the new technology is built into the new Gpus.
Making them more immersive and more exciting to play.
This is also helping to drive higher demand for gaming Pcs and peripherals.
In general as we move through the second half of the year, we are starting to see the market recover from the lower demand seen in the early part of 2022.
The U S continues to be a struggle market and we expect Q4 to see continued growth in all categories.
Europe is still tracking lower than last year, but has shown improvements and we currently also expect growth in Q4 compared to Q3.
Revenue in Asia for Q3 was approximately flat compared to last year.
Let me now take a minute to update you on some of our Q3 product developments.
In Q3, we began selling in the course of Voyager eight 1600, AMD advancing traditional laptop.
This is our first course, a branded laptop.
Combines AMD as latest CPU and GPU platforms with all software and technologies.
To create an unparalleled gaming and streaming experience.
This laptop has been the highest single R&D investment in our company's history.
Entering the top end of the gaming laptop market.
We also launched a new 45 inch OLED Bendable gaming Melissa developed in partnership with LG.
This incredibly looking display.
It can be adjusted from flat to curve by hand to different gaming use cases.
This is the first of its kind in the market.
We expect to start shipping this monitor in first quarter of 2023.
Other launches in Q3 include our new K 100 Air wireless mechanical gaming keyboards, and we announced full availability of PC components compatible with Nvidia is latest 40 series graphics cards.
In summary, while the market environment remains challenging we are very encouraged by the recent activity in the self built gaming PC market.
Expect elevated demand to continue as new lower priced bottles of Gpus get launched in the coming months.
Longer term, we expect to further benefit from the expansion of gaming gears market numbers of active consumers during the pandemic, which should drive our highest spending base over the next few years.
We've made significant progress in driving down inventory levels, both in the channel as well as internally and expect to reduce these levels further in Q4, as we move back to our normal targets.
Let me now turn the call over to our CFO , Michael Potter for details on the financials. Michael. Please go ahead.
Thanks, Andy and good afternoon, everyone.
We achieved 10% sequential revenue growth in Q3, and a challenging environment.
This reflects our continued execution strength of our market position and sustained underlying demand gross margins were pressured by the recent sharp strength of the U S dollars against the European and Asian currencies.
Singly currencies appear to be more stable, we have taken some actions related to the currency changes that should lead to gross margin improvements going forward.
In terms of the specifics Q3, 2022 revenue increased to $311 8 million compared to $283 $9 million in Q2 2022.
This compares to $391 $1 million in Q3 2021.
Our channel partners continued to reduce their inventories in Q3 2022 to current and expected consumer demand and the reduced reduce transit and lead times.
Thus removing much of the overhang from orders placed due to longer lead times in prior periods caused by the effects of the Covid pandemic.
We also reduced our own inventory by about 15% quarter over quarter as we drive our inventory to more historic normalized levels European markets continued to be softer than Americas and contributed about 29% of our revenues well below the historic average in the high 30 percentile, but up from the approximately.
25% in Q2 2022.
Turning now to our segments, the Gamer and creator peripheral segment contributed $96 8 million of net revenue during the third quarter up from $89 million in the prior quarter and a decrease of 35% from $139 $3 million in Q.
Three 2021.
The Gamer and creator peripheral segment net revenue contributed 31, 1% of total net revenue a decrease of 450 basis points from 35, 6% in Q3 2021.
The gaming components and systems segment contributed $214 9 million of net revenue during the quarter up from $194 9 million in the prior quarter and a decrease of 14, 7% from $251 9 million in Q3 2021.
Memory products contributed $115 $2 million in third quarter, 2022, compared to $115 $5 million in <unk> 2021.
Overall gross profit in the third quarter decreased by 29, 4% to $71 $6 million from $101 $4 million in Q3 2021 to.
The decrease compared to Q3 2021 was primarily driven by reduced revenues gross profit margin was 23% compared to 25, 9% in Q3 2021.
Starting the benefit from the cost actions, we announced last quarter along with the success of newer products. We recently released which we believe will have a significant positive effect on margins moving forward some of which we realized in the third quarter. We're also encouraged by the improving supply chain environment, including a significant reduction in <unk>.
Rates and supply chain lead times, which are rapidly approaching the same levels as they were pre pandemic.
There is typically a four to five month lag before these cost reductions are fully reflected in our P&L as our inventory turns.
The Gamer and creator peripheral segment gross profit was $31 8 million a decrease of 34, 6% from $48 $6 million in Q3, 2021, primarily driven by a decrease in revenue and the supply chain and logistics costs I just mentioned.
Gross profit was 32, 8% compared to 34, 9% in Q3 2021.
The gaming components and systems segment gross profit was $39 $8 million a decrease of 24, 7% from $52 8 million in Q3, 2021, primarily driven by the decrease in revenue in the same period and higher logistics cost.
Gross profit margin was 18, 5% compared to 21% from Q3 2021, our memory products margin. In this segment was 14, 4% for the quarter.
The third quarter SG&A expenses were $66 9 million, a 12% decrease compared to $76 1 million in Q3 2021, we continue to closely monitor all expenses, while continuing to support our revenue generating areas.
Adjusted operating income in the third quarter of 2022 was $5 9 million a decrease of $25 million from operating income of $26 $4 million in Q3 2021.
Third quarter net loss was $5 $9 million of which $6 $2 million is attributable to Coursera Gaming Inc. This represents a loss of nine <unk> per diluted share as compared to net income of $1 8 million or <unk> <unk> per diluted share in Q3 2021.
Third quarter, adjusted net income was $7 $6 million or net income of eight cents per diluted share as compared to adjusted net income of $16 3 million or <unk> 16 per diluted share in Q3, 'twenty one adjusted EBITDA for the third quarter of 2022 was $10 one.
Million compared.
Compared to $27 6 million for Q3 2021.
Turning now to our balance sheet, we ended the quarter with $61 $7 million of cash and $245 million of debt at face value with the $100 million revolver fully available we spent $7 $9 million on Capex, which includes $5 $7 million related to.
Our new headquarters in Milpitas, we expect that this elevated capex level is mostly behind us.
Our strategic investment opportunities, we look to bring our cash balance further up over time and resumed reducing debt on a more accelerated basis.
In terms of the full year 2022.
While we are starting to see signs of improvement we are slightly adjusting our outlook to reflect the continued challenging market environment and the headwinds I discussed in my comments earlier for the full year 2022, we now expect total revenue in the range of $1 $3 billion to $5 billion to $1 375.
$5 billion compared to 1.35 billion to $145 billion prior.
Adjusted operating income in the range of 20 million to $30 million compared to 35 million to $50 million prior and adjusted EBITDA in the range of $35 million to $45 million compared to $50 million to $65 million prior.
With the fed rate hike cycle in progress forecasting interest expense is more difficult assuming no further debt pay down we expect interest expense of approximately $3 million to $4 million per quarter.
And our effective tax rate of approximately 15% to 20% for 2022.
And full year weighted average diluted shares outstanding of approximately $98 million to $100 million.
To summarize we're starting to see signs of improvement, but the market remains challenging.
Starting to see the benefit of cost reduction actions. We've previously talk and we're closely monitoring all expenditures, while continuing to support our product and revenue generation.
We believe that we're being prudent with opex trimming where needed while continuing to invest in product development and marketing to support existing and future product revenue.
We're also carefully managing working capital as we enter the expected higher revenue second half of the year inventory.
Inventory levels are normalizing and freight costs are coming down which will have significant positive effect on margins moving forward. We started to see some of this benefit in Q3 and expect another few percentage points margin improvement this year and into 2023.
Finally, the uptick in demand for self build gaming Pcs from new GPU launches and the downturn in crypto currencies that Andy mentioned, reducing non gaming demand on Gpus, it's another positive for us moving into Q4.
With that we're happy now to open the call for questions. Operator will you. Please open the line for Q&A.
Thank you ladies and gentlemen, we are now.
That's a Q&A session.
You should ask answer Christian Hugo <unk> from Jefferies.
One to pay for itself in the question queue.
A confirmation tone will indicate that your line is open.
Yeah.
You May please go to <unk> to lead the question queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing this talkies.
Yeah.
Our first question comes from drew Crum of Stifel.
Good afternoon. So just your comments around reducing channel inventory going forward how much is that.
Based on the change in consumer demand or behavior, and how much is that stimulated by promotional activity tends to use through the holiday quarter, and then I have a follow up.
So.
It was talking about how much channel inventory has been reduced based on.
Consumer demand versus promotional.
Let me answer in a different way.
The increase in inventory was caused by.
You know over ordering from the channel.
Coupled with in some parts of the world, especially you have a slight reduction in consumer demand.
After the U K law. So that's been the main effects now that the reduction is mainly been.
Shipping as normal or was it a little bit of promotion, but.
Not excessive amounts I would say.
Two improvement and we'll get a little bit more from economies of scale with the higher revenue so without taking into account what the final market sentiment is we should get a few percentage points increase.
With inventory levels going down this should put us in a better position as we enter next year.
Got it thanks guys.
The next question comes from Mario <unk> of Barclays.
Great. Thanks for taking my question. The first one is seasonality there's been a lot of moving parts in that.
Over the last couple of years and just worldwide in general.
Right.
Midpoint of the fourth quarter guide.
Is up 20% Q on Q.
Is there a framework we could.
In terms of how we should think about seasonality.
Into fiscal.
Fiscal 'twenty three.
Well, Yeah, Hi, Marion.
I was looking at this this morning.
The thing is.
If you look at the last five years of history. The Q3 to Q4 cadence is anywhere from 15% to 30% up.
So we are roughly in the middle of that but the other thing I would say is that.
The seasonality is based on.
<unk> lives and so our sales into the channel in Q3.
Clearly lower than sales out to consumers.
Filled the channel in Q4 that different should be a little less so that's why we'd normally expect to get a little bit of a pickup in revenue just because of the fact, we are adjusting inventory less and we would expect somewhere.
20%, 25% lift.
From just consumer activity based on history.
We don't see any reason to us.
It's going to be less in fact, because of all the new technologies and platforms have just launched from Nvidia and Intel and AMD.
It was a good challenge, so thats going to be even higher, but that's where the best way to think about it now.
2012.
I wouldn't imagine should be any different from that the average that I just told you about but.
Q1.
<unk>.
Obviously in the near term there is a fair chance that demand is going to be strong because we're still seeing new platforms launch. So we had the 40 90, just launched a couple of weeks ago, which is the demographics called top of the line.
And then in two weeks time, we've got 40 80 being launched and then I think the 40 70 will come out in <unk>.
Q1. So there is a lot of launches that are going to drive people with different budgets to stop building.
Great. Thank you.
Yeah.
Hello, Ladies and gentlemen, just a reminder.
A question Youre welcome to Bristow and then one on your telephone keypad.
The next question comes from Frank <unk> Gandhi of D. A Davidson.
Alright.
And for Franco Grondahl.
How should we think about the margin profile pie.
If you think about the margin profile for some of the new products that are coming out or.
Hum came out like a laptop or a flex monitor.
Well I would say that we're trying to bring new products out typically at higher margins than the equivalent products in the last few years.
And Thats, obviously, what every company does try and make normal margin. The monitor itself you know I don't want against the specifics of that particular, one, but but you can imagine that obviously products like gaming Pcs and monitors.
Typically going to have a lower margin than some of our other components and peripherals.
And second question some of your peers have introduced products catering to a cloud gaming what does your current stance on the outlook on the cloud gaming market.
Well, we think it's marvelous.
All people to play games.
We think is the better because what we've seen is that people play games and early age.
Phones.
Through the cloud.
Eventually migrate to our PC platform. So we see the biggest effect that cloud gaming is happening today is in that entry level of mobile sector. We.
So we don't typically spend.
A lot of.
Resource on Roadmaps in in those areas in the entry level, but we're certainly looking at it so I think.
Didn't see a huge opportunity for us in terms of revenue in the short term.
But long term, we expect multiple gaming is going to drive them into buying better PC platforms.
Okay. Thanks, Mark Thanks for taking the questions guys.
Yeah.
Okay.
Thank you, ladies and gentlemen, I will just a final reminder, if in a half a question you're welcome to Bristow.
And then one on your telephone keypad.
Yeah.
Yeah.
Okay.
Gentlemen, we seem to have any further questions from the lines, ladies and gentlemen that concludes today's question and answer session I would now like to turn the conference over to.
Andy Paul for closing remarks.
Thank you everyone for joining the call today and for your continued support if you have any follow up questions. Please contact us on just department.
And we look forward to updating you next quarter. Thank you and have a good evening.
Thank you ladies and gentlemen that concludes today's conference. Thank you for your participation and you may now disconnect your lines.
Okay.
[music].
Okay.
Yes.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yeah.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
Thanks.
[music].
Good afternoon, ladies and gentlemen, and welcome to the call today's gaming's first quarter 'twenty to 'twenty two earnings conference call.
As a reminder, today's call is being recorded.
And your participation implies consent.
To such recording.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference please space target.
Alright.
Telephone keypad.
With that I would now I'd like to turn the conference.
Ronald on Pn.
Vice President of finance and Investor Relations. Thank.
Thank you Sir please begin.
Thank you good afternoon, everyone and thank you for joining us for <unk> financial results conference call for the third quarter ending September 32022.
On the call today, we have coursera CEO any ball CFO Michael power.
Andy will review highlights from the third quarter and the business environment.
Michael will then review the financials.
We will then have time for any questions.
Four we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call May include forward looking statements related to the expected future results of our company and for example for these statements.
Actual results may differ materially from our projections due to a number of risks and uncertainties.
Risks and uncertainties that forward looking statements are subject to are described in our earnings release.
Our SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliations between non-GAAP financial information to the <unk>.
GAAP financial information is provided in the press release, we issued after the market's close today with that I'll now turn over the call today.
Thank you Ronnie and welcome everyone to our Q3 2022 earnings call.
Very pleased to report that we achieved a 10% sequential revenue growth.
In Q3 2022 from Q2 2022.
While continuing to deal with higher than normal inventory levels.
Sales levels from a channel to consumers.
We're significantly above pre pandemic levels.
Almost all product lines and many were above the year ago level.
As we have reported in recent earnings calls this year has been marked by excessive inventory in the channel, especially in Europe .
We continue to report to make comments on consumer sales from our channel as well as our revenue from sales into the channel.
Provides clarity on the progress we are making.
For example in the U S. We have made great progress in reducing its inventory and stock levels are now closer to a more normal level.
European Channel inventory positioning remains elevated but it is also slowly normalizing.
Our target is to reduce our worldwide channel inventory overhang by roughly $100 million.
From the start of 2020 twos at the end of this year with.
With a little less more to go in our creative and peripheral segment.
European Channel inventory.
As we mentioned in previous quarters the.
The self built PC market has been held back over the past two years with high demand for graphics cards from crypto miners on top of increased demand for computers during the pandemic.
Which had caused GPU prices to rise and in some cases to double.
Now that crypto mining cannot use gpus as effectively as before.
There's been a decline in demand and prices are back to standard MSRP or below.
Additionally, in recent months there have been launches of new technology platforms for Nvidia, AMD, and Intel, which look to be accelerating demand in the self built PC market.
<unk> customers can now build a better and faster gaming PC for a lower cost than they could over the last two years.
The added positive the Corsair is that gaming Pcs built with these new platforms need faster memory, such as DDL five larger power supplies with 1000, what capability, Ohio.
And better cooling technology.
All product categories that we are expert in and I haven't seen the dominant market share.
There have also been several recent games launched show updated to take full use of the new technology is built into the new Gpus.
Making them more immersive and more exciting supply.
This is also helping to drive higher demand for gaming Pcs and peripherals.
In general as we move through the second half of the year, we are starting to see the market recover from the lower demand seen in the early part of 2022.
The U S continues to be a struggle market.
Expect Q4 to see continued growth in all categories.
Europe is still tracking lower than last year.
Shown improvements and we currently also expect growth in Q4 compared to Q3.
Revenue in Asia for Q3 was approximately flat compared to last year.
Let me now take a minute to update you on some of our Q3 product developments.
In Q3, we began setting the course Voyager <unk> hundred AMD advantage addition, laptop.
This is our first course branded laptop let it.
Combines A&D as latest CPU and GPU platforms, with our software and technologies to create an unparalleled gaming and streaming experience.
This laptop has been the highest single R&D investment in our company's history.
Entering the top end of the gaming laptop market.
We also launched a new 45 inch OLED Bendable gaming monitor developed in partnership with LG.
This incredibly looking display.
It can be adjusted from flat to curve by hand to different gaming use cases.
This is the first of its kind in the market.
We expect to start shipping this moments of in first quarter of 2023.
Other launches in Q3 include our new K 100 AD wireless mechanical gaming keyboards, and we announced full availability of PC components compatible with Nvidia is latest 40 savings graphics cards.
In summary, while the market environment remains challenging we are very encouraged by the recent activity in the self built gaming PC market.
Thanks elevated demand to continue as new lower priced bottles of Gpus get launched in the coming months.
Longer term, we expect to further benefit from the expansion in the gaming is market numbers of active consumers during the pandemic, which should drive our highest spending base over the next few years.
We've made significant progress in driving down inventory levels, both in the channel as well as internally and expect to reduce these levels further in Q4, as we move back to our normal targets.
Let me now turn the call over to our CFO , Michael Potter with details on the financials. Michael. Please go ahead.
Thanks, Andy and good afternoon, everyone.
We achieved 10% sequential revenue growth in Q3, and a challenging environment.
This reflects our continued execution strength of our market position and sustained underlying demand gross margins were pressured by the recent sharp strength of the U S dollars against the European and Asian currencies.
Recently currencies appear to be more stable, we have taken some actions related to the currency changes this should lead to gross margin improvements going forward.
In terms of the specifics Q3, 2022 revenue increased to $311 8 million compared to $283 9 million in Q2 2022.
This compares to $391 1 million in Q3 2021.
Our channel partners continued to reduce their inventories in Q3 2022 to current and expected consumer demand and the reduced reduce transit and lead times.
Thus removing much of the overhang from orders placed due to longer lead times in prior periods caused by the effects of the Covid pandemic.
We also reduced our own inventory by about 15% quarter over quarter as we drive our inventory to more historic normalized levels European markets continued to be softer than Americas and contributed about 29% of our revenues well below the historic average in the high 30 percentile, but up from the approximately <unk> <unk>.
25% in Q2 2022.
Turning now to our segments, the Gamer and creator peripheral segment contributed $96 8 million of net revenue during the third quarter up from $89 million in the prior quarter and a decrease of 35% from $139 3 million in Q.
Three 2021.
The Gamer and creator peripheral segment net revenue contributed 31, 1% of total net revenue decreased to 450 basis points from 35, 6% in Q3 2021.
The gaming component and system segment contributed $214 9 million of net revenue during the quarter up from $194 9 million in the prior quarter and a decrease of 14, 7% from $251 9 million in Q3 2021.
Memory products contributed $115 2 million in third quarter, 2022, compared to $115 $5 million in <unk> 2021.
Overall gross profit in the third quarter decreased by 29, 4% to $71 6 million from $101 $4 million in Q3 2021.
The decrease compared to Q3 2021 was primarily driven by reduced revenues gross profit margin was 23% compared to 25, 9% in Q3 2021.
Starting to benefit from the cost actions, we announced last quarter along with the success of newer products. We recently released which we believe will have a significant positive effect on margins moving forward some of which we realized in the third quarter. We're also encouraged by the improving supply chain environment, including a significant reduction in <unk>.
<unk> rates and supply chain lead times, which are rapidly approaching the same levels as they were pre pandemic.
There is typically a four to five month lag before these cost reductions are fully reflected in our P&L as our inventory turns.
The Gamer and creator peripheral segment gross profit was $31 8 million a decrease of 34, 6% from $48 6 million in Q3, 2021, primarily driven by a decrease in revenue and the supply chain and logistics costs I just mentioned.
Gross profit was 32, 8% compared to 34, 9% in Q3 2021.
The gaming components and systems segment gross profit was $39 8 million a decrease of 24, 7% from $52 8 million in Q3, 2021, primarily driven by the decrease in revenue in the same period and higher logistics costs.
Gross profit margin was 18, 5% compared to 21% in Q3 2021, our memory products margin in this segment was 14, 4% for the quarter.
The third quarter SG&A expenses were $66 9 million, a 12% decrease compared to $76 1 million in Q3 2021, we continue to closely monitor all expenses, while continuing to support our revenue generating areas.
Adjusted operating income in the third quarter of 2022 was $5 9 million a decrease of $25 million from operating income of $26 $4 million in Q3 2021.
Third quarter net loss was $5 9 million of which $6 $2 million is attributable to Coursera Gaming Inc. This represents a loss of nine <unk> per diluted share as compared to net income of $1 8 million or <unk> <unk> per diluted share in Q3 2021.
Third quarter adjusted net income was seven $6 million or net income of eight <unk> per diluted share as compared to adjusted net income of $16 3 million or <unk> 16 per diluted share in Q3 dollars 21 <unk>.
Adjusted EBITDA for the third quarter of 2022 was $10 1 million.
Compared to $27 6 million for Q3 2021.
Turning now to our balance sheet, we ended the quarter with $61 $7 million of cash and $245 million of debt at face value with the $100 million revolver fully available.
Seven $9 million on Capex, which includes $5 $7 million related to our new headquarters in <unk>. We expect that this elevated capex level is mostly behind us barring strategic investment opportunities, we look to bring our cash balance further up over time, and we assume reducing debt on a more.
Accelerated basis.
In terms of the full year 2022, while we are starting to see signs of improvement we are slightly adjusting our outlook to reflect the continued challenging market environment and the headwinds I discussed in my comments earlier for the full year 2022, we now expect total revenue in the range of $1 three 2%.
$5 billion to $1 $3 75 billion compared to 1.35 billion to $145 billion prior.
Adjusted operating income in the range of 20 million to $30 million compared to 35 million to $50 million prior and adjusted EBITDA in the range of $35 million to $45 million compared to $50 million to $65 million prior.
With the fed rate hike cycle in progress forecasting interest expense is more difficult assuming no further debt paydown, we expect interest expense of approximately $3 million to $4 million per quarter.
And our effective tax rate of approximately 15% to 20% for 2022.
And full year weighted average diluted shares outstanding of approximately $98 million to $100 million.
To summarize we are starting to see signs of improvement, but the market remains challenging.
Starting to see the benefit of cost reduction actions, we previously talk and we're closely monitoring all expenditures, while continuing to support our product and revenue generation.
We believe that we're being prudent with opex trimming where needed while continuing to invest in product development and marketing to support existing and future product revenue.
We're also carefully managing working capital as we entered the expected higher revenue second half of the year inventory.
Inventory levels are normalizing and freight costs are coming down which will have significant positive effect on margins moving forward.
Turning to see some of this benefit in Q3 and expect another few percentage points margin improvement this year and into 2023.
Finally, the uptick in demand for self build gaming Pcs from new GPU launches and the downturn in crypto currencies that Andy mentioned, reducing non gaming demand by Gpus, It's another positive for us moving into Q4.
With that we're happy now to open the call for questions. Operator will you. Please open the line for Q&A.
Thank you ladies and gentlemen, we are now.
The Q&A session.
If you'd like to ask a question you're welcome to please stall and then Ron.
This often the question queue.
<unk> indicated in line.
Thank you.
You may please.
To lead the question queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Sure.
Our first question comes from drew Crum of Stifel.
Yeah.
Hey, guys. Good afternoon. So just your comments around reducing channel inventory going forward how much is that.
Based on the change in consumer demand or behavior, and how much of that stimulated by promotional activity intends to use through the holiday quarter, and then I'll follow up.
So.
If we're talking about how much channel inventory has been reduced based.
Consumer demand versus promotional.
Let me answer that in a different way the increase in inventory was caused by.
Overall ordering from the channel.
Coupled with in some parts of the world, especially you have a slight reduction in consumer demand.
After the UK law. So that's been the main effects now.
The reduction is mainly been.
Just shipping as normal we've been a little bit of promotion, but.
Not excessive amounts I would say.
Yes.
Thank you.
Go ahead, yes.
That's the way to think about it is that.
Obviously, we've shipped into the channel less than we normally would have.
So that the sales as consumers consume some of the inventory.
Got it Okay, and then if I heard you correctly, there is more inventory more of an inventory overhang with the gaming peripheral business when would you expect that to normalize.
Probably.
Really anything left is.
Little bit of an overhang, we gained peripherals and it's mostly in Europe , and we would expect that to resolve itself by Q1.
Okay, Okay, and then Michael just.
On gross margin you saw sequential improvement in <unk> versus <unk> with.
With the cost actions you outlined the contributions from new products and some relief on supply chain is it fair to assume the business experiences further gross margin improvement in four Q and.
Where do you think that leaves the business for the year. Thanks.
I mean, the difference in freight rates alone is it kind of works through the inventory. That's a couple of like two to three percentage points over the next quarter or two improvement.
We will get a little bit more from economies of scale with the higher revenue so without taking into account what the final market sentiment is we should get a few percentage points increase.
With inventory levels going down this should put us in a better position as we enter next year.
Got it thanks guys.
The next question comes from Mario <unk> of Barclays.
Great. Thanks for taking my question.
The first one is seasonality there's been a lot of moving parts in that business over the last couple of years just worldwide in general.
Right.
Mid point of the fourth quarter guide.
It's up 20% Q on Q.
Is there a framework.
Yes in terms of how we should think about seasonality.
Into.
Fiscal 'twenty three.
Well, yes, hi, Marion.
I was looking at this this morning.
The thing is.
If you look at the last five years of history. The Q3 to Q4 cadence is anywhere from 15% to 30% up.
So we are roughly in the middle of that but the other thing I would say is that.
The seasonality is based on.
And so our sales into the channel in Q3.
It was clearly lower than sales as consumers.
Some of the channel in Q4 that different should be a little less so that's why we'd normally expect to get a little bit of a pickup in revenue just because of the fact, we are adjusting inventory less and we would expect somewhere.
20%, 25% lift.
Just consumer activity based on history.
We don't see any reason to us.
Going to be less in fact, because of all the new technologies and platforms are just launched from Nvidia and Intel and AMD.
It was a good challenge, so thats going to be even higher, but that's where the best way to think about it now.
I wouldn't imagine should be any different from that the average I just told you about but.
Q1.
<unk>.
Obviously in the near term, there's a fair chance that demand is going to be strong because we are still seeing new platforms launch. So we had the $40 90, just launched a couple of weeks ago, which is the <unk>.
Seller graphics card top of the line.
And then in two weeks time, we've got the <unk> 48.
Being launched and then I think the 40 70 will come out in <unk>.
Q1. So there is a lot of launches that are going to drive people with different budgets to stop building.
Great. Thank you.
Yeah.
Ladies and gentlemen, just a reminder, haas.
A question Youre welcome to Bristow and then one on the telephone keypad.
The next question comes from Franco Granda of D. A Davidson.
Alright.
And for Franco Grondahl.
How should we think about the margin profile high how should we think about the margin profile for some of the new products that are coming out.
<unk> came out like the laptop or the flex monitor.
Well I would say that we're trying to bring new products out typically at higher margins than the equivalent products in the last few years.
And Thats, obviously, what every company does try and make normal margin. The monitor itself I don't want against specifics of that particular, one but.
But you can imagine that obviously products like gaming Pcs and bonuses.
Typically going to have a lower margin than some of our other components and peripherals.
And second question some of your peers have introduced products catering through cloud gaming what does your current stance on the outlook on the cloud gaming market.
Well, we think it's marvelous.
All people to play games.
We think it's the better because what we've seen is that people play games and early age.
Phones.
Through the cloud.
Eventually migrate to our PC platform. So we see the biggest effect that cloud gaming is happening today is in that entry level of mobile sector.
Typically spend.
A lot of.
Resource on Roadmaps in in those areas in the entry level, but we're certainly looking at it so I think.
I didn't see a huge opportunity for us in terms of revenue in the short term.
But long term, we expect multiple gaming is going to drive them into.
Better PC platforms.
Okay. Thanks, Mark Thanks for taking the questions guys.
Yeah.
Thank you ladies and gentlemen, just a final reminder, you can ask the question you're welcome to Bristow and then one on your telephone keypad.
Yeah.
Yes.
Okay.
Gentlemen, we seem to have any further questions from the lines, ladies and gentlemen that concludes today's question and answer session I would now.
Now I'd like to turn the conference over to.
Andy Paul for closing remarks.
Thank you everyone for joining the call today and for your continued support if you have any follow up questions. Please contact Todd.
And we look forward to updating you next quarter. Thank you and have a good evening.
Thank you ladies and gentlemen that concludes today's conference. Thank you for your participation and you may now disconnect your lines.