[GigaMedia Logo]
GigaMedia Reports Third Quarter Financial Results
Core Offline Business Revenues Up,
Online Broadband ISP Business Closing On Breakeven
TAIPEI, Taiwan, November 14, 2002 - GigaMedia Limited ("GigaMedia") (Nasdaq:
GIGM, www.giga.net.tw), a diversified provider of online and offline
entertainment services in Taiwan, today announced its third quarter operating
and financial results.
Highlights:
o Offline music distribution business revenues up 13% Q-o-Q.
o Online corporate broadband ISP business (Koos Broadband Telecom
Limited) achieved positive EBITDA in each month during the third
quarter.
o Operating loss in online business segment decreased 16% Q-o-Q,
marking the sixth straight quarter of operational improvement, when
excluding accelerated expenses and charges taken in prior periods.
o Cash burn rate in online ISP business segment reduced by 45% Q-o-Q
to NT$44.6 million.
o Company remains in a solid financial position with approximately
NT$2.2 billion in total cash, short-term investments and liquid
marketable securities.
Chief Executive Officer Raymond Chang said, "We continued to improve our
financial performance and competitive abilities in the third quarter. In our
online consumer ISP business, we reduced the number of our low-margin one-way
cable subscribers and significantly cut our cash burn rate. We also improved the
performance of our broadband service, at minimal cost. In our corporate ISP
operations, we added customers and achieved positive EBITDA."
Chang added, "Offline, we continued to revamp operations, carefully controlling
costs and positioning ourselves for growth by investing in an improved inventory
management system and preparing new store openings in improved locations. In
sum, we are confident that our businesses remain on track and expect to see
improved results going forward."
Chief Financial Officer Winston Hsia said, "Clear focus has led to consistent
progress in our operations and financial performance over the past several
quarters. In our online business during the third period, we continued to
streamline our processes, improve our services and launch new products. At the
same time, we improved our consumer ISP subscriber base and lowered our customer
acquisition costs. Looking ahead, we are upgrading to STM4 bandwidth, which will
quadruple our capacity and lower our cost structure, enabling us to further
increase efficiencies and better compete for subscribers.
"Offline, despite an ongoing slowdown in overall CD market sales, we succeeded
in increasing our sales," Hsia continued. "We are building our brand and market
share while controlling costs. Implementation of enhanced inventory management
coupled with product expansion and improved store locations should deliver
sequential improvements in the financial performance of our offline operations
going forward."
1
Consolidated Financial Results
(Third Quarter 2002 versus Second Quarter 2002)
In June 2002, GigaMedia received all required government approvals for the
acquisitions of Rose Records and Tachung Records, Taiwan's two largest music
store chains. GigaMedia closed the acquisition of Tachung Records on September
30, 2002, including final legal registration of stock exchanged in the
transaction. Therefore, GigaMedia's offline operating results in this report
include only the results of Rose Records for the third quarter of 2002. Results
of Tachung Records, which operates 16 stores throughout Taiwan, are not included
in this report. However, the acquisition of Tachung Records is reflected in the
consolidated balance sheet made part of this third quarter results release.
GigaMedia will consolidate operating results, including those of Tachung
Records, in the fourth quarter of 2002.
For the third quarter of 2002, GigaMedia reported consolidated revenues of
NT$595.0 million, compared with revenues of NT$543.3 million for the second
quarter. The company's third quarter performance was led by results in its
offline music distribution business, which recorded revenues of NT$418.8 million
during the period.
Operating loss was NT$117.5 million in the third quarter compared with NT$111.4
million during the second quarter.
Non-operating income during the third quarter consisted of interest income of
NT$6.1 million, foreign exchange gains of NT$58.1 million, and investment income
of NT$5.6 million. Non-operating income increased from NT$2.2 million in the
third quarter of 2002 to NT$67.6 million, primarily due to foreign exchange
gains during the period on U.S. dollar denominated assets.
The company reported a net loss of NT$47.7 million for the third quarter versus
a loss of NT$106.1 million in the previous quarter.
Cash and other cash equivalents at the end of the third quarter totaled NT$1.1
billion, with short-term investments also totaling NT$1.1 billion, compared to
NT$1.1 billion and NT$775.9 million, respectively, during the previous period,
representing a total increase of NT$243.3 million.
GigaMedia's long-term investments include an investment of US$10 million with a
maturity date of 2005.
2
Business Segment Results (Third Quarter 2002 versus Second Quarter 2002)
Online Entertainment (Broadband ISP)
Third Quarter 2002 Results Compared to Second Quarter 2002 Results
- --------------------------------------------------------------------------------
Category 3Q02 2Q02 Variation (%)
- --------------------------------------------------------------------------------
Total revenues NT$176.2 million NT$173.2 million 2
- --------------------------------------------------------------------------------
Access revenues NT$168.7 million NT$164.2 million 3
- --------------------------------------------------------------------------------
Subscribers 112,242 124,919 -10
- --------------------------------------------------------------------------------
ARPU NT$390 NT$389 0
- --------------------------------------------------------------------------------
Total costs and NT$264.4 million NT$277.9 million -5
expenses
- --------------------------------------------------------------------------------
Operating cost NT$168.3 million NT$158.8 million 6
- --------------------------------------------------------------------------------
SG&A NT$75.0 million NT$88.0 million -15
- --------------------------------------------------------------------------------
Operating income (NT$88.2 million) (NT$104.7 million) 16
(loss)
- --------------------------------------------------------------------------------
Net income (loss) (NT$29.2 million) (NT$89.3 million) (Not meaningful)
- --------------------------------------------------------------------------------
Operating cash NT$44.6 million NT$81.0 million -45
burn including
capex (quarterly)*
- --------------------------------------------------------------------------------
*We define operating cash burn including capex as EBIT plus non-cash items minus
capex. Operating cash burn per month including capex declined from NT$27.0
million to NT$14.9 million, quarter over quarter.
Total Revenues Held Steady; Corporate Access Revenues Up
Total revenues for the quarter ended September 30, 2002 were relatively flat at
NT$176.2 million versus NT$173.2 million for the previous quarter.
Of the total revenues recorded during the third quarter, total corporate access
revenues through our wholly-owned subsidiary Koos Broadband Telecom Limited
("KBT") were NT$26.8 million, compared with NT$17.2 million in the prior period.
Continued focus on ADSL and two-way subscribers helped support ARPUs and the
expiration of previous free service promotions led to a modest increase in
consumer access revenues of 3% to NT$168.7 million, compared with NT$164.2
million for the quarter ended June 30, 2002. GigaMedia recognizes access
revenues net of the revenue split with its cable partners.
Sales/rental/installation revenues in the ISP business, which include cable
modem, ADSL retail installation packs, net cards and routers, decreased to
NT$1.4 million for the third quarter from NT$2.5 million during the second
quarter, primarily due to a one-time sale of service equipment by KBT during the
second quarter.
3
Advertising revenues decreased slightly to NT$640 thousand in the second quarter
from NT$691 thousand for the first quarter. The company has de-emphasized this
aspect of its business and does not expect to record significant advertising
revenues going forward.
The ISP business recorded content subscription revenues of NT$5.3 million during
the period, as compared to NT$5.4 million during the first quarter. Content
revenues consist mainly of subscriber revenues from GigaMedia's broadband
videostreaming site GigaTV (www.gigatv.com.tw), which was launched toward the
end of the fourth quarter of 2001.
Costs and Expenses Down
Total costs and expenses decreased 5% from NT$277.9 million to NT$264.4 million
in the third quarter of 2002, due to strict expenditure controls and effective
marketing initiatives.
Operating costs rose slightly in the third quarter to NT$168.3 million versus
NT$158.8 million in the previous quarter, due mainly to increased headcount and
telecommunication costs at KBT as that business grew. Operating costs during the
period consisted mainly of costs associated with business operations and
customer service departments of NT$61.0 million, telecommunications costs of
NT$66.9 million, and depreciation cost of network equipment other than cable
modems amounting to NT$29.8 million. Included in this quarter's operating costs
was amortization of our licensing payment to our partner EMI Music Asia, which
totaled NT$5.7 million. The licensing payment is related to the development of
our subsidiary GigaMusic.
The company continued to record a downward trend in SG&A costs, which dropped
for the fifth straight quarter. GigaMedia's SG&A costs declined by approximately
NT$13.0 million, or 15%, during the quarter, while sequential access revenue
grew nearly NT$4.5 million, or 3%. SG&A costs declined from NT$88.0 million to
NT$75.0 million in the third quarter of 2002, driven by more cost effective
marketing initiatives and tightened cost controls.
Operating Loss Narrowed
Operating loss decreased by 15.7% to NT$88.2 million from NT$104.7 million
quarter over quarter.
Net Income (Loss)
Net income improved from negative NT$89.3 million to negative NT$29.2 million,
resulting primarily from sales of short-term investments during this period.
Operating Cash Burn Significantly Decreased
Operating cash burn was NT$44.6 million during the quarter, or NT$14.9 million
per month, versus NT$81.0 million in the second quarter, or NT$27.0 million per
month. GigaMedia defines operating cash burn per month including capex as EBIT
plus non-cash items minus capex.
ARPU Level With Previous Period
Blended average revenue per user ("ARPU") for GigaMedia's one-way cable, two-way
cable and ADSL broadband access services was flat during the third quarter at
NT$390, compared with NT$389 in the second quarter. This marked the fourth
straight quarter during which the company was able to improve
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blended ARPU despite strong market competition and ongoing price pressure.
Ongoing efforts to improve our subscriber base by growing 2-way and ADSL
subscribers, while reducing 1-way subscribers, is expected to help support ARPUs
going forward, but management expects minimal ARPU gains in the foreseeable
future.
One-way ARPU declined 14% to NT$243 compared to NT$283 during the previous
quarter, indicating light usage by these subscribers who have metered rates.
ARPU for two-way cable during the period declined slightly to NT$598 compared
with NT$610 during the previous period, mostly due to more aggressive marketing
initiatives in the period. ARPU for ADSL for the three-month period increased 3%
to NT$388 from NT$377, due primarily to sales of GigaMedia's premium 1.5Mbps
service, increased tiered service packages, and expiration of free service
promotions.
Offline Music Distribution (G-Music)
Consolidation of the Tachung Records record store chain is still in process. The
following represents only the results of Rose Records for the three-month
period.
G-Music Third Quarter 2002 Results Compared to Second Quarter 2002 Results
(excluding amortization of goodwill recorded during the third quarter amounting
to NT$14.6 million related to the acquisition of Rose Records)
- --------------------------------------------------------------------------------
Category 3Q02 2Q02 Variation (%)
- --------------------------------------------------------------------------------
Total revenues NT$418.8 million NT$370.1 million 13
- --------------------------------------------------------------------------------
COGS NT$361.9 million NT$310.4 million 17
- --------------------------------------------------------------------------------
Gross margin 14% 16% -12.5
- --------------------------------------------------------------------------------
Total costs and NT$433.5 million NT$376.8 million 15
expenses
- --------------------------------------------------------------------------------
SG&A NT$71.4 million NT$66.4 million 7
- --------------------------------------------------------------------------------
Operating income (NT$14.7 million) (NT$6.7 million) -119
(loss)
- --------------------------------------------------------------------------------
Net income (loss) (NT$4.2 million) (NT$16.8 million) 75
- --------------------------------------------------------------------------------
Total Revenues Up
Total revenues for the quarter ended September 30, 2002 were NT$418.8 million,
up 13% from NT$370.1 million during the prior period. The increase was partially
attributable to improved CD sales during the summer period and to increased
sales and marketing initiatives. GigaMedia records offline music business
revenues under sales/rental/installation revenues.
Costs and Expenses Grew
Total COGS, net of return and allowance for the quarter ended September 30,
2002, was NT$361.9 million, an increase of approximately NT$51.5 million, or
17%. Gross margin for the offline music
5
business was 14%, or NT$56.9 million. Gross margin during the period was
negatively impacted by costs associated with brand building and by product mix
seasonality, as lower margin popular music CD sales increase during the summer
period. Going forward, unit COGS is expected to decline, resulting in improving
gross margins due to larger purchase volume discounts. GigaMedia records COGS
from its offline music business under cost of sales/rental/installation.
G-Music recorded an increase in SG&A costs during the third quarter of
approximately NT$20.0 million, due primarily to the inclusion in general and
administrative costs during this period of amortization of goodwill amounting to
NT$14.6 million. Excluding amortization of goodwill during the period, SG&A rose
approximately NT$5.0 million.
Operating Margin Decreased
Operating margin for the quarter ended September 30, 2002 was negative 7%, or an
operating loss of NT$29.3 million. This represented an increase of approximately
NT$22.6 million over the second quarter, due primarily to the inclusion this
quarter of amortization of goodwill from the acquisition of the Rose Records
music store chain of approximately NT$14.6 million, recorded under SG&A.
Excluding this amortization of goodwill, operating loss was NT$14.7 million.
Further store and operation consolidation is expected to advance operating
margin and increase efficiency going forward.
Net Income (Loss) Decreased
Net income decreased from negative NT$16.8 million to negative NT$18.9 million,
primarily due to amortization of goodwill recorded during the period. Excluding
this amortization, net income increased from negative NT$16.8 million to
negative NT$4.2 million, mostly due to foreign exchange gains on short-term
assets during the period.
Business Outlook
The following forward-looking statements reflect GigaMedia's expectations as of
November 14, 2002. Given potential changes in economic conditions and consumer
spending, the evolving nature of broadband, and various other risk factors
discussed in our 20-F filing with the U.S. Securities and Exchange Commission,
actual results may differ materially.
As part of GigaMedia's commitment to strong shareholder communications, the
company will issue a mid-quarter update to the Business Outlook provided below.
This quarter's update is tentatively scheduled for late February 2003.
GigaMedia expects revenue growth and newly implemented cost controls in its
offline G-Music business segment, combined with sequential gains from KBT, to
improve the company's financial performance going forward. Online consumer and
corporate broadband ISP operations in the fourth quarter may be impacted by
strong competition and price-cutting by the market leader. As a result,
management expects revenues and ARPU in this business segment to remain
relatively flat in the fourth quarter compared with this period. Detailed
expectations are provided below.
6
Fourth Quarter Expectations
Online - Broadband ISP
o Total revenue and costs and expenses are expected to be flat. The
company anticipates flat to slightly improved subscribers, and
blended ARPU comparable with third quarter 2002 results.
Offline - Music store chains
o Total revenues are expected to be comparable to third quarter
results.
o Gross margins are expected to remain flat.
2002 Expectations
Online - Broadband ISP
o Total revenue is expected to be between NT$675 million and NT$700
million.
o Total costs and expenses are expected to be approximately NT$1.1
billion.
o Total subscribers are expected to be flat.
Offline - Music store chains
o Total annualized pro forma combined revenue is expected to be
between NT$2.8 billion and NT$3.1 billion.
o Gross margins are anticipated to be 13%-15%.
Business Development and Investment Update
o G-Music - offline music store chains
In June 2002, GigaMedia received all required government approvals for the
acquisitions of Rose Records and Tachung Records, the two leading music store
chains in Taiwan. Rose and Tachung operate 35 and 16 stores, respectively,
throughout Taiwan. The music stores currently sell almost exclusively music CDs.
GigaMedia plans to expand products sold with new gaming products. Management is
focused on cost control and is continuing to make adjustments to maximize
operating efficiencies. Company streamlining has to date generated savings of
approximately 25% in workforce compensation. Three stores have been closed since
February with new openings planned at improved locations. GigaMedia expects the
company's online operations will enable the music stores to exploit back catalog
sales and, over the long-term, to become complete offline and online music
distributors.
o GigaMusic.com - online paid music site
In conjunction with GigaMedia's efforts to build GigaMusic.com into a leading
Chinese music portal and diversify company revenue streams, GigaMedia made
strategic investments in two music industry leaders in 2001. The company
purchased a 5% equity stake in Rock Internet Corporation, the technology arm of
Rock Group, the leading music company in Greater China. GigaMedia also formed a
strategic alliance with EMI Music Asia, a division of EMI Recorded Music.
o Gamania - online gaming bundling
Gamania is Taiwan's leading online gaming company. GigaMedia generated
significant subscriber growth in 2001 from bundling initiatives that featured
Gamania's market leading "Lineage" and "Giran" games and GigaMedia's premium
ADSL. Gamania conducted an IPO on May 21 on Taiwan's over-the-counter TAISDAQ
market, at which time GigaMedia liquidated a portion of its holdings in Gamania.
Net proceeds from this liquidation of part of GigaMedia's holding were NT$236.4
million.
7
Our gain from this investment liquidation totaled NT$39.7 million. At
the end of the third quarter, GigaMedia still retained 3,957,480 shares, or a
4.64% stake. Gamania's OTC share price on November 13 was NT$72.
o Koos Broadband Telecom Limited - broadband service provider
During the second quarter of 2001, GigaMedia announced the formation of a
subsidiary named Koos Broadband Telecom Limited, a 100% owned subsidiary focused
exclusively on corporate subscribers. The company currently has approximately
110 corporate clients.
About GigaMedia
GigaMedia Limited (Nasdaq: GIGM) is a diversified provider of entertainment
services in Taiwan. The company's online/offline business model provides the
company multiple distribution channels, deep customer relationships and the
ability to meet future market demands as technology drives new media and
entertainment industry change.
Online, the company operates a leading broadband ISP, providing Internet access
service and broadband content with multiple delivery technologies. The company's
access products consist of premium cable modem and ADSL offerings, giving the
company the ability to deliver superior broadband connections island-wide.
GigaMedia's cable modem is a world-class platform capable of offering broadband
Internet access at speeds of up to 100 times faster than traditional dial-up
services. With 29 cable system partners, the company's core cable modem business
passes more than 3.8 million Taiwan households, as well as 576,000 small and
medium businesses. In addition, the company offers 11 interactive
Chinese-language multimedia Web sites through its Web destination
http://www.gigigaga.com and its co-brand site http://www.gigigaga.yahoo.com.tw.
Offline, GigaMedia operates Taiwan's two largest music store chains, Rose
Records and Tachung Records. The company received all required government
approvals related to the acquisition of these businesses in June 2002. Rose and
Tachung had combined sales of approximately NT$3.0 billion in 2001.
Other subsidiary companies of GigaMedia include Koos Broadband Telecom Limited,
a broadband service provider focused exclusively on corporate subscribers in
Taiwan, as well as GigaMusic.com, an online paid music site scheduled for launch
in 2002.
Strategic investors of GigaMedia include Microsoft, the world's leading software
provider, and the Koos Group, a major player in Taiwan's manufacturing, finance,
telecommunications, media, and cable industries.
More information on GigaMedia can be obtained from <http://ir.giga.net.tw>.
The statements included above and elsewhere in this press release that are not
historical in nature are "forward-looking statements" within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. GigaMedia cautions readers that forward-looking statements are based on
the company's current expectations and involve a number of risks and
uncertainties. Actual results may differ materially from those contained in such
forward-looking statements. Information as to those factors that could cause
actual results to vary can be found in GigaMedia's Registration Statement on
Form 20-F filed with the United States Securities and Exchange Commission in
June 2002.
Contact:
GigaMedia Limited
Brad Miller, Investor Relations Director
886-2-8770-7966 ext. 1107
bradley_miller@corp.giga.net.tw
(Tables to follow)
================================================================================
8
GIGAMEDIA LIMITED
CONSOLIDATED BALANCE SHEETS
September 30 and June 30, 2002
September 30 June 30
-----------------------------
2002 2002
-----------------------------
ASSETS NT$ NT$
- ---------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 1,061,943,549 1,142,370,014
Short-term investments 1,099,661,507 775,898,161
Accounts receivable 152,989,137 223,304,290
Receivable from related parties -- --
Inventories-net 427,152,575 359,235,354
Prepaid expenses 142,718,982 93,383,039
Restricted cash -- --
Other current assets 173,299,747 158,880,630
-----------------------------
Total Current Assets 3,057,765,497 2,753,071,488
-----------------------------
INVESTMENT
Total Investments 626,552,360 1,263,954,450
-----------------------------
PROPERTY, PLANT AND EQUIPMENT-NET 814,516,445 840,498,151
-----------------------------
INTANGIBLE ASSETS-NET 704,933,550 21,295,426
-----------------------------
OTHER ASSETS
Total Other Assets 272,864,431 249,713,191
-----------------------------
TOTAL ASSETS 5,476,632,284 5,128,532,706
=============================
LIABILITIES & SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------
CURRENT LIABILITIES
Loan 44,087,591 42,326,968
Accounts payable 699,735,993 445,590,946
Payable to related parties -- --
Payable to equipment suppliers 104,740 --
Accrued salaries and bonus 31,456,503 15,770,932
Accrued expenses 52,858,326 58,317,829
Lease obligations -- --
Other current liabilities 116,944,221 22,572,434
-----------------------------
Total Current Liabilities 945,187,374 584,579,109
-----------------------------
OTHER LIABILITIES 41,487,274 36,548,717
-----------------------------
Total Liabilities 986,674,648 621,127,826
-----------------------------
Minority interest 467,286,229 109,335,933
-----------------------------
SHAREHOLDERS' EQUITY 4,022,671,406 4,398,068,947
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,476,632,284 5,128,532,706
-----------------------------
9
GIGAMEDIA LIMITED
CONSOLIDATED STATEMENTS OF OPERATION
For the quarters ended September 30 and June 30, 2002
(Unaudited) (Unaudited)
3Q02 2Q02
----------------------------
NT$ NT$
----------------------------
Operating revenue
Access revenue 168,677,395 164,200,511
Sales/rental/installation 412,200,190 368,530,396
Web development revenues 0 0
Advertising revenue 639,970 691,144
Subscription revenue 5,308,008 5,389,669
Other revenue 8,187,766 4,450,427
----------------------------
Total 595,013,329 543,262,147
----------------------------
Cost and expenses
Operating cost 168,278,193 158,802,906
Cost of sales/rental/installation 367,367,366 325,751,512
Web development expenses 0 0
Product development and
engineering expenses 15,649,946 15,713,151
Selling and marketing expenses 88,280,954 99,425,028
General and administrative expenses 72,938,818 54,984,956
Other costs 0 0
----------------------------
Total 712,515,277 654,677,553
----------------------------
Operating loss (117,501,948) (111,415,406)
----------------------------
Non-operating income (expense)
Interest income 6,115,005 8,954,175
Foreign exchange gain (loss)-net 58,105,661 (48,887,422)
Investment income 5,626,379 44,411,441
Gain from disposal of property, plant and
equity (2,885,587) (3,208,948)
Interest income (expense) (224,009) (2,085)
Other non-operating income (expense) 896,503 929,611
----------------------------
Total non-operating income-net 67,633,953 2,196,772
----------------------------
Income Tax Benefit (expense) (482,960) 0
----------------------------
Minority interest income 2,612,202 3,126,357
----------------------------
Pre-acquisition earnings 0 0
----------------------------
Net income (loss) (47,738,753) (106,092,277)
============================
Net loss per common share (0.95) (2.12)
============================
Average shares outstanding 50,154,000 50,154,000
10