China Digital TV Announces Unaudited Third Quarter 2009 Results
Nov 10, 2009
China Digital TV Holding Co., Ltd.
Highlights for the Third Quarter 2009 -- China Digital TV shipped approximately 1.96 million smart cards during the third quarter, compared to 2.21 million and 2.13 million smart cards shipped in the third quarter of 2008 and in the second quarter of 2009, respectively. -- According to market data collected by the Company, China Digital TV entered into 9 out of a total of 15 new contracts to install CA systems in China in the third quarter of 2009. -- Net revenues in the third quarter were US$12.1 million, a 28.2% decrease from the corresponding period in 2008 and a 17.1% decrease from the second quarter of 2009, which were within the Company's revenue guidance. -- Diluted earnings per American depositary share ("ADS") (one ADS representing one ordinary share) in the third quarter of 2009 were US$0.08.
"As expected, the third quarter continued to be a challenging period for CA card shipments. Cable operators continued to postpone digital migration projects as they have been waiting for more clarity regarding potential consolidation of the Chinese cable television industry and television subscription fee adjustments in certain regions," said Mr. Jianhua Zhu, China Digital TV's chairman and chief executive officer. "While we do not anticipate any immediate growth catalysts in our industry, we are confident that China Digital TV will maintain strong market share and win new contracts."
Mr. Zhu noted that about two thirds of China's cable TV subscribers are still awaiting digitalization.
"As one of the leading players in China's digital television industry, China Digital TV's deep market insight, technological know-how and ability to provide flexible solutions position us well to understand the evolving needs of Chinese television viewers. Looking forward, in addition to providing value-added services to television viewers through cooperation with cable TV operators, we will continue exploring ways to directly address consumers' needs to capture opportunities in this market," Mr. Zhu continued.
Mr. Mason Xu, chief financial officer of China Digital TV said, "The decrease in average selling price of our smart cards continued in the third quarter due to ongoing competitive pressures. As the migration of TV digitalization progresses from larger cities to smaller cities and counties, where the cable operators are generally more price sensitive, we expect to make pricing concessions in order to win new customers."
"Operational expenses remained stable during the third quarter," added Mr. Xu. "We continued to manage costs prudently while expanding our research & development team for value-added services. With a strong balance sheet and a profitable business, we are in a strong position to continue investing for long-term growth."
Third Quarter 2009 Results
(Note: Unless otherwise stated, all financial statement measures presented in this press release are based on generally accepted accounting principle in the United States ("U.S. GAAP").)
In the third quarter of 2009, net revenues were US$12.1 million, a decrease of 28.2% from the third quarter of 2008 and a decrease of 17.1% from the second quarter of 2009. The year-over-year decrease in net revenues was primarily due to a decrease in revenues from smart card sales. The quarter-over-quarter decrease was largely due to decreases in both smart card sales and revenues from services.
Revenue Breakdown For the three months ended September 30, June 30, September 30, 2009 2009 2008 (in U.S. dollars, in thousands) Products Smart Cards $10,524 $12,593 $15,050 Set-top boxes and others 60 10 49 Subtotal 10,584 12,603 15,099 Services Head-end system integration 909 1,361 814 Head-end system development 113 103 221 Licensing income 285 319 689 Royalty income 130 209 154 Other service (1) 150 85 -- Subtotal 1,587 2,077 1,878 Total revenues $12,171 $14,680 $16,977 (1) Other service represents digital TV-based advertising business
Revenues from smart cards and related products were US$10.6 million in the third quarter of 2009, a decrease of 29.9% from the corresponding period in 2008 and a decrease of 16.0% from the second quarter of 2009. Sales of smart cards and related products accounted for 87.0% of total revenues for the quarter, slightly up from 85.9% in the second quarter of 2009. The year-over-year and quarter-over-quarter decreases were primarily due to decreases in both shipment volume and the ASP of smart cards.
Revenues from the top five customers accounted for 33.3% of total revenues in the third quarter of 2009, compared to 33.4% in the second quarter of 2009.
Revenues from services were US$1.6 million in the third quarter of 2009, a decrease of 15.5% from the corresponding period in 2008 and a decrease of 23.6% from the second quarter of 2009. Service revenues accounted for 13.0% of total revenues for the quarter. The year-over-year decrease was primarily due to a 58.6% decrease in licensing revenues as demand for such service weakened during that period. The quarter-over-quarter decrease was primarily due to decreases in head-end system integration and royalty revenues.
Gross profit in the third quarter of 2009 was US$8.9 million, a decrease of 35.3% from the corresponding period in 2008 and a decrease of 17.3% from the second quarter of 2009. Gross margin was 73.8% in the third quarter of 2009, compared to 81.8% in the corresponding period in 2008 and 74.0% in the second quarter of 2009. The year-over-year decline in gross margin was mainly due to a decrease in the ASP and an increase in non-chip cost of smart cards. Gross margin for the third quarter remained stable from the second quarter primarily due to the impact of a lower ASP being largely offset by improving profitability in the system integration business.
In the third quarter of 2009, the ASP for smart cards decreased by 7.8% compared to the second quarter of 2009. The unit cost of smart cards increased by 8.4% compared to the second quarter of 2009 due to increase in non-chip cost of smart cards.
Operating expenses in the third quarter of 2009 were US$5.0 million, a decrease of 8.5% from the third quarter of 2008 and a decrease of 1.4% from the second quarter of 2009.
-- Research and development expenses in the third quarter were US$2.2 million, an increase of 12.6% from the corresponding period in 2008 and an increase of 0.4% from the second quarter of 2009. The year-over-year increase was mainly due to increases in both the number of research & development staff and travelling expenses. The flat quarter-over-quarter expenses largely reflected the increase in number of R&D staff being offset by lower average salaries.
-- Sales and marketing expenses in the third quarter were US$1.8 million, a decrease of 13.7% from the corresponding period in 2008 and an increase of 1.8% from the second quarter of 2009. The year-over-year decrease was mainly due to decrease in marketing activities in third quarter of 2009. The slight quarter-over-quarter increase was primarily due to higher compensation costs for sales and marketing staff, which was largely offset by lower expenses for marketing activities.
-- General and administrative expenses in the third quarter were US$1.0 million, a decrease of 29.8% from the corresponding period in 2008 and a decrease of 9.7% from the second quarter of 2009. The year-over-year decrease was mainly due to a decrease in professional service fees. The quarter-over-quarter decease was mainly due to a decrease in bad debt expense.
Income from operations in the third quarter was US$3.9 million, a 52.8% decrease from the corresponding period in 2008 and a 31.4% decrease from the second quarter of 2009.
Operating margin, defined as income from operations divided by net revenues, in the third quarter of 2009 was 32.5%, compared to 49.4% in the corresponding period in 2008 and 39.3% in the second quarter of 2009.
Income tax expenses in the third quarter of 2009 were US$0.3 million, a decrease of 83.8% from the corresponding period in 2008 and a decrease of 27.9% from the second quarter of 2009. For year 2009, the Company expects to be subject to a 7.5% preferential tax rate under relevant PRC tax regulations.
Net income attributable to China Digital TV in the third quarter of 2009 was US$4.9 million, a decrease of 39.9% from the corresponding period in 2008 and a decrease of 27.5% from the second quarter of 2009.
Non-GAAP net income attributable to China Digital TV, defined as net income excluding certain non-cash expenses, i.e., share-based compensation expenses and amortization of acquired intangible assets relating to business acquisitions, in the third quarter of 2009 was US$5.5 million, a decrease of 35.0% from the corresponding period in 2008 and a decrease of 24.6% from the second quarter of 2009.
As of September 30, 2009, China Digital TV had cash and cash equivalents, restricted cash, deposits with maturity over three months and short-term investments totaling US$224.7 million. In the third quarter of 2009, cash flow from operations was approximately US$2.1 million.
Based on information available as of November 10, 2009, China Digital TV expects smart card shipments for the fourth quarter of 2009 to be in the range of 2.2 million to 2.4 million. Net revenues for the fourth quarter of 2009 are expected to be in the range of US$12.5 million to US$13.6 million, representing a year-over-year decrease in the range of 25% to 19%.
Conference Call Information
The Company will hold an earnings conference call at 7:00 p.m., Eastern Standard Time, on November 10, 2009 (8:00 a.m. on November 11, Beijing/Hong Kong Time).
Conference Call Dial-in Information United States Toll Free: +1-800-884-5695 International: +1-617-786-2960 Hong Kong: +852-3002-1672 China Toll Free: +10-800-130-0399 Passcode: China Digital TV Earnings Call
Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.
A replay of the call will be available for one week between 10:00 p.m. on November 10, 2009 and 10:00 p.m. on November 17, 2009 Eastern Standard Time.
Replay Information United States: +1-888-286-8010 International: +1-617-801-6888 Passcode: 18185110
Additionally, a live and archived webcast of this conference call will be accessible through the Investor Relations section of China Digital TV's website at http://ir.chinadtv.cn/ .
Safe Harbor Statements
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "may," "should" and similar expressions. Such forward-looking statements include, without limitation, statements regarding the outlook for the fourth quarter of 2009 and comments by management in this announcement about trends in the CA systems, digital television, cable television and related industries in the PRC and China Digital TV's strategic and operational plans and future market positions. China Digital TV may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about China Digital TV's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from projections contained or implied in any forward-looking statement, including but not limited to the following: competition in the CA systems, digital television, cable television and related industries in the PRC and the impact of such competition on prices, our ability to implement our business strategies, changes in technology, the progress of the television digitalization in the PRC, the structure of the cable television industry or television viewer preferences, changes in PRC laws, regulations or policies with respect to the CA systems, digital television, cable television and related industries, including the extent of non-PRC companies' participation in such industries, and changes in political, economic, legal and social conditions in the PRC, including the government's policies with respect to economic growth, foreign exchange and foreign investment.
Further information regarding these and other risks and uncertainties is included in our annual report on Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. China Digital TV does not assume any obligation to update any forward-looking statements, which are as of the date of this press release only.
About China Digital TV
Founded in 2004, China Digital TV is the leading provider of CA systems to China's expanding digital television market. CA systems enable television network operators to manage the delivery of customized content and services to their subscribers. China Digital TV conducts substantially all of its business through its PRC subsidiary, Beijing Super TV Co., Ltd., and its affiliate, Beijing Novel-Super Digital TV Technology Co., Ltd., as well as subsidiaries of its affiliate.
For more information please visit the Investor Relations section of China Digital TV's website at http://ir.chinadtv.cn/ . The information contained in that website is not a part of this announcement.
For investor and media inquiries, please contact: In China: Eric Yuan China Digital TV Tel: +86-10-8279-0021 Email:
email@example.comCynthia He Brunswick Group LLC Tel: +86-10-6566-2256 Email: firstname.lastname@example.orgIn the US: Kate Tellier Brunswick Group LLC Tel: +1-212-706-7879 Email: email@example.comChina Digital TV Holding Co., Ltd. Unaudited Condensed Consolidated Statements of Operations (in U.S. dollars in thousands, except share data) For the three months ended September 30, June 30, September 30, 2009 2009 2008 As adjusted(1) Revenues: Products $10,584 $12,603 $15,099 Services 1,587 2,077 1,878 Total revenues 12,171 14,680 16,977 Business taxes (65) (84) (115) Net revenues 12,106 14,596 16,862 Cost of Revenues: Products (2,347) (2,319) (2,295) Services (825) (1,470) (766) Total Cost of Revenues (3,172) (3,789) (3,061) Gross Profit 8,934 10,807 13,801 Operating expenses: Research and development expenses (2,200) (2,192) (1,953) Sales and marketing expenses (1,782) (1,751) (2,064) General and administrative expenses (1,019) (1,128) (1,451) Total Operating Expenses (5,001) (5,071) (5,468) Income from operations 3,933 5,736 8,333 Interest income 1,357 1,590 2,377 Other expense (48) (43) (450) Income before income tax 5,242 7,283 10,260 Income tax benefits/ (expenses) Income tax-current (371) (484) (2,547) Income tax-deferred 41 26 504 Net income before net income/ (loss) from equity investments 4,912 6,825 8,217 Net income/ (loss) from equity investments 34 (6) 6 Net income 4,946 6,819 8,223 Less: Net income/ (loss) attributable to noncontrolling interest (3) (6) (8) Net Income attributable to China Digital TV Holding Co., Ltd. $4,949 $6,825 $8,231 Net income per share: Basic ordinary shares $0.09 $0.12 $0.14 Diluted ordinary shares $0.08 $0.12 $0.14 Weighted average shares used in computation: Basic ordinary shares 57,941,513 57,616,550 57,643,602 Diluted ordinary shares 58,724,875 58,466,825 60,627,807 China Digital TV Holding Co., Ltd. Unaudited Condensed Consolidated Balance Sheets (in U.S. dollars in thousands) September 30, December 31, ASSETS 2009 2008 Current assets: As adjusted(1) Cash and cash equivalents $138,902 $202,947 Restricted cash 16 24 Bank deposit maturing over three months 64,018 68,887 Short-term investment 21,720 -- Notes receivable 2,118 1,649 Accounts receivable, net 13,473 10,860 Inventories 5,480 4,014 Prepaid expenses and other current assets 4,130 3,974 Deferred costs-current 289 326 Deferred income taxes - current 276 201 Total current assets 250,422 292,882 Property and equipment, net 2,415 1,880 Intangible assets, net 1,368 1,854 Goodwill 499 499 Long-term investments-equity method investments 1,022 437 Long-term investments-held to maturity securities 1,201 -- Deferred costs-non-current 218 338 Deferred income taxes - non-current 105 86 Total assets 257,250 297,976 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 1,075 1,103 Accrued expenses and other current liabilities 5,765 7,888 Deferred revenue - current 3,188 3,704 Payable to shareholders -- 57,210 Income tax payable -- 1,088 Total current liabilities 10,028 70,993 Deferred revenue - non-current 684 957 Deferred income taxes - non-current -- -- Total Liabilities 10,712 71,950 Equity: Shareholders' equity Ordinary shares 29 29 Additional paid-in capital 157,474 154,643 Statutory reserve 10,184 10,184 Accumulated profit 72,244 52,910 Accumulated other comprehensive income 6,607 6,696 Total shareholders' equity 246,538 224,462 Noncontrolling interest -- 1,564 Total shareholders' equity 246,538 226,026 TOTAL LIABILITIES AND EQUITY $257,250 $297,976 (1) Amount in relation to noncontrolling interest, formerly named minority interest, is reclassified in accordance with FASB Statement No. 160, Noncontrolling Interest, which was adopted by the Company on January 1, 2009. Reconciliation of Non-GAAP Measures
Non-GAAP net income attributable to China Digital TV excludes certain non-cash expenses, i.e., share-based compensation expenses and amortization of acquired intangible assets relating to business acquisitions. The Company believes that these financial measures provide meaningful supplemental information regarding the Company's performance and liquidity by excluding certain non-cash expenses that may not be indicative of its operating performance from a cash-flow perspective. The Company believes that both management and investors benefit from referring to this additional information in assessing the Company's performance and when planning and forecasting future periods.
For the three months ended September 30, June 30, September 30, 2009 2009 2008 (in U.S. dollars, in thousands) Net Income attributable to China Digital TV - GAAP $4,949 $6,825 $8,231 Share-based compensation 479 405 116 Amortization of acquired intangible assets related to business acquisitions 96 97 155 Net Income attributable to China Digital TV- Non-GAAP $5,524 $7,327 $8,502
SOURCE: China Digital TV Holding Co., Ltd.
CONTACT: In China: Eric Yuan, China Digital TV, +86-10-8279-0021, or
Web site: http://ir.chinadtv.cn/