NDS Announces Strong Second Quarter Results

NDS Announces Strong Second Quarter Results

NEW YORK and LONDON, Jan. 29 /PRNewswire-FirstCall/ -- HIGHLIGHTS

-- Revenue for second quarter up 30% to $214.9 million; six-month revenue
up 28% to $419.8 million

-- Operating income for second quarter up 32% to $49.5 million; six-month
operating income up 31% to $107.8 million

-- Diluted net income per share for second quarter up 31% to $0.68 per
share; six-month diluted net income per share up 31% to $1.48

-- 82.7 million active digital TV smart cards

-- 76.4 million cumulative middleware clients deployed

-- 10.4 million cumulative DVR clients deployed

NDS Group plc ("NDS" or the "Company") (NASDAQ:NNDS), a majority-owned subsidiary of News Corporation that supplies open end-to-end digital technology and services to digital pay-television platform operators and content providers, announced today its operating results for the quarter ended December 31, 2007.

Commenting on NDS's performance, Dr. Abe Peled, Chairman and Chief Executive Officer of NDS said, "NDS is benefiting from the long-term investments we have made in R&D, which have resulted in our clear leadership in security, middleware and DVR technologies for pay-TV. This has allowed us to continue and expand our long-standing relationships with our established customers and also to win new ones. We are particularly proud of having passed the 10 million DVR milestone with our XTV(TM) technology, in which we started investing in 1998. We are also gratified by the performance of our Orbis subsidiary, where our OpenBet(TM) platform that offers single account gaming across multiple applications has been well received and has been adopted by key new customers over the last year. Furthermore, our acquisition of NT Media and our subsequent investments have allowed us to offer a number of innovative original games that have been very successful, and helped establish the OpenBet platform.

"NDS continues to invest to insure that our customers will have the solutions they will need to take advantage of the new opportunities presented by augmenting broadcast delivery with the increasingly ubiquitous broadband IP delivery of entertainment."

KEY FINANCIAL MEASURES

For the Three For the Six
Months Ended Months Ended
December 31, December 31,
2007 2006 2007 2006

Revenue (in thousands) $214,948 $165,062 $419,824 $329,224
Operating income
(in thousands) $49,510 $37,400 $107,796 $81,990
Operating margin 23 % 23 % 26 % 25 %
Net income
(in thousands) $40,369 $30,291 $86,663 $65,379
Diluted net income per
share $0.68 $0.52 $1.48 $1.13

KEY NON-FINANCIAL MEASURES

For the Three Months For the Six Months
Ended December 31, Ended December 31,
2007 2006 2007 2006
Smart card deliveries
(in millions)
Quantity delivered in period 8.9 6.3 16.3 13.0

Authorized cards
(in millions)
Net additions 4.1 3.3 7.3 4.9
Number of authorized cards,
end of period 82.7 69.9 82.7 69.9

Middleware clients deployed
(in millions)
Net additions 6.5 5.5 14.6 8.6
Cumulative deployments, end
of period 76.4 50.2 76.4 50.2

DVR clients deployed
(in millions)
Net additions 1.6 1.1 3.1 1.8
Cumulative deployments, end
of period 10.4 5.3 10.4 5.3

Employees
Full-time equivalents,
end of period 3,820 3,212(1)

(1) Excludes 136 employees of Jungo Limited, which we acquired on
December 31, 2006.

KEY DEVELOPMENTS

-- NDS and DIRECTV, the largest satellite pay-TV operator in the world,
announced that they have extended the term of their relationship. NDS
has been contracted to continue to provide conditional access
technology to DIRECTV U.S. and DIRECTV Latin America until June 2013.

-- NDS and Measat Broadcast Network Systems, owner and operator of
Malaysian pay-TV service Astro, have signed contracts for the
licensing and deployment of the NDS VideoGuard(R) conditional access
system for Astro's direct-to-home pay-TV services. Astro plans to
progressively migrate its satellite pay-TV services to the VideoGuard
system. Astro has been deploying NDS' Mediahighway(R) middleware as
its operating system for its set top boxes since 1999.

-- NDS announced that Arcor, the second largest telecommunications
provider in Germany, has selected NDS VideoGuard system to secure its
new IPTV service. Arcor-Digital TV will initially be available in 51
German cites and communities, offering digital TV and advanced
entertainment services such as video on demand (VOD).

-- NDS has been selected by ASTER, a leading provider of media and
communication services in Poland, to provide the technology for
ASTER's next generation cable TV service. This new end-to-end solution
from NDS replaces digital technology already deployed by ASTER. It
will secure ASTER's television platform going forward and allow ASTER
to offer new services to its subscribers, including integrated digital
video recorders and Poland's first VOD service.

FINANCIAL REVIEW

Total revenue for the three-month period ended December 31, 2007 was $214.9 million, an increase of 30% over the corresponding period of the previous fiscal year. For the six-month period ended December 31, 2007, revenue was $419.8 million, an increase of 28% over the corresponding period of the previous fiscal year.

Revenue from conditional access increased by 22% and 26% during the three- and six-month periods ended December 31, 2007, respectively, as compared to the three- and six-month periods ended December 31, 2006. The increases were principally due to recognition of a portion of security services revenue previously deferred as certain revenue recognition criteria were satisfied during the three- and six-month periods ended December 31, 2007. Additionally, conditional access revenue rose due to the growth of the subscriber base of our customers, as well as an increase in customers and a higher volume of smart cards delivered to customers. Integration, development and support revenue increased by 1% in the three-month period ended December 31, 2007 and decreased by 24% in the six-month period ended December 31, 2007 as compared to the three- and six-month periods ended December 31, 2006, respectively. The recognition of revenue from new customers and from the delivery of enhancements to several of our major customers is dependent on the timing of satisfaction of all revenue recognition criteria; therefore this component of revenue may fluctuate from period to period. The net decline in integration, development and support revenue during the six-month period ended December 31, 2007 was a consequence of the recognition and delivery in the prior year six- month period of conditional access, EPG and middleware technologies to TataSky, which commenced broadcasting in India in the first quarter of fiscal 2006. License fee and royalty revenue increased by 24% and 21% in the three- and six-month periods ended December 31, 2007, respectively, as compared to the three- and six-month periods ended December 31, 2006, principally resulting from higher conditional access revenue, as noted above, and EPG royalties. In addition, middleware royalties increased due to an increase in the number of middleware clients deployed during the three- and six-month periods ended December 31, 2007 as compared to the corresponding periods of the prior fiscal year. The increase in revenue from new technologies of 78% and 66% in the three- and six-month periods ended December 31, 2007, respectively, compared to the three- and six-month periods ended December 31, 2006, was principally due to higher revenue from our DVR technologies and advanced middleware, IPTV, gaming applications and residential gateway devices.

Cost of goods and services sold increased by 33% and 22% during the three- and six-month periods ended December 31, 2007, respectively, as compared to the three- and six-month periods ended December 31, 2006, principally due to an increase in the number of our employees working on development, integration and support activities, as well as increased royalties paid to third parties for the use of their technologies and higher deliveries of smart cards during the periods.

Our main operating expenses are employee costs (including the cost of equity-based awards), facilities costs, depreciation and travel costs. Our main operating expenses have increased primarily due to a higher number of employees, facilities expenses and legal costs. Employee costs were approximately 25% and 29% higher during the three- and six-month periods ended December 31, 2007, respectively, as compared to the corresponding periods of the prior fiscal year.

Research and development costs increased by 11% and 27% for the three- and six-month periods ended December 31, 2007, respectively, as compared to the three- and six-month periods ended December 31, 2006, principally as a result of higher employee headcount due to an increased number of projects. The increase in the employee costs in the six-month period ended December 31, 2007 was partially offset by a $6.7 million grant from the French government as a consequence of our being engaged in certain eligible research projects. In the six-month period ended December 31, 2006 we received a similar grant of $5.5 million. Sales and marketing expenses increased by 51% and 37% in the three- and six-month periods ended December 31, 2007, respectively, as compared to the three- and six-month periods ended December 31, 2006, principally as a result of higher employee headcount and travel costs, increased attendance at trade shows and a higher level of corporate communications activities. General and administrative expenses increased by 38% in the six-month period ended December 31, 2007 as compared to the six-month period ended December 31, 2006, largely due to higher legal expenses, equity compensation costs, business development costs and facilities and infrastructure costs. During the three- month period ended December 31, 2007, general and administrative expenses increased by 62% as compared to the three-month period ended December 31, 2006, principally due to increased legal expenses, as well as equity compensation costs and facilities and infrastructure costs.

As a result of the factors outlined above, and, in particular, the increase in conditional access and new technologies revenue, operating income was $49.5 million, or 23.0% of revenue, for the three-month period ended December 31, 2007, compared to $37.4 million, or 22.7% of revenue, for the three-month period ended December 31, 2006. Operating income was $107.8 million, or 25.6% of revenue, for the six-month period ended December 31, 2007, compared to $82.0 million, or 24.9% of revenue, for the six-month period ended December 31, 2006.

We estimate that the weaker U.S. dollar increased our revenue by approximately $17 million and increased our operating income by approximately $11 million in the six-month period ended December 31, 2007 compared to what would have been achieved had foreign exchange rates been consistent with those prevailing in the corresponding period of the prior fiscal year. Similarly, for the three-month period ended December 31, 2007, we estimate that the weaker U.S. dollar increased our revenue by approximately $9 million and our operating income by approximately $3 million.

As of December 31, 2007, we had cash and cash equivalents totaling $663.5 million. Our accumulated cash is being held with the intention of using it for the future development of the business and there are currently no plans to pay any dividends to shareholders. During the six-month period ended December 31, 2007, cash from operating activities was $75.1 million and we paid a net $10.5 million in respect of business acquisitions. We had a net inflow of cash and cash equivalents of $64.6 million in the six-month period ended December 31, 2007, compared to a net outflow of cash and cash equivalents before purchases of short-term investments of $26.1 million in the six-month period ended December 31, 2006.

FOREIGN EXCHANGE RATES

Average foreign exchange rates used in the year-to-date results are as follows:

For the Six Months Ended
December 31,
2007 2006

U.K. Pounds Sterling/U.S. Dollar $2.03 $1.89
Euro/U.S. Dollar $1.41 $1.28
Israeli Shekel/U.S. Dollar $0.25 $0.24

ABOUT NDS

NDS Group plc (NASDAQ:NNDS), a majority-owned subsidiary of News Corporation, supplies open end-to-end digital technology and services to digital pay-television operators and content providers. See www.nds.com for more information about NDS.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This document may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from these expectations due to changes in global economic, business, competitive market, regulatory and other factors. More detailed information about these and other factors that could affect future results is contained in our filings with the U.S. Securities and Exchange Commission. Any "forward-looking statements" included in this document are made only as of the date of this document and we do not have any obligation, nor do we undertake, to publicly update any "forward-looking statements" to reflect subsequent events or circumstances, except as required by law.

CONTACT

NDS Group plc Breakaway Communications U.S.
Yael Fainaro (Investor Relations) Kelly Fitzgerald
Tel: +44 20 8476 8287 Tel: +1 212 616 6006

CONFERENCE CALL

Dr. Abe Peled, Chairman and Chief Executive Officer, and Mr. Alex Gersh, Chief Financial Officer, will host a conference call to discuss this announcement and answer questions at 9.00 a.m. New York time (2.00 p.m. London time) on Tuesday, January 29, 2008.

Dial-in
U.S. toll free: 1 866 832 0717
U.K. freephone: 0800 073 8967
International dial-in: +44 (0)1452 562 716

Replay (available for seven days)
U.S. toll free replay: 1 866 247 4222
U.K. replay: 0845 245 5205
International replay: +44 (0)1452 550 000
Replay passcode: 28132973#

The live webcast and conference call will be available at: http://investor.shareholder.com/nds/webcasts.cfm starting at 9.00 a.m. New York time (2.00 p.m. London time) on Tuesday, January 29, 2008. Please register for the event now by clicking on the "Second Quarter Results 2008" link on that page. For those of you who are not able to attend this live broadcast online, the presentation will be recorded and available on the same page three hours following the original broadcast.

An audio replay will also be available on the NDS website (www.nds.com) from approximately 12.00 noon (London time) on January 30, 2008.

NDS Group plc
Unaudited Consolidated Statements of Operations

For the three months For the six months
ended December 31, ended December 31,
(in thousands, except
per-share amounts) 2007 2006 2007 2006

Revenue:
Conditional access $119,411 $98,184 $240,994 $191,031
Integration, development &
support 12,844 12,683 23,753 31,095
License fees & royalties 29,061 23,450 58,005 47,800
New technologies 51,382 28,922 93,840 56,421
Other 2,250 1,823 3,232 2,877

Total revenue 214,948 165,062 419,824 329,224

Cost of goods and services
sold (81,486) (61,118) (149,942) (123,353)

Gross margin 133,462 103,944 269,882 205,871

Operating expenses:
Research & development (48,040) (43,309) (99,051) (77,975)
Sales & marketing (14,042) (9,314) (23,662) (17,291)
General & administration (18,538) (11,411) (32,758) (23,688)
Amortization of other
intangibles (3,332) (2,510) (6,615) (4,927)

Total operating expenses (83,952) (66,544) (162,086) (123,881)

Operating income 49,510 37,400 107,796 81,990

Interest income 7,584 6,500 14,956 12,512

Income before income tax
expense 57,094 43,900 122,752 94,502

Income tax expense (16,725) (13,609) (36,089) (29,123)

Net income $40,369 $30,291 $86,663 $65,379

Net income per share:
Basic net income per share $0.70 $0.53 $1.50 $1.15
Diluted net income per share $0.68 $0.52 $1.48 $1.13

NDS Group plc
Consolidated Balance Sheets

As of As of
December 31, June 30,
2007 2007
(in thousands, except share amounts) (Unaudited) (Audited)

ASSETS
Current assets:
Cash and cash equivalents $663,545 $592,750
Accounts receivable, net 139,845 134,624
Accrued income 47,725 40,605
Inventories, net 67,944 54,133
Prepaid expenses 21,541 19,415
Other current assets 4,264 3,926

Total current assets 944,864 845,453

Property, plant & equipment, net 50,806 54,801
Goodwill 132,257 124,614
Other intangibles, net 61,548 63,080
Other non-current assets 72,076 56,905

Total assets $1,261,551 $1,144,853

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $25,672 $22,110
Deferred income 83,649 75,777
Accrued payroll costs 30,611 31,186
Accrued expenses 37,749 37,473
Income tax liabilities 29,432 17,693
Other current liabilities 21,336 18,287

Total current liabilities 228,449 202,526

Deferred income 133,629 157,517
Other non-current liabilities 56,821 46,537

Total liabilities 418,899 406,580

Commitments and contingencies
Shareholders' equity:
Series A ordinary shares, par value $0.01 per
share: 16,110,056 and 15,718,904 shares
outstanding as of December 31, and June 30,
2007, respectively 161 157
Series B ordinary shares, par value $0.01 per
share: 42,001,000 shares outstanding as of
December 31, and June 30, 2007, respectively 420 420
Deferred shares, par value £1 per share:
42,000,002 shares outstanding as of
December 31, and June 30, 2007 64,103 64,103
Additional paid-in capital 578,652 563,388
Retained earnings 142,769 56,106
Other comprehensive income 56,547 54,099

Total shareholders' equity 842,652 738,273

Total liabilities and shareholders' equity $1,261,551 $1,144,853

NDS Group plc
Unaudited Consolidated Statements of Cash Flows

For the six months
ended December 31,
(in thousands) 2007 2006

Operating activities:
Net income $86,663 $65,379

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,360 9,120
Amortization of other intangibles 6,615 4,927
Equity-based compensation 8,492 4,378
Other 390 399
Change in operating assets and liabilities, net
of acquisitions:
Inventories (13,811) (11,371)
Receivables and other assets (29,020) (38,168)
Deferred income (16,016) 31,465
Accounts payable and other liabilities 20,396 (6,730)

Net cash provided by operating activities 75,069 59,399

Investing activities:
Capital expenditure (6,700) (10,120)
Short-term investments, net - (18,986)
Business acquisitions, net of cash acquired (10,537) (82,456)

Net cash used in investing activities (17,237) (111,562)

Financing activities:
Issuance of shares 6,736 7,035

Net increase (decrease) in cash and cash
equivalents 64,568 (45,128)

Cash and cash equivalents, beginning of period 592,750 320,636
Currency exchange movements 6,227 4,550

Cash and cash equivalents, end of period $663,545 $280,058

First Call Analyst:
FCMN Contact:

Source: NDS Group plc

CONTACT: Yael Fainaro, Investor Relations of NDS Group plc,
+44 20 8476 8287; or Kelly Fitzgerald of Breakaway Communications U.S.,
+1-212-616-6006, for NDS Group plc

Web site:

http://www.nds.com/
http://investor.shareholder.com/nds/webcasts.cfm

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