GigaMedia Limited
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2014 GigaMedia Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Friday, 24 October 2014. I would now like to hand the conference over to your first speaker today, Mr. Brad Miller, Investor Relations Director for GigaMedia Limited. Thank you. Please go ahead.

[Bradley Miller:]

Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our conference call to discuss GigaMedia’s third quarter 2014 financial results. With me today is Collin Hwang, our CEO; and Dirk Chen, our CFO. Before we begin, 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 April 2014. This presentation is being made on October 24, 2014, in Taiwan. The content 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. After today’s prepared remarks, we will respond to questions that we’ve taken by e-mail and we'll also be taking live questions. With that, I would like to turn the call over now to our CEO, Collin Hwang.

[Collin Hwang:]

Hello everyone and thank you for joining us. Yesterday we announced our third Q results which included a forecast for solid double-digit quarter-to-quarter revenue growth, our strong business outlook in years. We have made great progress this year, rebuilding our games and cloud computing business. It has taken time and a great deal of work. Let me review where we now stand and where we are headed. First, online games. In online games, rebuilding is focused on

[Bradley Miller:]

Thanks, Collin. I have a few more details on our financials and operations to add. First, our third quarter gross margin was negatively impacted by game development expenses, totaling $925,000. This consisted of outsourcing expenses for the development by two Korean studios of three games. One is a mobile role-playing game appropriate for global cultures. The other two games are related and are much larger projects. First, there is a web-based first person shooter MMO game, with unique country designs and secondly, there is a mobile version of this game that shares the player’s data so that you can play seamlessly across platforms. GigaMedia has global rights for all three of those products. As Collin stated, total development cost for these three games is about 2.5 million. As of the third quarter, fees remaining to be paid for the games totaled about 1.6 million. We expect to record final payments for those games in the fourth quarter, the first quarter and the second quarter next year. Excluding those fees, our gross profit margin improved quarter over quarter. Second, our consolidated non-operating income in the third quarter reflected two items. We disposed of a portion of our marketable securities-current. This was sales of a part of our holdings of the Korean developer JoyCity. The disposal resulted in a gain of about 2.5 million. We also recorded an unrealized investment loss of 3.9 million. This was related to a decrease in market value of our holdings of the Taiwanese game company, Gamania. The negative net impact of the unrealized loss in the third quarter was about 1.4 million. Excluding the game development fees and the unrealized loss, third quarter net results were about breakeven with a net loss of $5000. Third, cash on our balance sheet for 3Q does not include about $2.6 million in proceeds from the 3Q sales of our marketable securities current. This is because the sales took place at the very end of the third quarter and there were some delays in processing most of the share sales and transferring the funds from Korea to Taiwan. As a result, $2.6 million in proceeds from the sales in 3Q are included under other receivables on our balance sheet, and this will be revised going forward. Next, let me add some color on results in our key growth initiatives. Total revenues were flat in Q3 from Q2 but revenues from our mobile game grew in the period by 17%. We demonstrated in Q3 a continuing ability to monetize our mobile products even though it’s relatively Asia [ph] at this point. This is significant positive proof point of our ability to execute and compete in mobile games. It bodes well for our upcoming launches for mobile games in 4Q and 1Q and it gives us confidence in future mobile growth initiatives. We are also starting to see some promising results from testing our first self-developed product, our social casino platform. The platform features play-for-free games from world leader Michael Gaming. Thousands of players are visiting the platform daily at this point. We look forward to adding more games and ramping up operations in the middle of Q4. Looking ahead, we expect to see a few positive trends. We forecast revenue growth starting in Q4 and continuing into first quarter next year. We also expect the revenue mix to improve with an increase in the amounts of revenues generated by self-developed products. This should boost our margins. At this point, we cannot forecast when our new model and our new products would generate positive operating cash flow. We will incur some higher than normal marketing expenses for upcoming new product launches. But we are very confident about our direction and momentum, visibility. In addition, we are looking at some steps that we can take to protect shareholders from dilution resulting from employees exercising options. As some people have noted our share count has increased by about 5 million shares in the past year, and we’ve noted that some companies buy back annually the total number of shares resulting from options being exercised in a year, and we think this is a good corporate practice. So we are currently looking into arranging a mechanism for something similar in the future. That’s our 3Q review and business update for today. Thank you very much. Before we proceed to Q&A, just a quick reminder for everyone as a standard protocol, we please ask that you limit yourself to one question at a time so that everybody has an opportunity to participate. Operator, let's please begin the Q&A.

[Operator:]

(Operator Instructions) I see that we have no questions on the line at this time.

[Bradley Miller:]

Okay, operator. We’ve received some questions via email. So at this point, we will just address the questions we’ve received by mail. Could you tell us more about your social casino projects? Is there a lot of competition? Basically with the social casino, in the beginning we are targeting Greater China where our platform serves as a distribution channel for international operators. We believe there is a big opportunity here. There is no Facebook in China. Social casino games generate about half of Facebook’s revenues. There is of course strong competition but we are confident that we have a strong group of affiliates that can deliver a large player band to us and we are offering premium content that is polished and has a real base in Macau field. Now we are focused on play-for-free social casino games. But the name free-to-play is a little misleading. Although you can play for free, under the freemium model, players can still buy for a number of things

[Operator:]

No, we have no question on the line at this time. (Operator Instructions)

[Bradley Miller:]

Okay. Operator, thanks very much. That’s all we have for today. 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. That concludes today’s call. Thank you again for joining us.

[Operator:]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.