China Digital TV Announces Unaudited Second Quarter 2010 Results

China Digital TV Announces Unaudited Second Quarter 2010 Results

BEIJING, Aug. 17 /PRNewswire-Asia/ -- China Digital TV Holding Co., Ltd. (NYSE:STV) ("China Digital TV" or the "Company"), the leading provider of conditional access ("CA") systems to China's expanding digital television market, today announced its unaudited financial results for the second quarter ended June 30, 2010.

Highlights for the Second Quarter 2010
-- Net revenues in the second quarter of 2010 were US$19.1 million, above
the high-end of the Company's guidance, and representing a 36.4%
increase from the first quarter of 2010 and a 31.1% increase from the
same period in 2009.

-- China Digital TV shipped approximately 3.61 million smart cards in the
second quarter of 2010, a record for quarterly shipment volume in the
Company's operating history, compared to 2.57 million smart cards
shipped in the first quarter of 2010 and 2.13 million shipped in the
same period in 2009.

-- According to market data collected by the Company, China Digital TV
entered into 12 out of a total of 18 new contracts to install CA
systems in China in the second quarter of 2010.

-- Gross margin in the second quarter was 78.7%, compared to 74.0% in the
same period in 2009 and 77.5% in the first quarter of 2010.

-- Diluted earnings per American depositary share (one ADS representing
one ordinary share), or ADS, in the second quarter of 2010 were US$0.15,
compared to US$0.12 in the same period in 2009.

"We are pleased to deliver strong financial results for the second quarter, largely driven by record-high smart card shipments," said Mr. Jianhua Zhu, China Digital TV's chairman and chief executive officer. "We saw greater demand from clients in our core CA business as cable TV operators increased their investment in digitalization projects in response to government policies encouraging service integration of broadcast TV, telecom and internet as well as the accelerating consolidation in the cable industry."

"In a quarter in which the overall Chinese CA industry experienced a significant recovery in demand, we are particularly pleased that we continued to gain market share from competitors, demonstrating our industry leadership and ability to win new contracts in our core CA business. For new businesses, we plan to focus more on the research and development of IPTV, handheld TV solutions, video-on-demand and TV gaming. We recognize that these are long-term investments with moderate near-term revenue potential, but we believe they are important in positioning China Digital TV to benefit from the next wave of growth in China's TV industry," added Mr. Zhu.

Mr. Zhenwen Liang, China Digital TV's acting chief financial officer, commented, "We have experienced a continuous pickup in smart card demand which began in the fourth quarter of 2009 and escalated in the second quarter this year. While encouraged by the prospect of a strong second half of 2010, we remain mindful of the changing policy environment and industry landscape which may affect smart card demand over the next few quarters. We will continue to manage for profitable growth by increasing operational efficiency and will take advantage of the network convergence to seek out investment opportunities along the industry value chain."

Second Quarter 2010 Results

(Note: Unless otherwise stated, all financial statement measures stated in this press release are based on U.S. GAAP.)

In the second quarter of 2010, China Digital TV had net revenues of US$19.1 million, an increase of 31.1% from the second quarter of 2009 and an increase of 36.4% from the first quarter of 2010. The year-over-year and quarter-over-quarter increases in net revenues were primarily due to an increase in revenues from smart card sales, which was partially offset by a decline in revenues from services.

Revenue Breakdown
For the three months ended
June 30, March 31, June 30,
2010 2010 2009
(in U.S. dollars, in thousands)
Products
Smart Cards $ 18,260 $ 13,124 $ 12,593
Other products 185 48 10
Subtotal 18,445 13,172 12,603
Services
Head-end system integration 381 396 1,361
Head-end system development 73 73 103
Licensing income 253 395 319
Royalty income 70 56 209
Other service 1 1 85
Subtotal 778 921 2,077
Total revenues $ 19,223 $ 14,093 $ 14,680

Revenues generated from smart cards and related products were US$18.4 million in the second quarter of 2010, an increase of 46.4% from the same period in 2009 and an increase of 40.0% from the first quarter of 2010. Sales of smart cards and related products accounted for 96.0% of total revenues in the second quarter of 2010, up from 93.5% in the first quarter of 2010. The year-over-year and quarter-over-quarter increases were primarily due to an increase in the volume of smart card shipment, reflecting a recovery in market demand and increased investment from cable TV operators.

In the second quarter of 2010, revenues from the Company's top five customers accounted for 28.9% of total revenues, compared to 27.1% in the first quarter of 2010.

Revenues from services were US$0.8 million in the second quarter of 2010, a decrease of 62.5% from the same period in 2009 and a decrease of 15.5% from the first quarter of 2010. Service revenues accounted for 4.0% of total revenues in the second quarter of 2010. The year-over-year decrease was primarily due to a decline in system integration revenue. The quarter-over-quarter decline was largely due to lower licensing income.

Gross profit in the second quarter of 2010 was US$15.1 million, an increase of 39.3% from the same period in 2009 and an increase of 38.6% from the first quarter of 2010. Gross margin, which is equal to gross profit divided by net revenues, was 78.7% in the second quarter of 2010, compared to 74.0% in the same period in 2009 and 77.5% in the first quarter of 2010. The year-over-year and quarter-over-quarter increases in gross margin were primarily due to change in product mix, reflecting improvement in higher margin businesses, principally sales of smart cards, relative to lower margin businesses, such as services.

In the second quarter of 2010, the average selling price ("ASP") of smart cards decreased by 0.8% compared to the first quarter of 2010. In addition, the unit cost of smart cards decreased by 2.7% compared to the first quarter of 2010.

Operating expenses in the second quarter of 2010 were US$6.2 million, an increase of 21.7% from the same period in 2009 and an increase of 9.8% from the first quarter of 2010.

-- Research and development expenses for the second quarter were US$2.8
million, an increase of 26.0% from the same period in 2009 and an
increase of 33.7% from the first quarter of 2010. The year-over-year
and quarter-over-quarter increases were primarily due to an increase in
the number of research and development staff and an investment of about
US$ 0.44 million in certain research and development projects co-
developed with Tsinghua University in Beijing.

-- Selling and marketing expenses for the second quarter were US$2.0
million, an increase of 14.7% from the same period in 2009 and an
increase of 7.8% from the first quarter of 2010. The year-over-year and
quarter-over-quarter increases were mainly due to an increase in both
the number of sales staff and the amount of performance-related bonuses
awarded to those staff.

-- General and administrative expenses for the second quarter were US$1.4
million, an increase of 24.1% from the same period in 2009 and a
decrease of 17.1% from the first quarter of 2010. The year-over-year
increase was mainly due to increases in professional service fees and
bad debt expenses. The quarter-over-quarter decrease was mainly due to
less share-based compensation expenses relating to options granted to
employees in the second quarter of 2010.

Income from operations in the second quarter of 2010 was US$8.9 million, a 55.0% increase from the same period in 2009 and a 69.4% increase from the first quarter of 2010.

Operating margin, defined as income from operations divided by net revenues, in the second quarter of 2010 was 46.5%, compared to 39.3% in the same period in 2009 and 37.4% in the first quarter of 2010.

Income tax expenses in the second quarter of 2010 were US$1.2 million, an increase of 159.2% from the same period in 2009 and an increase of 32.6% from the first quarter of 2010. In 2010, the Company expects to be subject to a 15% preferential tax rate under the relevant PRC tax regulations, compared with 7.5% tax rate adopted in 2009.

Net income attributable to China Digital TV Holding Co., Ltd., in the second quarter of 2010 was US$8.8 million, an increase of 29.6% from the same period of 2009 and an increase of 54.1% from the first quarter of 2010.

Non-GAAP net income attributable to China Digital TV Holding Co., Ltd., defined as net income excluding certain non-cash expenses, such as share-based compensation expenses and amortization of intangibles acquired from business acquisitions, in the second quarter of 2010 was US$9.1 million, an increase of 24.5% from the same period in 2009 and an increase of 40.8% from the first quarter of 2010. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP measures" set forth at the end of this release.

Balance Sheet and Cash Flow

As of June 30, 2010, China Digital TV had cash and cash equivalents, restricted cash and short-term investments totaling US$236.8 million. In the second quarter of 2010, cash flow generated from operations was approximately US$6.1 million.

Business Outlook

Based on information available as of August 17, 2010, China Digital TV expects smart card shipments for the third quarter of 2010 to be in the range of 3.0 million to 3.2 million. Net revenues for the third quarter of 2010 are expected to be in the range of US$15.90 million to US$16.87 million, representing a year-over-year increase in the range of 31% to 39%.

Conference Call Information

The Company will hold an earnings conference call at 8:00 p.m. on Tuesday, August 17, 2010 Eastern Time (8:00 a.m. on Wednesday, August 18, Beijing/Hong Kong Time).

Conference Call Dial-in Information

United States Toll Free: +1-866-825-3209
International: +1-617-213-8061
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 August 17, 2010 and 11:00 p.m. on August 24, 2010 Eastern Time.

Replay Information

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

Passcode: 55362116

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 third 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 apply only as of the date of this press release.

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: ir@chinadtv.cn

Cynthia He
Brunswick Group LLC
Tel: +86-10-6566-2256
Email: chinadigital@brunswickgroup.com

In the US:
Kate Tellier
Brunswick Group LLC
Tel: +1-212-706-7879
Email: ktellier@brunswickgroup.com

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
June 30, March 31, June 30,
2010 2010 2009

Revenues:
Products $ 18,445 $ 13,172 $ 12,603
Services 778 921 2,077
Total revenues 19,223 14,093 14,680
Business taxes (94) (69) (84)
Net revenues 19,129 14,024 14,596

Cost of Revenues:
Products (3,482) (2,562) (2,319)
Services (588) (596) (1,470)
Total Cost of Revenues (4,070) (3,158) (3,789)
Gross Profit 15,059 10,866 10,807

Operating expenses:
Research and
development expenses (2,762) (2,066) (2,192)
Selling and marketing
expenses (2,009) (1,864) (1,751)
General and
administrative
expenses (1,400) (1,688) (1,128)
Total Operating
Expenses (6,171) (5,618) (5,071)

Income from operations 8,888 5,248 5,736

Interest income 1,414 1,397 1,590
Other income/(expense) (199) (14) (43)
Income before income
tax 10,103 6,631 7,283
Income tax benefits /
(expenses)
Income tax-current (1,312) (986) (484)
Income tax-deferred 125 91 26
Net income before net
(loss)income from 8,916 5,736 6,825
equity method
investments
Net income(loss) from
equity method
investments (74) 2 (6)
Net income 8,842 5,738 6,819
Net loss attributable to
noncontrolling interest -- -- (6)
Net income attributable
to China Digital
TV Holding Co., Ltd
shareholders $ 8,842 $ 5,738 $ 6,825

Net income per share:
Basic $ 0.15 $ 0.10 $ 0.12
Diluted $ 0.15 $ 0.10 $ 0.12

Weighted average shares
used in computation:
Basic 58,255,507 58,146,264 57,616,550
Diluted 58,812,265 58,758,162 58,466,825

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

June 30, December 31,
ASSETS 2010 2009
Current assets:
Cash and cash equivalents $ 188,333 $ 131,087
Restricted cash 2,516 16
Bank deposit maturing over
three months -- 64,021
Short-term investment 45,922 37,685
Notes receivable 2,023 2,836
Accounts receivable, net 15,077 11,229
Inventories 3,839 4,684
Prepaid expenses and other
current assets 4,539 4,550
Deferred costs-current 359 363
Deferred income taxes -
current 722 516
Total current assets 263,330 256,987
Property and equipment, net 2,093 2,308
Intangible assets, net 796 937
Goodwill 502 499
Long-term investments - 9,372 1,005
equity method investments
Long-term investments -
cost method investments 5,000 --
Long-term investments -
held-to-maturity securities -- 1,190
Deferred costs-non-current 383 392
Deferred income taxes -
non-current 187 170
Total assets 281,663 263,488

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (of which
373 and 641 as of June 30,
2010 and December 31, 2009
belonging to the
consolidated VIE without
recourse to the Company,
respectively) 1,216 660
Accrued expenses and other
current liabilities (of
which 1,971 and 2,421 as of
June 30, 2010 and December
31, 2009 belonging to the
consolidated VIE without
recourse to the Company,
respectively) 4,234 5,340
Deferred revenue - current
(of which 4,109 and 3,018
as of June 30, 2010 and
December 31, 2009 belonging
to the consolidated VIE
without recourse to the
Company, respectively) 4,728 3,453
Income tax payable (of
which nil and 130 as of
June 30, 2010 and December
31, 2009 belonging to the
consolidated VIE without
recourse to the Company,
respectively) 327 251
Total current liabilities 10,505 9,704
Deferred revenue-non-
current (of which 788 and
760 as of June 30, 2010 and
December 31, 2009 belonging
to the consolidated VIE
without recourse to the
Company, respectively) 788 760
Total Liabilities 11,293 10,464

Equity:
Ordinary shares 29 29
Additional paid-in capital 159,307 157,980
Statutory reserve 12,691 12,691
Accumulated profit 90,287 75,707
Accumulated other
comprehensive income 8,056 6,617
Total equity 270,370 253,024

TOTAL LIABILITIES AND EQUITY $ 281,663 $ 263,488

Reconciliation of Non-GAAP Measures

Non-GAAP net income attributable to China Digital TV Holding Co., Ltd. shareholders excludes certain non-cash expenses, such as share-based compensation expenses and amortization of intangible assets acquired from business acquisitions. 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
June 30, March 31, June 30,
2010 2010 2009
(in U.S. dollars, in thousands)
Net income attributable
to China Digital TV
Holding Co., Ltd
shareholders - GAAP $ 8,842 $ 5,738 $ 6,825
Share-based compensation 263 699 405
Amortization of intangible
assets from business
acquisitions 15 42 97
Net income attributable
to China Digital TV
Holding Co., Ltd
shareholders - Non-GAAP $ 9,120 $ 6,479 $ 7,327

Source: China Digital TV Holding Co., Ltd.

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

Web Site: http://ir.chinadtv.cn/

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