GigaMedia Limited
Q2 2007 Earnings Call Transcript

Published: 14 Aug 2007

[Operator:]

Good day, ladies and gentlemen and thank you for standing by. Welcome to the GigaMedia Limited conference call to discuss second quarter 2007 financial results. (Operator Instructions) I would now like to turn the conference over to Mr. Brad Miller. Please go ahead, Mr. Miller.

[Brad Miller:]

Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our second quarter 2007 results conference call for GigaMedia Limited. Here again to speak with you and answer your questions today are Arthur Wang, our CEO, and Thomas Hui, President, COO, and acting CFO. Before I turn it over to today’s speakers, I would like to remind you that a number of forward-looking statements will be made during this conference call. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of GigaMedia and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, GigaMedia's actual results could differ materially from these statements. Information about factors that could cause, and in some cases have caused, such differences can be found in GigaMedia's annual report on Form 20-F, filed with the U.S. Securities and Exchange Commission in June 2007. This presentation is being made on August 14, 2007. The contents of this presentation contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is rebroadcast, retransmitted, or redistributed at a later date, GigaMedia will not be reviewing or updating the material that is contained therein. The agenda for today’s call includes first a review by Arthur Wang of 2Q business activities and financial performance. Thomas Hui will then provide details on our financial results during the period. After the speaker sessions, we will go into a question-and-answer session. With that, I would like to turn the call over to Arthur, our CEO.

[Arthur M. Wang:]

Thanks, Brad. We are very pleased to report today our strong second quarter 2007 financial results. In simple terms, we had an excellent quarter. Financial results were strong in every business unit, with second quarter revenues climbing 88% year over year to $40.1 million and operating income up 119% over last year to $10.1 million, another record for GigaMedia. More important, our business is positioned to deliver even greater growth. We expect a very strong second half of 2007, driving continued growth and momentum into 2008. Thomas will go into our financial results in more detail. Please allow me to highlight a few points of particular note concerning our second quarter with an eye towards the future. First, our cash wager gaming software business -- Everest Poker enjoyed another outstanding quarter in Q2, delivering good growth despite the onset of summer seasonality. In my mind, our continued growth stems from primarily two factors. First, our high quality poker product, fully localized into 15 languages; and second, the strong brand awareness of Everest Poker, built upon our nine-year operating history in Europe, continually strengthened by public relations, event sponsorship, mass media and other marketing initiatives. In Q2, we were very active, with a host of marketing and event-related activities, including the kick-off of the multi-nation 2007 Everest Poker European Cup, the continuation of Everest’s $1 million Avalanche Tournament, the widespread airing of the Everest Poker Minute on the ESPN European network, the sponsorship of numerous Everest brand and third-party events and TV programs. I am especially pleased to announce that the Everest Poker Japan Cup, the first ever online/offline poker event in Japan, was a strong success. We also continued to improve Everest offerings, upgrading systems and products to improve the overall gaming experience for our customers and rolled out enhanced marketing tools for our affiliates. For the second half, we plan to drive even stronger growth through a wide variety of powerful customer acquisition and player retention activities, including PR and event sponsorship, mass media marketing, online marketing campaigns, and enhanced service offerings. We also plan to enter into new affiliations and new partnerships. Going forward, we expect to see very strong growth of Everest Poker in the second half, moderated in the third quarter by the annual summer seasonality. We expect to finish the year with not only very strong growth but more importantly with very strong momentum heading into 2008. We are also pleased to announce the launch of our cash wager Mahjong software by our initial licensee. While this launch was unfortunately delayed, we are pleased that things are now on track. Our plan in the second half is to extend our licensing of Mahjong more broadly, in response to the tremendous interest and demand from operators around the world. As with our initial launch of Everest Poker in April 2005, we expect this business to ramp up over the next six months and begin to make real contributions over the course of the year. In addition, we are very excited about a new, I would say revolutionary suite of Japanese online gaming products which we will be launching this fall. Our suite of products will address, in many cases for the first time ever, the enormous demand for traditional Japanese games, such as Pachinko, Pachislo, Grand Slam Single Player Mahjong, Multi-Player Mahjong, and Japanese poker and card games. We are very excited about the enormous potential for these products. In summary, from a standing start in 2005, Everest Poker has now climbed into the top ranks as the fourth largest poker site in the world. It is our commitment to build upon this position to become the dominant online gaming solution worldwide, to offer the best of the west -- Poker, Casino -- and the best of the east -- Mahjong, Pachinko -- to capitalize upon the foundation built upon nine years of actual operating experience in the European and Asian markets. The non-English language world represents an enormous market opportunity for which we believe we are best positioned to exploit. Turning now to our online games platform in Asia, I personally am most excited about developments in our Asian online game business. The second quarter was our best to date, driven by solid execution and new growth initiatives at FunTown. In Q2, we also assumed a majority control of T2CN, increasing our equity stake to 52%. T2CN is the operator of the largest online sports game in China and we are excited about the opportunity to build T2 into a major player in the Chinese online entertainment world. Together, FunTown, T2CN, and our part ownership of Southeast Asian platform, Infocom Asia, combine to form the first pan-Asian online gaming platform, a game and entertainment platform with a geographic footprint covering one quarter of the world. At present, we have over 64 million registered users and peak concurrent users of over 250,000 persons, and our commitment to grow these numbers dramatically is clearly stated. Initially, we see strong monetization from games played for fun and games played for prizes, but as our numbers grow and match and even exceed those of traditional broadcast media, we see an opportunity to be a primary provider of online entertainment to the MTV generation across Asia, the sweet spot of 15 to 35 year olds, with many related monetization streams. We are now in the final stages of negotiation on several very exciting partnerships involving game publishing, licensing and operations, including deals with several of the premier game developers in the world today. We believe these opportunities, combined with the continued expansion of our existing business, will allow us to drive growth on the order of several multiples over the next year. Before concluding, one word on our legacy ISP business -- we are currently in formal discussions concerning the sale of this non-core business unit. We will report to the market any news or development as appropriate. Looking forward, we expect an outstanding second half of 2007, with strong growth in all of our businesses in both absolute and percentage terms. More important, we see this growth combined with developments now underway driving continued strong momentum in 2008. I have been the CEO of GigaMedia for three-and-a-half years now and during this time, I have never been as happy, as confident, as excited about our business as I am today. We are indeed building a new GigaMedia with growing shareholder value as its cornerstone. We thank you for your interest and continued support.

[Thomas T. Hui:]

Thanks, Arthur. Let’s take a closer look now at the financial performance of our business in the second quarter. I will start by reviewing our consolidated results and then focus on our two core business units. Overall, we delivered strong performance in the second quarter of 2007. Despite the negative impact of seasonality, we continue to drive strong organic growth with our poker software business. At the same time, we delivered much-improved results in our Asian online game business. To further strengthen and accelerate the growth of our Asian online game business, we also acquired a majority interest in our China online game platform, T2CN, and began to consolidate its financials for part of the quarter. More on all of these later. Let me quickly summarize our consolidated results in Q2 2007. Consolidated revenues grew 88% year over year, or 11% quarter over quarter, to $40.1 million. This growth was due to record performance in our poker software business and strongly improved performance in our Asian online games business. Consolidated gross profit increased 101% from the same period last year, or 11% sequentially to $31.8 million. Our consolidated gross profit margin was 79.4% in Q2, flat compared to 79.7% in the previous quarter. Operating income rose 119% year over year and 16% sequentially to $10.1 million. The quarter over quarter increase in our consolidated operating income was due to the growth in consolidated revenue, as well as a slight increase in our consolidated operating margin to 25.2% in Q2 2007. The sequential increase in our operating margin was a result of margin expansion in our Asian online game business, which more than offset the continued decline in our non-core legacy ISP business and an increase in headquarter expense during Q2. In Q2 2007, we generated net income of $10.1 million, or $0.17 per diluted shares, which represented a 19% growth sequentially from Q1 2007. I want to emphasize here that a strict Q2 versus Q2 comparison of our net income on a year-over-year basis is not a good measurement of the operating performance of our business. This is because Q2 net income last year was distorted by a one-time disposal gain of $7 million related to the sale of our ADSL business. Q2 this year, Q2 2007 net income of $10.1 million represented a 139% growth year over year, if we exclude the impact of such one-time disposal gain from the net income of Q2 last year. We continued to maintain a robust balance sheet during the second quarter. Quarter over quarter, our cash, cash equivalents and current marketable securities increased significantly from $48 million to $72.4 million. The increase was a result of strong operating cash flow and the consolidation of T2CN. We generated very strong cash flow during the second quarter. Operating cash flow for the period increased to $17 million from $11 million for Q1. During Q2, we made a final cash payment of approximately $5 million related to our acquisition of FunTown. We also made a cash payment of approximately $1.8 million related to our strategic investment in Soft Star Entertainment. Capital expenditure was $2.2 million for the quarter and we recorded total debt of $24.3 million at the end of the second quarter. Let’s now look at our business unit performance. The gaming software business -- the second quarter is traditionally one of the weakest business periods for the gaming software business, as continental Europeans typically spend less time playing online games during summer months. Despite this, the business unit once again delivered all-time highs in revenue and net income. During the second quarter, the business unit generated $29.2 million in revenues, representing 150% growth year on year and 11% growth sequentially. Gross profit and operating income each grew 11% from last quarter. Operating margin remained stable at 33%. Net income grew 172% year over year and 11% sequentially to $9.2 million. Let me quickly break this down further into results for our Poker software business and our casino software business. Our Poker business again achieved record results and remained the driving force behind our gaming software business. The revenue from our poker software products were $21.8 million, up an impressive 265% from a year ago and up 14% sequentially. These growth figures are exceptional in their own right but are even more outstanding when you take into account the negative impact of seasonality during the quarter. Growth was driven by increases in real money players on Everest Poker. Approximately 154,000 active depositing real money customers played Everest Poker during the second quarter, up 254% year over year and 12% sequentially. And during the quarter, approximately 54,000 new depositing real money players were added. To further support future growth, we launched an online poker offering in Greek in Q2, giving Everest Poker an industry-leading 15 end-to-end native language solutions. Our casino software business also delivered strong results. Second quarter revenues from the casino software business was $7.1 million. This represented a 25% increase year over year, driven in large part by the launch of new slot games and cross-selling of casino games on Everest Poker. Casino revenues declined a modest 1% sequentially due to seasonality. Our gaming software business is continuing to deliver and sustain growth momentum. During this traditionally slow second quarter, we continued to improve platform systems and to develop enhanced tools for our marketing affiliates in preparation for what we expect to be a very strong second half of 2007. The Asian online game business, namely FunTown and T2CN -- in the second quarter, our Asian online game business accelerated its growth momentum, delivering sharply improved performance on the back of strong marketing initiatives undertaken in the first quarter and continued execution of our strategy to expand our product offerings and our platform reach. As a result of these initiatives, we accelerated our momentum in our top line and experienced a significant improvement in our second quarter operating margin. Revenues in the period increased 67% year over year and 31% sequentially to $7.2 million. Gross profit margin remained flat at 77.6%. Operating margin rebounded to 32.1% from 15% in the previous quarter, as we recorded strong top line growth and reduced selling and marketing expenses. Recall that Q1 operating margin were negatively impacted by Hellgate London promotion at the Taiwan Game Show and a mass media marketing campaign for our FunTown brand. Finally, net income increased 84% year over year and 119% sequentially to $2.3 million. Breaking this down further, second quarter revenues from FunTown, our Taiwan and Hong Kong platform, grew 40% year over year and 10% sequentially to $6 million, with growth driven by strong contribution from our advanced casual game, Tales Runner, and an increase in both the number of paying accounts and per payer contribution. Everest monthly active paying accounts were approximately 116,000 during the second quarter, up 8% sequentially, and ARPU of active players was approximately $17, up 2% sequentially. During the quarter, we continued to execute on our strategy of increasing contribution from licensed game on our platform. Tales Runner is an early demonstration of successful execution of such strategy. Tales Runner is already contributing significantly of FunTown’s top line and remains the top ranked online casual game in Hong Kong, according to Yahoo!. Building on this success, during the second quarter we continued to prepare for the launch of several newly licensed games in the next few quarters. In addition, to further deepen our product pipeline, we made a strategic investment in SoftStar Entertainment during the second quarter. SoftStar is one of the leading game development studios in greater China. We invested approximately $1.8 million and obtained convertible preferred shares, representing approximately 16.1% of the total outstanding shares of SoftStar. We also gained preferential access to games offered by SoftStar and will join its board. This investment further strengthens our ability to source and self-develop online games for our platforms in greater China. Turning now to our China online games platform, T2CN, second quarter total net revenues from T2CN grew 10% to $3.5 million from $3.2 million in Q1. We began to consolidate results of T2CN in June and we increased our equity ownership to 52.3% in July. Therefore, we only consolidated one month’s worth of revenue from T2CN, or $1.2 million, in the second quarter. Total number of active paying accounts in the last 30 days for T2CN declined 6% to approximately 356,000, while gross ARPU increased by approximately 11%. Looking ahead, we will continue to integrate our system with T2CN and expect to add two new sports games to T2CN’s online platform in the second half of this year, a tennis game and a snowboarding game. Overall, our Asian online game business is on track, accelerating its business momentum, and poised for a tremendous growth. Finally, a quick review of our broadband ISP business -- results in our legacy broadband ISP business declined quarter over quarter in line with expectations. The decline was largely due to decreases in payments we received for bandwidth, consulting and support services related to the sale of our ADSL business in 2006. Looking ahead, we can expect the contribution from our ISP business to continue to decline, both in absolute terms and relative to our consolidated financials. This is in line with our ongoing strategy of shifting resources away from this legacy business. To summarize, in Q2 we made steady progress in our goal of building a powerful, leading online entertainment platform. First, we sustained growth in our gaming software business, despite negative seasonal factors. Second, we delivered significantly improved growth in our Asian online game business and positioned ourselves with our China platform, T2CN, and a pipeline of game titles to dramatically accelerate growth. Both our gaming software business and our Asian online game business are on track for a very strong year. We are well-positioned, executing strongly and excited about our opportunities and growth prospects. We are also very confident in our ability to continue to drive growth and build shareholder value. Thank you.

[Brad Miller:]

Thanks, Thomas. We will now move into a question-and-answer session. Operator, at this point we would like to open the call up to questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Traci Mangini with ThinkEquity Partners. Please proceed.

[Traci Mangini:]

Thank you. Good evening, you guys. I just have a question, Arthur, I apologize up front, I missed a little bit of the beginning of your comments so I hope I’m not asking you to repeat yourself here but can you just speak to your very impressive poker performance quarter on quarter in the quarter, and versus many of your competitors who have seen very weak quarterly performance. Why is it do you think that you’ve had such strong relative out-performance and do you think you can continue that going forward?

[Arthur M. Wang:]

Sure, Traci. We believe that there are two factors that are driving our continued growth. First of all, we believe that our product, which is localized now into 15 languages, more than any of our competitors, is a comparative advantage. Our product is not merely a translation of the introduction page or the marketing page, but the entire gaming engine, the chatting engine, the communications are all in a fully localized ambient solution, so we believe that’s an important differentiator. The second driver in my mind is the Everest Poker brand. We’ve invested heavily into this brand and the brand itself is built upon a nine-year operating history in Europe. All of our public relations, our event sponsorship, our mass media advertising, all of it takes place around a single brand and we believe that this investment is beginning to show returns by way of our continued growth, even during seasonally difficult times.

[Traci Mangini:]

Thank you. And then on the Japan side of things, I’m hearing a little buzz about some other folks trying to come out with some online Pachinko there. Just give us a sense of the competitive landscape and why you think that -- is it big enough for everyone to share or do you think you are going to have something a little bit unique and different compared to what the would-be competitors will have?

[Arthur M. Wang:]

We are particularly excited about the opportunity in Japan, for a couple of reasons. First of all is the market size. Japan is a very large country with 120 million some people. It is the world’s second-largest economy. It has a very, very high per capita GDP, very high disposal income, and most importantly a very deep and ingrained love of gambling, in particular for traditional Japanese gaming products. Generally, the number that you here is that the Pachinko industry in Japan is a $250 billion industry, something which would be larger than perhaps all the casinos in the world added up together. So the market opportunity is enormous. What we see is an opportunity to take our FunTown Mahjong product, our real money Mahjong product and combine it with other Japanese, traditional Japanese gaming products, which we’ve had under development for about a year now, and offer for the first time a suite of truly Japanese traditional gaming products online. Now, as far as we understand, the only thing that’s been tried before is a single Pachinko product, which was run very profitably for a short period of time, but even that product failed to we believe capture the essence of the game. So we think that there’s revolutionary opportunity available to us.

[Traci Mangini:]

Great. And then Thomas, just lastly for you, on the T2CN front, just in helping us look at the way those revenues are ramping back again. At what point, or are we getting there, do you see them retracing where they had been before the hack issue last summer?

[Thomas T. Hui:]

The bulk of the revenue from T2CN is from the game Freestyle, the basketball game which is the leading casual sports game in China, and the growth you see from Q1 to Q2 is also primarily coming from the increasing level of activities for Freestyle. So we believe Freestyle will in the next few quarters continue to be stable and steady and with moderate upside potential. We really believe the platform’s real power will be demonstrated when we launch new games onto this platform, given that it has already a very large customer base and already a pretty good reputation in operating a casual sports game. So we are starting with two small sports games in the next few quarters and we have some big titles coming up and as and when it is appropriate, we’ll be making announcements about them.

[Traci Mangini:]

Great. Thank you, guys.

[Operator:]

Your next question comes from the line of Todd Eilers with Roth Capital Partners. Please proceed.

[Todd Eilers:]

Congratulations on a very strong quarter. Just a couple of questions; if we could talk a little bit more about the poker business. Just looking to the third quarter, could you maybe give a little bit more color on what your expectations are in terms of sequential growth? Do you expect it to be positive? If so, do you expect it to be single-digit positive or maybe double-digit positive? What are you looking at right now in that business?

[Arthur M. Wang:]

Sure. We continue to see growth in the third quarter, despite the summer seasonality. As is our practice, we are reluctant in, given the nature of our business, to provide numerical guidance but let me say for the second half of 2007, we are looking for very strong growth. Third quarter again will be moderated by the seasonal effects.

[Todd Eilers:]

Okay, fair enough. Thank you. And if we could talk a little bit more about the Mahjong, and I apologize if I didn’t catch this at the -- I joined the call a little late as well but it sounds like you’ve had a strong launch with Harmon Media. There’s some additional interest I believe for additional licensing partners. Can you maybe talk a little bit more about that? Are you still also looking to potentially license that to UIM as well? And then can you maybe update us on what the timing on the exclusive, when that ends and when you could sign additional licensing partners there?

[Arthur M. Wang:]

Sure. We have a short initial period of exclusivity with our initial launch partner. That clock is ticking. In the meantime, we will be addressing the long list of interested parties who have been clamoring to license our real money Mahjong software. Our policy will be to license broadly our Mahjong software. In certain marketplaces, however, in certain geographies, we will reserve that for UIM, our master licensee, to maintain a competitive advantage in those areas.

[Todd Eilers:]

Okay, great. And then I guess moving on to the Japanese suite of real money games, do you expect to launch that suite of products some time in the second half of ’07, or should we be looking at maybe the beginning of ’08 for that product launch?

[Arthur M. Wang:]

We are looking to launch that in the fall, within the next few months.

[Todd Eilers:]

Okay, perfect. And then I guess my other question on the casual online side, can you maybe talk a little bit about up-front marketing costs associated with Hellgate London expected for the second half here, in third quarter and fourth quarter, how we should kind of look at that? I just want to make sure we have that modeled in correctly and just talk a little bit more about that.

[Thomas T. Hui:]

Hellgate London marketing costs is probably only going to happen closer to year-end, according to the revised launch schedule. That could be -- you’ll recall that we spent about $0.5 million in the first quarter promoting Hellgate London at the Taipei Game Show, so it could be multiples of that in the fourth quarter when we do launch the game. So that will be the order of magnitude we’re talking about.

[Todd Eilers:]

Okay, and then last question, and it’s a little bit unrelated to the current business, but we’ve seen some news out regarding Taiwan looking to potentially legalize destination casino resorts. Can you maybe comment on that? Do you see that as maybe an opportunity for you guys at some point? I just wanted to get your general thoughts on that activity.

[Arthur M. Wang:]

Sure. The explosion of land-based casinos and gaming in Macau has caught the attention of governments all around the region. The first to act, of course, was Singapore and they’ve already handed out two licenses for integrated casinos and resorts. Several other countries are now considering similar action -- Japan, Taiwan, among others, even China, we understand. This type of a movement is generally a very large move. It’s a very significant move for our country and we anticipate these things take many years to develop and so we continue to follow them in the marketplace as we operate. We think it is generally good for us as a gaming provider and portends good opportunities for the future but at present, we view them only as potential opportunities.

[Todd Eilers:]

Okay, great. Thanks, guys and congrats on the strong quarter.

[Operator:]

Your next question comes from the line of Tom [Muelli] with Jefferies Asset Management. Please proceed.

[Tom Muelli:]

It looks like from the balance sheet that you used about $9 million in cash in the quarter and I was wondering if that’s about right and if you can walk us through the reconciliation, just what the major uses of cash were in the quarter sequentially. Thanks.

[Thomas T. Hui:]

Sorry, I didn’t catch the first part of your question. Do you mind repeating?

[Tom Muelli:]

Sorry. It looks like you used about $9 million in cash in the quarter sequentially and I was wondering if that’s about right, just looking at your balance sheet. And then, if that is, if you could roughly just give us the major uses of cash versus your $10 million in income.

[Thomas T. Hui:]

Sure. The major uses of cash as I outlined in my prepared remarks include a $5 million payment for the last tranche of the FunTown acquisition; $1.8 million for the acquisition or the investment in SoftStar; and then we have $2.2 million of capital expenditure within the quarter, so those are the key major items. Obviously there are a lot of operational cash flow in and out but those are the key items.

[Tom Muelli:]

Since there’s no cash flow statement, I was wondering; could you comment on what cash flow from operations was in the quarter?

[Thomas T. Hui:]

It is actually in our release. Cash flow from operations is $17 million.

[Tom Muelli:]

Thank you.

[Thomas T. Hui:]

So off of that $10 million net income, we generated a $17 million cash flow from operations and on top of that, there’s about $2.2 million of CapEx.

[Tom Muelli:]

Is there other major cash item in there because I’m just having trouble reconciling the drop in cash and increase in debt on the balance sheet, even with those uses of cash?

[Thomas T. Hui:]

Those are the key ones. Those are the key ones. I mean, the -- we can probably -- it is probably not the right forum to go through the dollars and cents in terms of the reconciliation but those are the key items. On the $10 million net income basis, we have additional cash flow coming in through the increase in [inaudible] balances and all that, so we get it to about $17 million of operating cash flow. And then we have on the investment activity side, primarily the capital expenditure and the $1.8 million and the payment on the $5 million.

[Tom Muelli:]

So in that case, you generated roughly $10 million in cash it looks like but if I just go through your balance sheet --

[Thomas T. Hui:]

But the consolidation of T2CN increased the cash balance by $12 million.

[Tom Muelli:]

Okay. All right. Thank you very much. I’ll take a closer look.

[Operator:]

Your next question comes from the line of Bill Garrison with Ironworks Capital. Please proceed.

[Bill Garrison:]

Thank you. I wanted to see if you might be able to expand just a little bit on Garmin’s launch on Mahjong in terms of describing what geography they are going after and any kind of details on the launch in terms of -- I don’t think I’ve really seen much from them yet, and whether or not there was a URL even that one could be able to just take a look at.

[Arthur M. Wang:]

Sure, Bill. One thing I should clarify, however, is that our policy on software licensing, other than with UIM, our master licensee, is to report only on the financial and operational data that is under our control. A couple of reasons for this; number one, that’s the only information that we actually can speak confidently about, right, because it’s the only information that we feel as a public company we should fairly be reporting. But second of all, as a third party software provider, we need to be very careful about avoiding any competitive concerns or release any proprietary information. Our plan is to license broadly and our policy will not be to speak about individual operators, their operational conditions, their operational results, their marketing strategies, their geographic targets et al, even though sometimes we may actually have that information. But as a matter of corporate policy, we are going to need to be very careful there. We will be, as the numbers become more reflective of the business, releasing broad, blended metrics which reflect the overall sub-sector of this business, but we will not be able to speak to any specific operator.

[Bill Garrison:]

Okay. I guess from your perspective, will you be recognizing the up-front licensing fee revenue than in the third quarter?

[Arthur M. Wang:]

The actual treatment of licensing fees we’ll have to check with the auditors on. But licensing fee is primarily revenue, a percentage royalty rate of revenue so it would book probably in accordance with the period in which it’s earned.

[Bill Garrison:]

Okay. I guess on the poker side, I was impressed to see the 12% sequential growth in the player count versus the 14% on revenue. I guess with regard to migrating players to higher stake games, was there much of an impact observed in the June quarter from that?

[Thomas T. Hui:]

Again, as we have explained it in the previous conference calls, the migration is one of the initiatives we have undertaken but it is not a major initiative and it is not a major initiative that we expect to have a significant impact on the ARPU per players. As we’ve mentioned before, you actually serve multiple [inaudible] in terms of also cleaning up some of our player base, consolidating some of the cost items and all that. We did never expect a strong pick-up in ARPU because there was not a concerted effort to do so. We did see a little bit of a pick-up in ARPU but there wasn’t a significant impact on that because we haven’t been expecting so.

[Bill Garrison:]

Lastly, I don’t know if you’ll be able to make comments or not but I thought I had seen a couple things in the press talking about potential IPOs and things like that, I guess with regard to T2CN and maybe even Infocom. I realize it is probably premature but I just wondered if strategically if you might be able to make any comments about those kinds of thoughts.

[Arthur M. Wang:]

We are regularly provided with different proposals and opportunities by different investment banks and financial advisors, including taking some of our operating subsidiaries and spinning them off to unlock some value or to -- for other strategic purposes. At this point in time, no such action is planned. However, we do continually think about the best way to position our business and growth it going forward.

[Bill Garrison:]

Very good. Thank you and good luck.

[Operator:]

Your next question comes from the line of [Leshak Chornick] with DD Securities. Please proceed.

[Leshak Chornick:]

Just wondering, with understanding the limited amount you can release in terms of media and Mahjong for money, you mentioned that there is a short time period. Is that short time period within the end of 2007 where their exclusivity period is over or -- if you can define further the short time period.

[Arthur M. Wang:]

Sure. The exclusivity period will run and terminate within 2007.

[Leshak Chornick:]

Good. Thank you and great job.

[Operator:]

(Operator Instructions) Your next question comes from the line of Greg Weaver with Kern Capital. Please proceed.

[Greg Weaver:]

Just one question surrounding the poker side of things; how big is your player base?

[Thomas T. Hui:]

In the second quarter, we have over 150,000 paying customers.

[Greg Weaver:]

Right. I’m just trying to reconcile the 54,000 new depositing customers to the 150. I’m assuming the base is bigger than 154.

[Thomas T. Hui:]

Sorry, what is bigger than 154?

[Greg Weaver:]

You said during the quarter you added approximately 54,000 new depositing real money players, right? That seems like a huge -- it’s over 50%, but I’m assuming the base is bigger than the 154 active that were in the quarter? I mean, what kind of churn is involved with this base?

[Thomas T. Hui:]

Yes, the base is certainly bigger, as we’ve talked about this before. The business, similar to our other operators in the online poker business, what we have seen is in the initial period, the first month and second month when you acquire customers, there is a much higher churn comparing to the later months, the six months, the 12 months when a customer is still on your platform. So you plot the chart, the X axis being the timescale, the Y axis being the amount of players that still remain on your platform from the day you acquired them, then you have a decaying slide, I guess a reverse slide. So you would see actually quite a bit of churn from that way initially but actually the real juicy players are the ones that stay with you for six months, 12 months. There are quite a number of them and they provide a good lifetime value.

[Greg Weaver:]

So what percent of the 54,000, how many of those guys do you think are going to be left a year from now?

[Thomas T. Hui:]

It will be probably about 20% or so.

[Greg Weaver:]

Okay. Thank you.

[Operator:]

And there are no further questions at this time. I would like to turn the call back over to Mr. Brad Miller for closing remarks.

[Brad Miller:]

Thanks, Operator. For further information about GigaMedia, or if you have questions and would like to contact the company, please visit our website at www.gigamedia.com.tw as in Taiwan. Thank you again for joining us today.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Good day.