China Digital TV Announces Unaudited Fourth Quarter and Full Year 2009 Results - Feb 10, 2010

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China Digital TV Announces Unaudited Fourth Quarter and Full Year 2009 Results

PRNewswire-Asia
BEIJING, China
Feb 10, 2010

China Digital TV Holding Co., Ltd. ("China Digital TV" or the "Company"), the leading provider of conditional access ("CA") systems to China's expanding digital television market, announced today its unaudited financial results for the fourth quarter and full year ended December 31, 2009.

  Highlights for the Fourth Quarter 2009

  -- China Digital TV shipped approximately 2.36 million smart cards during
     the fourth quarter of 2009, compared to 2.66 million and 1.96 million
     smart cards shipped during the fourth quarter of 2008 and the third
     quarter of 2009, respectively.

  -- According to market data collected by the Company, China Digital TV
     entered into 19 out of a total of 24 new contracts to install CA
     systems in China in the fourth quarter of 2009.

  -- Net revenues in the fourth quarter of 2009 were US$13.7 million, which
     slightly exceeded the Company's guidance, representing an 18.8%
     decrease from the corresponding period in 2008 and a 13.0% increase
     from the third quarter of 2009.

  -- Gross margin in the fourth quarter was 76.5%, compared to 79.6% in the
     corresponding period in 2008 and 73.8% in the third quarter of 2009.

  -- Diluted earnings per American depositary share ("ADS") (one ADS
     representing one ordinary share) in the fourth quarter of 2009 were
     US$0.10.

  Highlights for Full Year 2009

  -- China Digital TV shipped approximately 8.83 million smart cards in 2009,
     compared to 9.86 million smart cards shipped in 2008.

  -- According to market data collected by the Company, China Digital TV
     entered into 44 out of a total of 64 new contracts to install CA
     systems in China in 2009.

  -- Net revenues in 2009 were US$54.7 million, a 22.2% decrease from 2008.

  -- Diluted earnings per ADS in 2009 were US$0.43, compared to US$0.72 in
     2008.


"We were glad to see a pick up in our core CA business in the fourth quarter from the previous quarters as we continued to focus on customers and execution," said Mr. Jianhua Zhu, China Digital TV's chairman and chief executive officer. "In addition, we believe the three-network convergence policy recently unveiled by China's central government calling for the integration of broadcast television, telecom, and Internet services should encourage China's cable operators to accelerate digitalization to address potential direct competition from the telecom operators. We expect that this will likely stimulate the development of China's digital TV industry in 2010."

"The trend toward network convergence in China is also expected to expand access to high-quality, licensed video content," Mr. Zhu continued. "China Digital TV is well positioned to benefit from this trend as we apply our core competitive advantages in content protection across multiple media platforms. Looking forward, as the domestic leader in content protection, China Digital TV will continue to explore innovative business models in order to capture opportunities in China's developing pay-TV market, and to invest in developing value-added services such as video-on-demand, advanced terminals and TV gaming."

China Digital TV's chief financial officer, Mr. Mason Xu commented, "China Digital TV's recent investment in OpenV, a leading local online video company, is part of our strategy to capture opportunities across multiple media platforms. Looking into 2010, supported by encouraging government policies and our strong balance sheet, we will proactively seize new investment and partnership opportunities that are in line with our vision to become the gateway to high quality TV content in China."

Fourth 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 fourth quarter of 2009, net revenues were US$13.7 million, a decrease of 18.8% from the fourth quarter of 2008 and an increase of 13.0% from the third 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 increase was largely due to an increase in smart card sales but partially offset by the decline in system integration revenue.

  Revenue Breakdown
                                                         For the twelve
                         For the three months ended       months ended
                       December   September  December   December  December
                          31,        30,        31,        31,       31,
                         2009       2009       2008       2009      2008
                                 (in U.S. dollars, in thousands)
  Products
  Smart Cards          $ 12,370   $ 10,524   $ 15,351   $49,005   $ 64,216
  Set-top boxes and
   others                    57         60         71       141        196
  Subtotal               12,427     10,584     15,422    49,146     64,412
  Services:
  Head-end system
   integration              556        909        873     3,265      3,461
  Head-end system
   development              199        113         89       462        573
  Licensing income          283        285        323     1,147      1,610
  Royalty income            229        130        164       688        641
  Other services            121        150         --       356         --
  Subtotal                1,388      1,587      1,449     5,918      6,285
  Total revenues       $ 13,815   $ 12,171   $ 16,871   $55,064   $ 70,697


Revenues from smart cards and related products were US$12.4 million in the fourth quarter of 2009, a decrease of 19.4% from the corresponding period in 2008 and an increase of 17.4% from the third quarter of 2009. Sales of smart cards and related products accounted for 90.0% of total revenues for the fourth quarter, up from 87.0% in the third quarter of 2009. The year-over-year decrease was primarily due to decreases in both shipment volume and the average selling price ("ASP") of smart cards. The quarter-over-quarter increase was primarily due to an increase in shipment volume.

Revenues from the top five customers accounted for 22.7% of total revenues in the fourth quarter of 2009, compared to 33.3% in the third quarter of 2009.

Revenues from services were US$1.4 million in the fourth quarter of 2009, a decrease of 4.2% from the corresponding period in 2008 and a decrease of 12.5% from the third quarter of 2009. Service revenues accounted for 10.0% of total revenues for the quarter. The year-over-year and quarter-over-quarter decreases were primarily due to a decrease in revenue from head-end system integration.

Gross profit in the fourth quarter of 2009 was US$10.5 million, a decrease of 21.8% from the corresponding period in 2008 and an increase of 17.2% from the third quarter of 2009. Gross margin was 76.5% in the fourth quarter of 2009, compared to 79.6% in the corresponding period in 2008 and 73.8% in the third quarter of 2009. The year-over-year decline in gross margin was mainly due to a decrease in the profitability of the system integration business. The quarter-over-quarter increase in gross margin was primarily due to a decrease in non-chip cost of smart cards.

In the fourth quarter of 2009, ASP for smart cards decreased by 3.0% compared to the third quarter of 2009. The unit cost of smart cards decreased by 16.2% compared to the third quarter of 2009.

Operating expenses in the fourth quarter of 2009 were US$5.9 million, an increase of 3.1% from the fourth quarter of 2008 and an increase of 17.6% from the third quarter of 2009.

-- Research and development expenses in the fourth quarter were US$2.5 million, an increase of 29.7% from the corresponding period in 2008 and an increase of 12.9% from the third quarter of 2009. The year-over-year and quarter-over-quarter increases were mainly due to a US$0.3 million write-down of certain intangible assets, which were acquired by the Company in 2008, and an increase in the number of research & development staff.

-- Sales and marketing expenses in the fourth quarter were US$2.1 million, an increase of 26.5% from the corresponding period in 2008 and an increase of 20.2% from the third quarter of 2009. The year-over-year increase was mainly due to higher compensation costs for sales and marketing staff and increasing marketing activities. The quarter-over-quarter increase was primarily due to an increase in marketing activities.

-- General and administrative expenses in the fourth quarter were US$1.3 million, a decrease of 40.0% from the corresponding period in 2008 and an increase of 23.6% from the third quarter of 2009. The year-over-year decrease was mainly due to a decrease in bad debt expense recorded in the fourth quarter of 2009 and a decrease in professional service fees. The quarter-over-quarter increase was mainly due to a higher bad debt expense.

Income from operations in the fourth quarter was US$4.6 million, a 40.4% decrease from the corresponding period in 2008 and a 16.7% increase from the third quarter of 2009.

Operating margin, defined as income from operations divided by net revenues, in the fourth quarter of 2009 was 33.6%, compared to 45.7% in the corresponding period in 2008 and 32.5% in the third quarter of 2009.

Income tax expenses in the fourth quarter of 2009 were nil, compared to US$0.3 million in the third quarter of 2009 and income tax benefit of US$1.6 million in the corresponding period of 2008. For year 2010, the Company expects to be subject to a 15% tax rate under relevant PRC tax regulations, compared to 7.5%, to which the Company was subject in 2009.

Net income attributable to China Digital TV in the fourth quarter of 2009 was US$6.0 million, a decrease of 51.1% from the corresponding period in 2008 and an increase of 20.6% from the third 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 fourth quarter of 2009 was US$6.5 million, a decrease of 49.0% from the corresponding period in 2008 and an increase of 17.1% from the third quarter of 2009.

Balance Sheet and Cash Flow

As of December 31, 2009, China Digital TV had cash and cash equivalents, restricted cash, deposits with maturity over three months and short-term investments totaling US$232.8 million. In the fourth quarter of 2009, cash flow from operations was approximately US$8.1 million.

U.S. Federal Income Taxation

Based on an analysis of the value of the Company's assets during 2009, the Company was classified as a passive foreign investment company ("PFIC") during 2009 for U.S. federal income tax purposes. This affects the treatment of income and gain to U.S. holders of the Company's ADSs. Further details about the PFIC rules are available in the Company's annual report on Form 20-F for the fiscal year ended December 31, 2008. U.S. holders of the Company's ADSs should generally be able to make a mark-to-market election under the PFIC rules. U.S. holders are advised to consult their own tax advisors regarding the application of the PFIC rules to their particular circumstances.

Full Year 2009 Results

Net revenues in 2009 were US$54.7 million, a 22.2% decrease from US$70.3 million in 2008, primarily due to decreases in both smart card volume and ASP in 2009.

As compared to 2008, China's CA industry in 2009 was developing more slowly mainly due to two reasons. Firstly, the pace of mass migration from analog to digital TV slowed down as the execution transitioned from larger cities to smaller cities and counties in China where households are more dispersed and basic network infrastructure is less developed.

Secondly, as a result of the potential consolidation within the cable television industry and delays in raising television subscription fees in certain regions, some cable operators were more cautious in making new investments, including postponing smart card purchases in 2009.

According to market data collected by the Company, China Digital TV entered into 44 out of a total of 64 new contracts to install CA systems in 2009 in China.

Revenues from smart cards and related products in 2009 were US$49.1 million, a decrease of 23.7% from 2008, reflecting decreases in both smart card shipments and ASP. Revenues from smart cards and related products represented 89.3% of total revenues in 2009.

Revenues from services were US$5.9 million in 2009, a decrease of 5.8% from 2008, primarily due to lower licensing income in 2009. Revenues from services represented 10.7% of total revenues in 2009.

Gross profit was US$41.3 million in 2009, a decrease of 27.1% from US$56.6 million in 2008. Gross margin was 75.5% in 2009, compared to 80.5% in 2008. The decrease in gross margin was primarily due to the decline of ASP.

Operating expenses in 2009 were US$20.8 million, an increase of 9.0% from US$19.1 million in 2008. The increase in operating expenses was primarily due to increases in research & development and marketing expenses, reflecting an increase in the number of employees and higher share-based compensation expenses, partially offset by a decrease in general and administrative expenses.

  -- Research and development expenses in 2009 increased 26.8% to US$8.8
     million from US$6.9 million in 2008. Compensation costs, accounting for
     more than 70% of total research and development expenses, increased by
     about 24% due to increases in both headcount and the average salary.

  -- Sales and marketing expenses in 2009 increased 18.8% to US$7.2 million
     from US$6.1 million in 2008. The increase was primarily due to higher
     compensation costs associated with expanding the sales force and higher
     marketing expenditures.

  -- General and administrative expenses in 2009 decreased 21.2% to US$4.8
     million from US$6.1 million in 2008. The decrease was primarily due to
     lower bad debt expenses and professional costs.

Income from operations in 2009 was US$20.5 million, a 45.4% decrease from 2008.

Operating margin in 2009 was 37.5%, compared to 53.4% in 2008.

Net income attributable to China Digital TV in 2009 was US$25.3 million, a decrease of 41.2% from US$43.1 million in 2008. Basic and Diluted earnings per ADS in 2009 were US$0.44 and US$0.43 respectively.

Business Outlook

Based on information available on February 10, 2010, China Digital TV expects smart card shipments for the first quarter of 2010 to be in the range of 2.25 million to 2.45 million. Net revenues for the first quarter of 2010 are expected to be in the range of US$11.6 million to US$12.5 million, representing a quarter-over-quarter decrease in the range of 8% to 15%.

Conference Call Information

The Company will hold an earnings conference call at 8:00 p.m., U.S. Eastern Standard Time, on February 10, 2010 (9:00 a.m. on February 11, Beijing/Hong Kong Time).

  Conference Call Dial-in Information

  United States Toll Free:  +1-800-706-7745
  International:            +1-617-614-3472
  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 11:00 p.m. on February 10, 2010 and 11:00 p.m. on February 17, 2010 Eastern Standard Time.

  Replay Information

  United States:  +1-888-286-8010
  International:  +1-617-801-6888

  Passcode:       11843649

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 first quarter of 2010 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.

                      China 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
                                        December     September    December
                                            31,          30,          31,
                                           2009         2009         2008
                                                                  Adjusted(1)
  Revenues:
    Products                             $12,427      $10,584      $15,422
    Services                               1,388        1,587        1,449
  Total revenues                          13,815       12,171       16,871
    Business taxes                          (131)         (65)         (28)
  Net revenues                            13,684       12,106       16,843

  Cost of Revenues:
    Products                              (2,387)      (2,347)      (3,050)
    Services                                (822)        (825)        (390)
  Total Cost of Revenues                  (3,209)      (3,172)      (3,440)
  Gross Profit                            10,475        8,934       13,403

  Operating expenses:
    Research and development
     expenses                             (2,483)      (2,200)      (1,915)
    Selling and marketing expenses        (2,142)      (1,782)      (1,693)
    General and administrative
     expenses                             (1,259)      (1,019)      (2,097)
  Total Operating Expenses                (5,884)      (5,001)      (5,705)

  Income from operations                   4,591        3,933        7,698

    Interest income                        1,410        1,357        2,604
    Other income/(expense)                    (2)         (48)         328
  Income before income tax                 5,999        5,242       10,630
  Income tax benefits / (expenses)
    Income tax-current                      (318)        (371)       2,054
    Income tax-deferred                      306           41         (480)
  Net income before net (loss) income
   from equity investments                 5,987        4,912       12,204
    Net income(loss) from equity
     investments                             (17)          34          (11)
  Net income                               5,970        4,946       12,193
    Less: Net income(loss)
     attributable to
     noncontrolling interest                  --           (3)          (5)
  Net Income attributable to China
   Digital TV Holding Co., Ltd.           $5,970       $4,949      $12,198

  Net income per share:
  Basic ordinary shares                    $0.10        $0.09        $0.22
  Diluted ordinary shares                  $0.10        $0.08        $0.21

  Weighted average shares used in
   computation:
  Basic ordinary shares               58,011,236   57,941,513   56,272,562
  Diluted ordinary shares             58,683,376   58,724,875   57,613,559



                      China Digital TV Holding Co., Ltd.
          Unaudited Condensed Consolidated Statements of Operations
             (in U.S. dollars in thousands, except share data)

                                              For the twelve months ended
                                               December 31,  December 31,
                                                    2009          2008
                                                              Adjusted(1)
  Revenues:
    Products                                      $49,146        $64,412
    Services                                        5,918          6,285
  Total revenues                                   55,064         70,697
    Business taxes                                   (360)          (363)
  Net revenues                                     54,704         70,334

  Cost of Revenues:
    Products                                       (9,716)       (10,877)
    Services                                       (3,686)        (2,828)
  Total Cost of Revenues                          (13,402)       (13,705)
  Gross Profit                                     41,302         56,629

  Operating expenses:
    Research and development expenses              (8,779)        (6,921)
    Selling and marketing expenses                 (7,203)        (6,063)
    General and administrative expenses            (4,793)        (6,084)
  Total Operating Expenses                        (20,775)       (19,068)

  Income from operations                           20,527         37,561

    Interest income                                 6,070          9,138
    Other income/(expense)                            (65)          (412)
  Income before income tax                         26,532         46,287
  Income tax benefits / (expenses)
    Income tax-current                             (1,661)        (3,271)
    Income tax-deferred                               400             36
  Net income before net (loss) income
   from equity investments                         25,271         43,052
    Net income (loss) from equity
     investments                                       20             (4)
  Net income                                       25,291         43,048
     Less: Net income (loss) attributable
      to noncontrolling interest                      (13)           (14)
  Net Income attributable to

  China Digital TV Holding Co., Ltd.              $25,304        $43,062

  Net income per share:
  Basic ordinary shares                             $0.44          $0.75
  Diluted ordinary shares                           $0.43          $0.72

  Weighted average shares used in
   computation:
  Basic ordinary shares                        57,728,009     57,138,985
  Diluted ordinary shares                      58,591,072     60,058,724



                     China Digital TV Holding Co., Ltd.
               Unaudited Condensed Consolidated Balance Sheets
                       (in U.S. dollars in thousands)


                                               December 31,    December 31,
  ASSETS                                            2009             2008
  Current assets:                                               Adjusted(1)
    Cash and cash equivalents                    $131,087         $202,947
    Restricted cash                                    16               24
    Bank deposit maturing over three
     months                                        64,021           68,887

    Short-term investment                          37,685               --
    Notes receivable                                2,836            1,649
    Accounts receivable, net                       11,229           10,860
    Inventories                                     4,684            4,014
    Prepaid expenses and other current assets       4,550            3,974
    Deferred costs-current                            363              326
    Deferred income taxes - current                   516              201
  Total current assets                            256,987          292,882
    Property and equipment, net                     2,308            1,880
    Intangible assets, net                            937            1,854
    Goodwill                                          499              499
    Long-term investments-equity method
     investments                                    1,005              437
  Long-term investments-held to
   maturity securities                              1,190               --
   Deferred costs-non-current                         392              338
   Deferred income taxes - non-current                170               86
  Total assets                                    263,488          297,976

  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
    Accounts payable                                  660            1,103
    Accrued expenses and other current
     liabilities                                    5,340            7,888
    Deferred revenue - current                      3,453            3,704

    Payable to shareholders                            --           57,210
    Income tax payable                                251            1,088
  Total current liabilities                         9,704           70,993
    Deferred revenue-non-current                      760              957
  Total Liabilities                                10,464           71,950

  Shareholders' equity:
    Ordinary shares                                    29               29
    Additional paid-in capital                    157,980          154,643
    Statutory reserve                              12,691           10,184
    Accumulated profit                             75,707           52,910
    Accumulated other comprehensive
     income                                         6,617            6,696
      Total China Digital TV Holding
       Co., Ltd. shareholders' equity             253,024          224,462

    Noncontrolling interest                            --            1,564
  Total shareholders' equity                      253,024          226,026

  TOTAL LIABILITIES AND SHAREHOLDER'S
   EQUITY                                        $263,488         $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 Holding Co., Ltd. excludes certain non-cash expenses, such as share-based compensation expenses and amortization of acquired intangible assets. The Company believes that these non-GAAP 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 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
                                  December 31,   September 30,  December 31,
                                      2009            2009           2008
                                      (in U.S. dollars, in thousands)
  Net Income attributable to
   China Digital TV - GAAP           $5,970          $4,949        $12,198
  Share-based compensation              402             479            386
  Amortization related to
   business acquisitions                 97              96            103
  Net Income attributable to
   China
  Digital TV - Non-GAAP              $6,469          $5,524        $12,687

SOURCE: China Digital TV Holding Co., Ltd.

CONTACT: In China: Eric Yuan, +86-10-8279-0021, ir@chinadtv.cn, of China
Digital TV; Cynthia He, +86-10-6566-2256, che@brunswickgroup.com, of the
Brunswick Group LLC; In the U.S.: Kate Tellier, +1-212-706-7879,
ktellier@brunswickgroup.com, of the Brunswick Group LLC