GigaMedia Limited (NASDAQ:GIGM)
Q4 2013 Results Earnings Conference Call
April 10, 2014, 08:00 PM ET
Brad Miller - Director, IR
Dirk Chen - CFO
Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2013 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, 11th of April, 2014.
I would now like to hand the call over to Mr. Brad Miller. Thank you, sir. Please go ahead.
Thank you. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our conference call to discuss GigaMedia’s fourth quarter and full year 2013 financial results. With me today is Dirk Chen, our CFO. Now unfortunately, our CEO, Collin Hwang has caught a springtime [bug throwing] (ph) something and unfortunately he won't be able to join the call today, but he will be with us next month when we do our 1Q results.
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 2013.
This presentation is being made on April 11, 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 again go into Q&A session where we'll respond to questions that we’ve taken by email and also take live questions today.
With that, let me read the prepared remarks that Collin normally reads.
Today, I'll provide first an update on what we are doing to grow GigaMedia and then I'll turn to look at some financial details in the end.
First let me share with you a brief recap of 2013. Last year, we shared with you our plans to shift focus from PC-based games to browse and mobile games and social casino games. Throughout 2013, we executed on that plan. We started by adding new talent and rebuilding operations. Let me expand on that a little.
In online games, we added new managers with deep experience to lead each of our product teams. We also added senior level talent. We recruited a new Chief Operating Officer and recently we also added an outstanding new Chief Strategy Officer. We now have more talent -- more management talent and operational talent running our online games operations than we've ever had before.
We also rebuilt and restructured our operations to support our new growth strategies. We formed new teams around three key areas; license game operations, social casino game operations and mobile platform operations and we began building these businesses for long time growth.
Complimenting this we also acquired a majority interest in a mobile game developer, FingerRockz. This restructuring has transformed our online games business. A new online games business is now emerging and we are excited about its growth potential.
We see three key growth drivers coming alive this year; new license games -- first, new license games. We are already off to a good start generating growth with new license games.
We launched our first mobile game in March and the game is doing better than we expected. I'll provide a few more details a little bit later. We are trying to license and launch several more games this year.
New social casino games, we made good progress developing new social casino games platforms. Our first initiative will feature approximately 10 of our new casino products, which we've upgraded and are easily convertible to mobile formats.
Following that, we intend to launch a separate open platform that will feature both our games and those of our future partners.
Third, new mobile game platform. Our mobile game platform team is running ahead of schedule. We expect to start beta testing in a few months of our new concept platform. The mobile platform has built into it social features that will appeal to gamers and mobile game developers.
Next, let me turn to our cloud computing business. In cloud, we made similar steady progress in 2013. We added new senior management, recruiting CEO with deep experience and tremendous industry connections. Recently we also added additional talent to the team to support marketing and product development.
Regarding growth plans. In 2013, we started to expand the focus of our current product suite from SMEs to large enterprises and in Q4, GigaCloud made its first revenue contributions.
In 2014, for GigaCloud, we expect to launch several new products. First Private Solutions, in terms of Private Solutions, we will soon launch new private versions of our existing publicly-hosted product suite.
In addition, we have been developing a new virtual desktop product. We expect to begin offering this in the coming months.
Second, Public Solutions. In terms of public cloud solutions, we will also offer public version of the virtual desktop product.
In sum then, we started the year with a lot of challenges. Our core games business was struggling way down by old games and outdated technology and a dependence on our PC games market that has been in decline for some time. We simply could not compete and we're not strategically positioned to grow.
Today much has changed. Our vibrant innovative company is emerging with new products and advanced technology. Our businesses are rapidly building momentum and our outlook for 2014 is strong.
We are well positioned to benefit from market growth and we are confident that our new operations will drive accelerating revenues and growing shareholder value in 2014.
Now let me turn to review a few items in our financial results and our business outlook. In Q4, revenues decreased 11% quarter-over-quarter in line with our expectations and our guidance.
The decrease was the result of the continued downturn in the PC games online game market on which we still depend and an unfinished transition of our games business.
FunTown, the transition is not complete to new browser mobile games and social casino games markets. The decrease in our games business was partially offset by new contributions from our cloud computing business in cloud.
Consolidated operating expenses were $32.5 million, which included non-cash impairment losses of approximately $30 million in the fourth quarter related primarily to two items, goodwill and intangible assets of FunTown, which fully impaired FunTown's goodwill and intangible assets to reflect continued declines in the PC-based online games market in terms of the 2006 acquisition and uncertain future cash flows for our PC games business as at yearend 2013.
If we exclude the non-cash impairment losses, consolidated operating expenses were $2.6 million in Q4. This compares to consolidated operating expenses of $3.4 million in the third quarter and to $4.4 million in the fourth quarter last year. And this is all on a like-for-like basis excluding impairments from all periods. In short then, we're continuing to drive down our operating expenses.
Net loss was approximately $30.4 million. Excluding the non-cash impairment losses, net loss was approximately $450,000 in Q4.
This compares to breakeven results in the third quarter of 2013 and to a loss of about $2.2 million in the fourth quarter of last year, all on a like-for-like basis excluding impairments from all periods.
During Q4, we recorded a gain of about $1.2 million related to the sale of a legacy investment and non-strategic games to [Leo Holding] (ph). Cash flow from operations in Q4 was an outflow of about $1.8 million that's an increase from cash outflow in the third quarter of $78,000. The increase was due to primarily to the following three items:
One, we made severance payments related to headcount reductions in Q4. Two, we paid annual employee bonuses in the period and three, we paid our annual audit fees.
Cash and marketable securities current at the end of 2013 were approximately $80.3 million or approximately $1.58 per share, up from $74.3 million at the end of 3Q last year.
Short-term debt in Q4 was approximately $4.4 million, which was related to funding new growth initiatives. Rather than exchange in holdings of our U.S. cash into new Taiwan dollars in Q4, we took advantage of low interest rates in Taiwan to fund our initiatives.
Next, let me turn to recent results and out outlook for 2014. As I mentioned before, our new mobile game, Three Kingdoms Partner is doing better than we expected. We launched the game in March for Android devices. Today we have recorded 75,000 daily average users.
The percentage of users that are choosing to make in-game purchases is in line with industry averages. We have about 1,500 monthly paying unique users and then ARPU for those playing players of over US$40 per month. We look forward to launching the game for iOS devices in the next to four to six weeks.
Revenues in Q1 will benefit from the success of our new mobile games, but overall, we expect Q1 results to be down in terms of revenue. Contributions from the new mobile game and from GigaCloud will not be enough to offset declines in our legacy PC games business.
In terms of cash burn, we expect operating cash burn to remain relatively stable at about US$1 million in Q1. Near the end of Q2 then, we expect multiple growth drivers to begin making contributions.
This may include the following. One; new social casino games, two; new license games, and three; new cloud services. Following that, we also expect to launch a social mobile game platform, which we mentioned earlier.
As a result, we expect 2014 revenues to be heavily back-loaded with forecast accelerating revenue growth beginning in Q2 with sequential revenue growth in Q3 and Q4 following implementation of our growth initiatives. That's our Q4 review and business update for today. Thank you very much.
Before we go into our Q&A now, just a quick reminder. As a standard protocol, we ask that you please limit yourself to one question at a time, so that everyone has a chance to ask a question.
Thank you. Operator, we can begin the Q&A.
Thank you. We will now begin the question-and-answer session. (Operator Instructions)
Operator, while we’re waiting for any potential questions, we have received some questions by email. So let me start with that. An investor has asked, it’s a following question. Can you estimate how much R&D spending will increase going forward to support growth plans that you have? So let me turn this over to Dirk for his comments.
Okay. Thanks Brad. Hi, everyone. For [again] (ph) I think our company right now is focused on browser and mobile game rather than PC games. And do not foresee but to develop mobile games across different end to develop the PC game. And in 2014, we estimate that R&D cost is about $2 million to $2.5 million, which is going up about 5% from 2013.
Okay. Thanks Dirk.
Okay, operator we another question received by email here. Could you give us some more color on your new hire, Dane Wu, our new Chief Strategy Officer? What does he find so appealing about GigaMedia? So again I’ll let our CFO, Dirk to have a few comments on this?
Okay. Thank. I think incumbency, we have released today Mr. Wu joined us. Mr. Wu has so many years in game industry. And we hired him to help us solving games and also develop our web connection with game [online] (ph).
I think these two things so far for GigaMedia and business is so important. So I believe Mr. Wu join us, that will give us more momentum to develop our game business where in line with our game developing strategy going forward.
Okay. Thanks, Dirk. Just to reiterate, I think he has a lot of connections which will prove to be very helpful for us in developing relationships with other companies and game sourcing.
And what he finds appealing about GigaMedia, I think GigaMedia games business is very much a clean sweep at this point. We have a lot of resources. We have a plan -- a growth plan in place that I think he find appealing. And we have very talented team. As I said before, I think we have more talent in our games business than at any point in the past.
Operator, any additional questions?
We do have a question from the line of [Tim] (ph). Please go ahead.
Yes, one quick question with the cash balance seen above the current share price than the share price being well below the book value, would it make sense at this point to do a buyback until we at least get the equilibrium there?
Thanks very much for your question. I think in terms of buyback, it's something that we had looked at in the past and we’ve considered this in the past. We continue to look at it.
But I think at the moment our priority is to use cash to grow our business. In the past, we've looked at a number of opportunities to use our cash and strategic transactions to grow the company and we may continue to do that.
But if we reach a point where we are certain that our cash gives us more than enough flexibility to execute our growth plans then I think we’ll give more priority to a buyback.
I think we are just not at that point right now. But it’s certainly something that we keep in mind and that we do hear this from time to time from investors. So thanks very much for that.
Okay. Thank you. It sounds like a plan.
Okay. Operator, a final question that we have by email. What trends do you see in gaming that give you confidence in your strategy?
I think our strategy -- our growth strategy, social casino games and mobile/browser games is really developed based on the trends in the gaming market right now.
As you know and as we've pointed out in the past, the PC games business is in the time the whole market is in decline. So we are very focused on social casino games and browser/mobile games.
Browser/mobile games, is how people prefer to play games right now. Most games the casual games of course, there are some games that would require higher computing power and you really want to sit on the PC to play a big MMO. But by and large, the casual games, people like to play them on mobile devices. So we are very focused on that. We are off to a good start in that.
And in the social casino games, we like that factor because these games tend to be very steady and they have very high ARPU compared to other types of games.
So we are looking forward to launching our social casino games platforms and we’ll have a lot more details to share on that as we go forward.
Operator, any additional questions?
There are no additional questions as of and now sir.
Okay, Operator, I think that’s all we have for today. Thank you very much everyone.
For further information about GigaMedia, or if you have questions and would like to contact the company, please visit our website at gigamedia.com. That concludes today’s call. Thank you all very much for joining us.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
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