GigaMedia Ltd (GIGM) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2013 GigaMedia Limited earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, the 23rd of August, 2013.

各位女士、先生，感謝您稍候，歡迎參加 GigaMedia Limited 2013 年第二季財報電話會議。此刻，所有與會者皆為僅收聽模式。(接線員指示)。我必須提醒各位，本次會議將於今天（2013 年 8 月 23 日，星期五）進行錄音。

I would now like to hand the conference over to your speaker today, Mr. Brad Miller. Thank you. Please go ahead.

現在我想將會議交給今天的講者 Brad Miller 先生。謝謝。請開始。

Thank you, Operator. This is Brad Miller, Investor Relations Director of GigaMedia. Welcome to our conference call to discuss GigaMedia's second-quarter 2013 financial results. With me today are Collin Hwang, CEO, and Dirk Chen, CFO.

謝謝您，接線員。我是 Brad Miller，GigaMedia 投資人關係總監。歡迎參加我們的電話會議，討論 GigaMedia 2013 年第二季財務結果。今天與我一同出席的有執行長 Collin Hwang 以及財務長 Dirk Chen。

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.

在開始之前，我想提醒各位，本次電話會議中將會提出若干前瞻性陳述。前瞻性陳述係指任何非歷史事實的陳述。這些前瞻性陳述係基於 GigaMedia 目前的預期，且無法保證該等預期將被證實為正確。由於前瞻性陳述涉及風險與不確定性，GigaMedia 的實際結果可能與這些陳述存在重大差異。

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 US Securities and Exchange Commission in April 2013.

有關可能導致（且在某些情況下已導致）此類差異之因素的資訊，可參閱 GigaMedia 於 2013 年 4 月向美國證券交易委員會提交之 Form 20-F 年度報告。

This presentation is being made on August 23, 2013, in Taiwan. The contents of this presentation contain 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.

本簡報於 2013 年 8 月 23 日在台灣發表。本簡報內容包含具時效性的資訊，僅於本簡報發表時點為準且為正確。若本簡報任何部分於日後被重播、轉播或再分發，GigaMedia 將不會審閱或更新其中所包含的資料。

After today's prepared remarks, we will respond to questions we have received by email and we'll also take live questions. With that, I would like to turn the call over to our CEO, Collin Hwang.

在今天的預先準備發言之後，我們將回覆透過電子郵件收到的問題，並也會接受現場提問。接下來，我想把電話會議交給我們的執行長 Collin Hwang。

Hello, everyone. Thank you all for joining us today.

各位好。感謝大家今天加入我們。

In the second quarter, we continued to work on turning around our business and delivering profitability. We're restructuring, and employee incentives we implemented are helping.

在第二季，我們持續致力於扭轉業務並實現獲利。我們正在進行重整，而我們所實施的員工激勵措施也正在發揮助益。

Revenue was $3.7 million, which was down from the first quarter due to seasonality and the market trend in PC-based games. Our revenues were better than expected due to outperformance of the team running the MMO games A.V.A.

營收為 370 萬美元，因季節性因素以及 PC 端遊戲的市場趨勢，較第一季下滑。由於負責營運 MMO 遊戲《A.V.A.》的團隊表現優於預期，我們的營收也優於原先預估。

Operating expenses continuing to decrease and reach a record low. We have clearly made good progress on the cost side of our business. I want to highlight that our lower expense structure will be a big advantage as we grow revenues. As we scale up, we expect to be able to capitalize on the bottom-line leverage we will get out of that.

營業費用持續下降並創下歷史新低。我們在成本面已明顯取得良好進展。我想強調，較低的費用結構將在我們擴大營收時成為一大優勢。隨著規模擴張，我們預期能夠把握由此帶來的獲利槓桿效益。

The next step in our turnaround is driving revenue growth. Let me now outline for you the plans we are executing to take us there. First, to grow GigaMedia, we are increasing focus on social casino gambling. We described this in our June 25 press release. Today, I will again provide a brief growth outline of these plans.

我們扭轉局面的下一步是推動營收成長。接下來我將為各位概述我們正在執行、以達成該目標的計畫。首先，為了推動 GigaMedia 成長，我們將加大對社交賭場（social casino）遊戲的聚焦。我們已在 6 月 25 日的新聞稿中說明此點。今天我將再次就這些計畫提供簡要的成長概述。

Over the next six months, we expect to fill in this outline with additional news and details. Our growth plan started with building a strong market platform offering our social casino games. Social casino games are our core strength and have been the strengths of FunTown since the business started over 10 years ago.

在未來六個月內，我們預期將以更多消息與細節來補充此一概述。我們的成長計畫始於建立一個強健的市場平台，以提供我們的社交賭場遊戲。社交賭場遊戲是我們的核心強項，也是 FunTown 自 10 多年前創立以來的優勢所在。

We already have one of Taiwan's leading offerings of Mahjong and social casino games in PC-based format. Our Mahjong and casino games are not only market leaders, they are also the highest performing segment of our business in terms of profit.

我們在台灣已擁有以 PC 形式提供的、領先市場的麻將與社交賭場遊戲產品之一。我們的麻將與賭場遊戲不僅是市場領導者，就獲利而言亦是我們業務中表現最佳的區塊。

The single biggest [barely] opportunity for GigaMedia is leveraging this expertise. We are now doing exactly that, executing plans to extend our social casino platform to Web-based and mobile wins. Extension of our platform to Web-based and mobile games is a critically important step. Why? Because it will realign our business with the market.

對 GigaMedia 而言，最大的機會就是運用這項專業能力。我們現在正是如此，正執行計畫將我們的社交賭場平台延伸至網頁版與行動端。將平台延伸至網頁版與行動遊戲是極其重要的一步。為什麼？因為這將使我們的業務重新與市場趨勢對齊。

The online game business is a technology-driven industry. Technology is driving changes in consumer behavior, causing the accelerating shift from PC-based gen-two Web and mobile games as smartphone and tablet penetration grows.

線上遊戲產業是由科技驅動的產業。科技正推動消費者行為改變；隨著智慧型手機與平板滲透率提升，市場正加速從 PC 端轉向第二代網頁與行動遊戲。

Technology and game platforms can be either constrained or enabling. At present, this is a constraint for our business. We are working hard to ensure our platform becomes an enabling factor of our long-term success.

科技與遊戲平台可能成為限制因素，也可能成為促成因素。目前對我們的業務而言，這是一項限制。我們正努力確保我們的平台能成為長期成功的促成因素。

Let me briefly explain this. With the scalable architecture powering a growing number of games and brands with minimal or no additional effort, we can generate consistent, personalized experiences across channels, creating a richer and more engaging experience for consumers and our strategic partners, as well as improved loyalty and customer acquisition capability.

我簡要說明如下。透過可擴充的架構，在幾乎不需或無需額外投入的情況下支援日益增加的遊戲與品牌，我們能跨渠道提供一致且個人化的體驗，為消費者與策略夥伴創造更豐富、更具吸引力的體驗，同時提升忠誠度與客戶取得能力。

We believe operating a strong multiplatform offering of social casino games will deliver solid revenue growth and overall better economics than other [PC] models. In Korea, one of the world's most advanced mobile game markets, we know that developer of mobile game lose approximately 70% of their games' revenue due to fee revenue sharing with publishers and platforms.

我們相信，營運強健的多平台社交賭場遊戲產品，將帶來穩健的營收成長，且整體經濟效益將優於其他 [PC] 模式。在韓國這個全球最先進的行動遊戲市場之一，我們知道行動遊戲開發商因與發行商及平台進行費用分成，約會流失其遊戲營收的 70%。

In contrast, game platforms such as GREE are driving strong, highly profitable growth. We see great opportunity there.

相較之下，像 GREE 這樣的遊戲平台正推動強勁且高獲利的成長。我們在此看見極大的機會。

Two keys to success going forward will be building a quality pipeline and adding top technology to support a richer game experience. We have already started converting many of our PC-based casino games to [Web] mobile format, and have made initial investment in technology to support business growth.

未來成功的兩大關鍵將是建立高品質的產品管線，並導入頂尖技術以支援更豐富的遊戲體驗。我們已開始將許多以 PC 為基礎的賭場遊戲轉換為 [Web] 行動格式，並已對支援業務成長的技術進行初步投資。

Complementing these will be M&A and strategic partnerships. M&A will accelerate the buildout of our pipeline and our technology platform. Strategic partnerships allow us to maximize our business opportunities across greater China. With regards to M&A as a strategic transaction, we have identified targets and we will update everyone going forward.

與此相輔相成的將是併購（M&A）與策略合作夥伴關係。併購將加速我們產品管線與技術平台的建置。策略合作夥伴關係讓我們能在大中華區最大化商業機會。就併購作為策略性交易而言，我們已鎖定目標，並將在後續向各位更新。

Let me briefly show our side, turning back again to financial results. Q2 revenues were negatively impacted by the ongoing decline of PC-based games. We will continue to face these challenges ahead as we transition our business.

讓我簡要回到財務結果，從我們這邊來看。第二季營收受到以 PC 為基礎遊戲持續下滑的負面影響。在我們轉型業務的過程中，未來仍將持續面臨這些挑戰。

With respect to start delivering revenue growth, we forecast launch of our Web-based and mobile games on our new platform in Q4 this year or Q1 next year, at the latest. Initial focus will be on the Taiwan market. Long term, we are reviewing recent opportunities. So by Q4 or Q1, we expect to have stronger operations with top technology, a powerful game platform, and a rich pipeline of games starting to improve revenue.

就開始帶動營收成長而言，我們預期最晚將於今年第四季或明年第一季，在新平台上推出 Web 與行動遊戲。初期將聚焦台灣市場。長期而言，我們正在檢視近期的機會。因此在第四季或第一季，我們預期將以頂尖技術、更強大的遊戲平台，以及更豐富的遊戲產品管線強化營運，並開始改善營收。

Finally, our growth plan also includes building up our new Cloud service business focused on the SME market in greater China. Trial operations are underway in Taiwan. We are getting good feedback from SME subscribers and have been [bleating] user feedback to adjust our products and systems.

最後，我們的成長計畫也包括建立新的雲端服務業務，聚焦大中華區的中小企業（SME）市場。目前已在台灣展開試營運。我們從 SME 訂戶獲得良好回饋，並已在[bleating]使用者回饋以調整我們的產品與系統。

Within the next six months, we plan to implement SEO and other marketing initiatives to drive subscriber growth. We continue to hold an early-mover position and remain committed to growing the business by leveraging strategic channel and technology partnership going forward.

在未來六個月內，我們計畫導入 SEO 與其他行銷措施，以帶動訂戶成長。我們持續維持先行者優勢，並承諾未來將透過策略通路與技術合作夥伴關係來推動業務成長。

In sum, we believe 2013 will be a watershed year for GigaMedia. We are transforming an old unfocused games company into a real leader in social casino games, using cutting-edge technology. And we're building a new Cloud service platform to take advantage of the strong market opportunity across greater China. We are confident these steps will result in a stronger company, delivering better financial performance and improved shareholder value.

總而言之，我們相信 2013 年將是 GigaMedia 的分水嶺。我們正運用尖端技術，將一家老舊且缺乏聚焦的遊戲公司，轉型為社交賭場遊戲的真正領導者。同時，我們也在打造新的雲端服務平台，以掌握大中華區強勁的市場機會。我們有信心，這些步驟將使公司更強健，帶來更佳的財務表現並提升股東價值。

We thank you for your interest and for joining us today. I will now hand the call over to Brad to review 2Q results. Thank you.

感謝各位的關注並在今天與我們一同參與。接下來我將把電話會議交給 Brad，請他回顧第二季（2Q）業績。謝謝。

Thanks, Collin.

謝謝你，Collin。

Next, let me turn to financial results. Revenues declined in 2Q to $3.7 million. This resulted from the traditional summer downturn in online gamer activity and also from software demand for PC-based casual games, which we currently offer, but are working to transition away from. Helping to offset this decline was strong performance of the MMO A.V.A., which was up 19% compared to last year.

接下來讓我說明財務結果。第二季營收下滑至 370 萬美元。這主要是因為線上玩家活動的傳統暑期淡季，以及我們目前提供、但正著手轉型退出的 PC 休閒遊戲之軟體需求下滑。部分抵銷此下滑的是 MMO 遊戲 A.V.A. 的強勁表現，較去年成長 19%。

In line with the revenue decline, gross margin for FunTown declined to 54.4% from 56.6% last quarter. Consolidated operating expenses continued to trend lower as a result of our ongoing efficiency initiatives and cost controls.

隨著營收下滑，FunTown 的毛利率由上季的 56.6% 降至 54.4%。由於我們持續推動效率提升措施與成本控管，合併營業費用持續呈下降趨勢。

Consolidated operating expenses were $3.3 million, which was down 10% from $3.6 million in the first quarter of this year, and it was down 49% from $6.4 million a year ago. G&A was down 7% quarter over quarter and G&A was down 55% year over year.

合併營業費用為 330 萬美元，較今年第一季的 360 萬美元下降 10%，較去年同期的 640 萬美元下降 49%。一般及行政費用（G&A）季減 7%，年減 55%。

Corporate operating expenses were an all-time low as a public company. As Collin mentioned, we expect our new, lower cost structure to give us good operating leverage when we begin benefiting from growth initiatives and from growing our top line.

公司層級營業費用創下本公司上市以來新低。如 Collin 所提，我們預期新的、較低的成本結構，將在我們開始受惠於成長計畫並推升營收（top line）時，帶來良好的營運槓桿。

Consolidated loss from operations was $1.3 million in Q2. We recorded nonoperating income of $1.4 million in Q2, mainly composed of a gain of $1.2 million related to the disposal of a nonstrategic legacy investment. As a result, net income in Q2 was $84,000, compared to a net loss of $1.4 million in Q1 and a loss of $3.5 million in Q2 last year.

第二季合併營業損失為 130 萬美元。第二季我們認列 140 萬美元的業外收益，主要包括處分一項非策略性既有投資所產生的 120 萬美元收益。因此，第二季淨利為 8.4 萬美元，相較之下第一季淨損為 140 萬美元，而去年第二季淨損為 350 萬美元。

With regard to our balance sheet, GigaMedia's cash, cash equivalents, and marketable securities current were $73.0 million at the end of the second quarter, which is approximately $1.44 per share. During Q2, we fully repaid all of our short-term debt.

就資產負債表而言，截至第二季末，GigaMedia 的現金、約當現金及流動性有價證券為 7,300 萬美元，約合每股 1.44 美元。在第二季期間，我們已全數償還所有短期負債。

Looking ahead, as we mentioned today we face an ongoing decline in our legacy PC-based casual games business. Balanced against this, our MMO game A.V.A. is continuing to perform well. We expect A.V.A. and, to a lesser extent, Tales Runner to benefit in the third quarter from the traditional surge in online gamer activity. Operating expenses may be negatively impacted in Q3 by non-cash impairment charges related to legacy MMO game projects.

展望未來，如我們今天所提，我們的既有 PC 休閒遊戲業務仍面臨持續下滑。與此相對，我們的 MMO 遊戲 A.V.A.仍持續表現良好。我們預期 A.V.A.以及在較小程度上，Tales Runner，將在第三季受惠於線上玩家活動的傳統旺季回升。第三季營業費用可能會受到與既有 MMO 遊戲專案相關的非現金減損費用之負面影響。

With the focus of our games business on social casino now, we have no future plans to develop and operate MMOs. This may trigger some accounting adjustments, such as adjustments in our pre-paid licensing costs. Again, these would be non-cash charges.

由於我們的遊戲業務目前聚焦於社交賭場遊戲，我們未來沒有開發與營運 MMO 的計畫。這可能引發一些會計調整，例如預付授權成本的調整。再次強調，這些都將是非現金費用。

Overall, management forecasts operating and net losses in the third quarter. We expect operating cash burn to be small in Q3, less than $1 million.

整體而言，管理層預估第三季將出現營業與淨損。我們預期第三季營運現金消耗將很小，低於 100 萬美元。

That is our 2Q review and business update for today. Thank you.

以上就是我們今天的第二季回顧與業務更新。謝謝。

Before we proceed now to Q&A, I just want to remind everyone, as is standard protocol on these calls, please limit yourself to one question at a time so that we all have an opportunity to participate. Operator, thanks. Let's begin the Q&A.

在我們現在進入問答之前，我想提醒各位，依照這類電話會議的標準流程，請一次只提一個問題，讓大家都有機會參與。接線員，謝謝。我們開始問答。

(Operator Instructions). There are no questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

(接線員指示)。目前沒有問題。我現在把會議交回給今天的簡報人員。請繼續。

Thanks, Operator. This is Brad Miller, Investor Relations Director again. Now we have received a question by email and the question will be answered by Collin.

謝謝，接線員。我是投資人關係總監 Brad Miller，再次發言。我們現在收到一個透過電子郵件寄來的問題，將由 Collin 回答。

The question that we received was, given all the problem experienced in the past doing business in China, what will be the structure to develop business there going forward and protect our position? Will you partner with affiliate firms? Can operations be wholly owned? Is there any timeframe for your presence in China? So Collin will address this.

我們收到的問題是：鑑於過去在中國做生意所經歷的各種問題，未來在那裡發展業務並保護我們的地位，會採取什麼樣的架構？你們會與關聯企業合作嗎？營運能否由公司全資持有？你們在中國布局是否有時間表？因此將由 Collin 來回應。

Yes, thanks for the question. We do plan on leveraging China for growth. And we believe R&D is a critical success factor for online games.

是的，謝謝這個問題。我們確實計畫運用中國來推動成長。而且我們相信研發是線上遊戲成功的關鍵因素。

And we believe we can source R&D in China. Let me explain this again. If you want to (settle) R&D as the center in China, we should believe China will see not only just video games from overseas, but sooner or later they will be a big exporter for games. So that's why we are considering setting up an R&D center in China.

我們也相信我們可以在中國取得研發資源。我再說明一次。如果你想把研發中心設在中國，我們應該相信中國未來不僅會引進海外的電玩遊戲，而且遲早也會成為大型的遊戲出口國。因此我們正在考慮在中國設立研發中心。

Regarding the ownership of this R&D center, we can [assume] proper and formal structure, we can actually set up 100%-owned entity in China. That is not a problem.

至於這個研發中心的持股結構，只要採取適當且正式的架構，我們其實可以在中國設立 100% 持股的實體。這不是問題。

The ideal structure at the moment only [mitted] when we try to operate in China. However, the good news is we have received information that the Ministry of Culture in China are losing control over the mobile game industry. For example, they no longer require examination [avocation] for each games released in China on mobile devices. However, that was initial news that we have received, which is, we believe, a good sign.

目前理想的架構只有在我們嘗試在中國營運時才會更明確。不過好消息是，我們收到資訊指出，中國文化部對行動遊戲產業的管控正在減弱。例如，他們不再要求對在中國行動裝置上發布的每一款遊戲進行審查。不過，這是我們初步收到的消息，我們認為這是一個好跡象。

So in terms of time and part one, we believe initially we will have the R&D center which is 100% owned by GigaMedia. And by the time that we are starting marketing and sourcing outside China region, such as Taiwan, Japan, Korea, that after that when we start moving to China -- Chinese market, we believe at the time there will be clearer picture in terms of regulation in China and we believe they will be losing control over the mobile industry over there.

因此就時程與第一階段而言，我們相信一開始會先設立由 GigaMedia 100% 持有的研發中心。等到我們開始在中國以外的地區進行行銷與資源取得，例如台灣、日本、韓國，之後當我們開始進入中國—中國市場時，我們相信屆時中國的監管會有更清楚的輪廓，而且我們相信他們對當地行動產業的管控將會減弱。

So we believe that is a positive progress in terms with deregulation in China for mobile games. Thank you.

因此我們認為，這代表中國在行動遊戲方面的去監管是一項正向進展。謝謝。

Thanks, Collin. Another question that has come in, I will address the -- I will give this over to Dirk. How much revenue decrease do you expect in Q3? Dirk?

謝謝，Collin。另外又進來一個問題，我會把這個問題交給 Dirk 回答。你們預期第三季營收會下降多少？Dirk？

Hi, everyone, this is Dirk Chen, CFO, GigaMedia. Usually in Q3 is a [kick] season for game business. But however, for GigaMedia, our casual games, which are all PC based, and as we know, PC-based games now face a decline in the overall market, so it is very easy to forecast revenue, what will it be in the third quarter.

各位好，我是 GigaMedia 的財務長 Dirk Chen。通常第三季是遊戲業務的旺季。不過，對 GigaMedia 而言，我們的休閒遊戲全部都是 PC 平台，而如各位所知，PC 遊戲目前在整體市場面臨下滑，因此要預測第三季營收會是多少其實很容易。

However, I think revenue, which still has a little bit change, to increase a little bit in Q3. Thank you.

不過我認為營收仍可能會有一些變動，在第三季小幅增加一點。謝謝。

Thanks, Dirk. Another follow-up question, here is some financial question. Regarding operating cash burn, what was the operating cash burn in Q2 and what do you expect it in Q3? Dirk?

謝謝，Dirk。另一個追問，這是一些財務問題。關於營運現金消耗（operating cash burn），第二季的營運現金消耗是多少？第三季預期會是多少？Dirk？

Okay, thank you, Brad. In second quarter, our [forecast strength] is about $5 million for GigaMedia. This $5 million includes we have pre-pay of short-term [techno], so about [$7.6 billion] in the second quarter, and we also disposed at [nice] prices legacy in this vein in the second quarter, which we received about $2.8 million. And from the operating activity, we only had suffered a cash burn is about $300,000 for operating ability.

好的，謝謝你，Brad。第二季，我們的[forecast strength]約為 500 萬美元（GigaMedia）。這 500 萬美元包含我們預付的短期[techno]，因此第二季約為[$7.6 billion]；另外我們也在第二季以[nice]價格處分了這條線上的既有資產（legacy），收到約 280 萬美元。而就營運活動而言，我們的營運現金消耗約為 30 萬美元。

So combine all these items, the total cash burn is about $5 million in the second quarter, and as Brad mentioned earlier, in Q3 our expenses -- the cash burn stay at very small. We forecast about -- a little bit above $1 million in the third quarter. Thank you.

因此把這些項目合併起來，第二季的總現金消耗約為 500 萬美元；如同 Brad 先前提到的，第三季我們的費用—現金消耗會維持在很小的水準。我們預估第三季約略高於 100 萬美元。謝謝。

Thanks, Dirk. Operator, at this point are there any further questions?

謝謝，Dirk。接線員，此時是否還有其他問題？

There are no further questions at this time. Please continue.

目前沒有其他問題。請繼續。

Okay, Operator, 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 GigaMedia.com. That concludes today's call and thank you all again for joining us.

好的，接線員，我們今天就到這裡。如需更多關於 GigaMedia 的資訊，或如果你有問題並希望聯絡公司，請造訪我們的網站 GigaMedia.com。今天的電話會議到此結束，再次感謝各位的參與。