China Digital TV Announces Unaudited Third Quarter 2014 Results

China Digital TV Announces Unaudited Third Quarter 2014 Results

BEIJING, Nov. 18, 2014 /PRNewswire/ -- China Digital TV Holding Co., Ltd. (NYSE: STV) ("China Digital TV" or the "Company"), the leading provider of conditional access ("CA") systems and comprehensive services to China's expanding digital television market, today announced its unaudited financial results for the third quarter ended September 30, 2014.

Highlights for the Third Quarter 2014




-- Net revenues in the third quarter of 2014 were US$17.0 million,
representing a 26.6% decrease from the same period in 2013 and a 1.1%
decrease from the second quarter of 2014.
-- China Digital TV shipped approximately 3.35 million smart cards in the
third quarter of 2014, compared to 4.76 million in the same period in
2013 and 3.55 million in the third quarter of 2014.
-- Gross margin in the third quarter of 2014 was 75.5%, compared to 74.0%
in the same period in 2013 and 73.3% in the second quarter of 2014.
-- Diluted earnings per American depositary share, or ADS (one ADS
representing one ordinary share), in the third quarter of 2014 were
US$0.02, compared to US$0.08 in the same period in 2013 and US$0.07 in
the second quarter of 2014.
"During the third quarter of 2014, shipments of approximately 3.35 million smart cards came in slightly below our expectations, as digital penetration increased," said Dr. Lu Zengxiang, China Digital TV's acting chief executive officer and acting chief financial officer. "Net revenues were still in line with guidance due to an unexpected delivery of surface mounted chips and system integrations overseas. In the domestic market, steady demand for smart cards was driven by our major customers, including those in Jiangxi, Shandong, Guangdong, Sichuan and Jiangsu provinces."

Dr. Lu continued, "In newer market segments related to cable TV, we continue to push forward with our diversification strategy to provide value-added services. This quarter, we reached an agreement with multimedia company Shanghai Oriental Cable Network Co., Ltd. to provide a cloud service platform capable of covering 5 million cable TV subscribers. We also signed a contract with Jishi Media Co., Ltd. to provide new broadcast platforms. Overseas, we won a tender to supply 900,000 smart cards to CANTV, the leading integrated telecommunication service provider in Venezuela, for use on CANTV's direct-to-home platform, which covers the entire territory of Venezuela. We're pleased with our continuing progress in developing markets."

Dr. Lu added, "We'll remain focused on maximizing efficiency in the coming quarters and are confident operating margins will improve as a result."







Third Quarter 2014 Results

(Note: Unless otherwise stated, all financial statement measures stated in this press release are based on generally accepted accounting principles in the United States ("U.S. GAAP").)

In the third quarter of 2014, China Digital TV had net revenues of US$17.0 million, a decrease of 26.6% from the third quarter of 2013 and a decrease of 1.1% from the second quarter of 2014. The year-over-year decrease was primarily due to a decrease in revenues from smart card sales. The quarter-over-quarter decrease was principally due to decreases in revenues from licensing income and smart card sales, which were partially offset by increases in revenues from sales of other products, such as surface mounted chips, as well as head-end system integration.

In the third quarter of 2014, revenues from the Company's top five customers accounted for 20.8% of total revenues, compared to 23.7% in the second quarter of 2014.

Revenue Breakdown



For the three months ended
--------------------------

September June 30, September
30, 30,

2014 2014 2013
---- ---- ----

(in thousands of U.S. dollars)
-----------------------------

Products:

Smart cards $14,382 $14,990 $21,315

Other products 1,556 946 1,001

Subtotal 15,938 15,936 22,316
------ ------ ------

Services:

Head-end system integration 713 255 286

Head-end system development 208 350 235

Licensing income 182 868 335

Royalty income 126 4 279

Other service 2 25 1

Subtotal 1,231 1,502 1,136
----- ----- -----

Total revenues $17,169 $17,438 $23,452
======= ======= =======

Revenues from smart cards and other products were US$15.9 million in the third quarter of 2014, a decrease of 28.6% from the same period in 2013 and relatively stable from the second quarter of 2014. The year-over-year decrease was primarily due to a decrease in revenues from smart card sales, which was partially offset by an increase in revenues from sales of other products, such as surface mounted chips. Revenues from smart cards and other products remained relatively stable quarter over quarter, primarily due to an increase in revenues from sales of other products, and a decrease in revenues from smart card sales. Revenues from sales of smart cards and other products accounted for 92.8% of total revenues in the third quarter of 2014, compared to 91.4% in the preceding quarter.

Revenues from services were US$1.2 million in the third quarter of 2014, an increase of 8.4% from the same period in 2013 and a decrease of 18.0% from the second quarter of 2014. The year-over-year increase was primarily due to an increase in revenues from head-end system integration, which was partially offset by decreases in licensing income and royalty income. The quarter-over-quarter decrease was mainly due to a decrease in revenue from licensing income, which was partially offset by an increase in head-end system integration. Revenues from services accounted for 7.2% of total revenues in the third quarter of 2014, compared to 8.6% in the preceding quarter.



Gross profit in the third quarter of 2014 was US$12.8 million, a decrease of 25.1% from the same period in 2013 and an increase of 1.8% from the second quarter of 2014. Gross margin, which is equal to gross profit divided by net revenues, was 75.5% in the third quarter of 2014, compared to 74.0% in the same period in 2013 and 73.3% in the second quarter of 2014. The year-over-year and quarter-over-quarter increases were principally due to decreases in cost of revenues. In the third quarter of 2013 and second quarter of 2014, higher cost of revenues was mainly attributable to inventory write-downs with respect to multimedia home entertainment boxes and integrated chips respectively.

In the third quarter of 2014, the average selling price ("ASP") of smart cards increased by 1.7% compared to the second quarter of 2014. In addition, the unit cost of smart cards increased by 5.5% compared to the second quarter of 2014.

Operating expenses in the third quarter of 2014 were US$10.5 million, a decrease of 6.3% from the same period in 2013 and an increase of 12.3% from the second quarter of 2014.


-- Research and development expenses in the third quarter of 2014 were
US$4.7 million, a decrease of 11.9% from the same period in 2013 and an
increase of 13.5% from the second quarter of 2014. The year-over-year
decrease was primarily due to a decrease in project development
expenses. The quarter-over-quarter increase was mainly due to an
increase in personnel related expenses resulting from higher headcount.


-- Selling and marketing expenses in the third quarter of 2014 were US$3.4
million, a decrease of 4.5% from the same period in 2013 and an increase
of 3.6% from the second quarter of 2014. The year-over-year decrease was
mainly due to a decrease in marketing expenses. The quarter-over-quarter
increase was primarily due to an increase in marketing expenses.
-- General and administrative expenses in the third quarter of 2014 were
US$2.4 million, an increase of 3.6% from the same period in 2013 and an
increase of 24.3% from the second quarter of 2014. The year-over-year
increase was mainly due to an increase in consulting expenses, which was
partially offset by decreases in share-based compensation expenses and
allowance for doubtful accounts. The quarter-over-quarter increase was
primarily due to an increase in allowance for doubtful accounts and
consulting expenses. In the preceding quarter, a portion of bad debt
provisions was written back as related accounts receivable had been
received.


Income from operations in the third quarter of 2014 was US$2.3 million, a 60.6% decrease from the same period in 2013 and a 28.4% decrease from the second quarter of 2014.

Operating margin, defined as income from operations divided by net revenues, in the third quarter of 2014 was 13.7%, compared to 25.6% in the same period in 2013 and 19.0% in the second quarter of 2014.

Interest income in the third quarter of 2014 was US$0.1 million, a 73.8% decrease from the same period in 2013 and a 58.7% decrease from the second quarter of 2014.



Income tax expenses in the third quarter of 2014 were US$1.6 million, compared to US$2.1 million in the same period of 2013 and US$0.3 million in the second quarter of 2014. The year-over-year decrease was mainly due to a decrease in taxable income and in income tax rate. The Company's PRC operating subsidiary, Beijing Super TV Co., Ltd. ("Super TV") accrued income tax expenses at a rate of 10% in the third quarter of 2014, compared to 15% in the third quarter of 2013. In the fourth quarter of 2013, Super TV was designated as a "key software enterprise" for the tax years of 2013 and 2014 by the relevant PRC government authorities and, as a result, was entitled to a preferential income tax rate of 10% in each of those years. As Super TV accrued income tax expenses at a rate of 15% in the first three quarters of 2013, the accrued income tax expenses were partially reversed in the fourth quarter of 2013. The quarter-over-quarter increase was primarily due to the Company's reorganization in the preceding quarter. In June 2014, the Company completed an internal reorganization. As a result of the reorganization, income tax expenses were reduced due to deductible investment losses arising from the equity transfers under the reorganization.

Net loss attributable to non-controlling interest in the third quarter of 2014 was US$0.4 million, a decrease of 24.5% from the same period in 2013 and a decrease of 13.0% from the second quarter of 2014. The year-over-year and quarter-over-quarter decreases were largely due to decreases in net losses recorded by the Company's majority-owned subsidiaries.



Net income attributable to holders of ordinary shares in the third quarter of 2014 was US$1.5 million, a decrease of 68.4% from the same period in 2013 and a decrease of 65.9% from the second quarter of 2014.

Non-GAAP net income attributable to holders of ordinary shares, defined as net income excluding certain non-cash expenses, such as share-based compensation expenses, amortization of acquired intangible assets from business acquisitions and equity method investments, in the third quarter of 2014 was US$1.7 million, a decrease of 67.1% from the same period in 2013 and a decrease of 62.9% from the second quarter of 2014. 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 September 30, 2014, China Digital TV had cash and cash equivalents and restricted cash totaling US$55.5 million. In the third quarter of 2014, cash flow generated from operations was US$1.2 million.



Unaudited Additional Information

The Company sets forth at the end of this press release unaudited additional information relating to the financial results for its CA business, which consists of smart card products and other related products, such as surface mounted chips as well as related services; and other business, which consists of other products, such as multimedia home entertainment boxes and cloud computing, as well as related services. In the third quarter of 2014, revenues from the Company's CA business were US$16.8 million, accounting for 98.0% of total revenues, and revenues from other business were US$0.3 million, accounting for 2.0% of total revenues. Gross profit of the CA business in the third quarter of 2014 was US$12.8 million and gross profit of other business in the third quarter of 2014 was US$0.001 million.



Business Outlook

Based on information available as of November 18, 2014, China Digital TV expects smart card shipment volumes in the fourth quarter of 2014 to be in the range of 4.5 million to 5.0 million. Net revenues in the fourth quarter of 2014 are expected to be in the range of US$22.3 million to US$24.4 million.



Conference Call Information

The Company will hold an earnings conference call at 7:00 p.m. on Tuesday, November 18, 2014, U.S. Eastern Time (8:00 a.m. on Wednesday, November 19, 2014, Beijing/Hong Kong Time).

Conference Call Dial-in Information



United States Toll Free: +1-877-870-4263

International: +1-412-317-0790

Hong Kong Toll Free: 800-905-945

China Toll Free: 400-120-1203

Passcode: China Digital TV Conference
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 9:00 p.m. on November 18, 2014 and 9:00a.m. on November 25, 2014 U.S. Eastern Time.

Replay Dial-in Information



United States: +1-877-344-7529

International: +1-412-317-0088

Conference ID: 10055855
In addition, 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 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 2014 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 filed with the 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 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 such 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:

Nan Hao

Investor Relations Manager

Tel: +86-10-6297-1199 x 9780

Email: ir@chinadtv.cn

Brunswick Group

Tel: +86-10-5960-8600

Email: chinadigital@brunswickgroup.com

In the United States:

Brunswick Group

Tel: +1-212-333 3810

E-mail: chinadigital@brunswickgroup.com









China Digital TV Holding Co., Ltd.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands of U.S. dollars, except share and per share data )



For the three months ended
--------------------------

September 30, June 30, September 30,

2014 2014 2013
---- ---- ----


Revenues:

Products $15,938 $15,936 $22,316

Services 1,231 1,502 1,136
----- ----- -----

Total revenues 17,169 17,438 23,452

Business and sales related taxes (205) (279) (339)
---- ---- ----

Net revenues 16,964 17,159 23,113


Cost of revenues:

Products (3,276) (3,656) (4,927)

Services (886) (924) (1,089)
---- ---- ------

Total cost of revenues (4,162) (4,580) (6,016)

Gross profit 12,802 12,579 17,097


Operating expenses:

Research and development expenses (4,677) (4,121) (5,309)

Selling and marketing expenses (3,368) (3,250) (3,528)

General and administrative expenses (2,428) (1,953) (2,343)
------ ------ ------

Total operating expenses (10,473) (9,324) (11,180)


Income from operations 2,329 3,255 5,917


Interest income 133 322 508

Other income 158 713 4
--- --- ---

Income before income taxes 2,620 4,290 6,429

Income tax (expenses)/benefits

Income tax-current (539) (7,964) (1,641)

Income tax-deferred (1,051) 7,700 (508)
------ ----- ----

Net income before net income from equity method investments 1,030 4,026 4,280

Net income/(loss) from equity method investments, net of income taxes 93 (60) (29)

Net income 1,123 3,966 4,251

Net loss attributable to noncontrolling interest 376 432 498
--- --- ---

Net income attributable to holders of ordinary shares $1,499 $4,398 $4,749
====== ====== ======


Net income per share attributable to holders of ordinary shares

Basic $0.03 $0.07 $0.08
===== ===== =====

Diluted $0.02 $0.07 $0.08
===== ===== =====



Net income $1,123 $3,966 $4,251

Other comprehensive income/(loss), net of tax

Foreign currency translation adjustment 778 (116) 189
--- ---- ---

Comprehensive income 1,901 3,850 4,440

Comprehensive loss attributable to noncontrolling interest 361 427 494
--- --- ---


Comprehensive income attributable to holders of ordinary shares $2,262 $4,277 $4,934
====== ====== ======



Weighted average shares used in calculating net income per ordinary share

Basic 59,410,254 59,291,789 59,110,789
========== ========== ==========

Diluted 62,376,044 61,873,871 59,131,310
========== ========== ==========









China Digital TV Holding Co., Ltd.

Unaudited Condensed Consolidated Balance Sheets

(in thousands of U.S. dollars)


September 30, December 31,

2014 2013
---- ----

Assets

Current assets:

Cash and cash equivalents $55,375 $79,085

Restricted cash 154 919

Notes receivable 3,549 4,484

Accounts receivable, net 41,716 45,905

Inventories, net 6,243 5,027

Prepaid expenses and other current
assets 6,999 4,032

Deferred costs-current 606 141

Deferred tax assets-current 3,284 2,546
----- -----

Total current assets 117,926 142,139

Long-term receivable 90 224

Property and equipment, net 3,347 1,170

Intangible assets, net 464 6

Goodwill 1,417 563

Equity method investments 2,600 3,551

Deferred costs-non-current 438 214

Deferred tax assets-non-current 829 939
---

Total assets 127,111 148,806
======= =======


LIABILITIES AND EQUITY

Current liabilities:

Accounts payable 3,339 2,207

Notes payable 406 884

Accrued expenses and other current
liabilities 12,614 13,134

Dividend payable - 57

Deferred revenue-current 5,990 6,542

Income tax payable 2,758 997

Deferred tax liabilities-current 2,469 8,222

Government subsidies-current 1,792 710
----- ---

Total current liabilities 29,368 32,753

Deferred revenue-non-current 612 135

Government subsidies-non-current 4,436 4,946

Deferred tax liabilities-non-
current 116 -
--- ---

Total liabilities 34,532 37,834


EQUITY

China Digital TV Holding Co., Ltd.
shareholders'

equity:

Ordinary shares 30 30

Additional paid-in capital 35,383 32,037

Statutory reserve 17,907 17,907

Retained earnings 11,440 31,122

Accumulated other comprehensive
income 26,550 28,940
------ ------

Total China Digital TV Holding
Co., Ltd. 91,310 110,036

shareholders' equity


Noncontrolling interest 1,269 936
----- ---

Total equity 92,579 110,972
------ -------

TOTAL LIABILITIES AND
EQUITY $127,111 $148,806
======== ========


Reconciliation of Non-GAAP Measures

Non-GAAP net income attributable to holders of ordinary shares excludes certain non-cash expenses, such as share-based compensation expenses, amortization of intangible assets acquired from business acquisitions and equity method investments. The Company believes that the non-GAAP net income provides 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,

2014 2014 2013
---- ---- ----

(in U.S. dollars, in thousands)

Net income
attributable to
holders of
ordinary shares -
GAAP $1,499 $4,398 $4,749

Share-based
compensation
expenses 173 218 433

Amortization of
intangible assets
from business
acquisitions and
equity method
investments 52 37 54

Net income
attributable to
holders of
ordinary shares-
Non-GAAP $1,724 $4,653 $5,236




China Digital TV Holding Co., Ltd.

Unaudited Additional Information

(in thousands of U.S. dollars )


For the three months ended
--------------------------

September 30, June 30, September 30,

2014 2014 2013
---- ---- ----

Revenues:

CA $16,826 $16,923 $22,830

Others 343 515 622
--- --- ---

Total revenues 17,169 17,438 23,452
------ ------ ------


Business and sales related taxes:

CA (202) (283) (325)

Others (3) 4 (14)
--- --- ---

Total business and sales related taxes (205) (279) (339)
---- ---- ----


Net revenues:

CA 16,624 16,640 22,505

Others 340 519 608
--- --- ---

Total net revenues 16,964 17,159 23,113
------ ------ ------


Cost of revenues:

CA (3,823) (3,593) (5,071)

Others (339) (987) (945)
---- ---- ----

Total cost of revenues (4,162) (4,580) (6,016)
------ ------ ------


Gross profit (loss):

CA 12,801 13,047 17,434

Others 1 (468) (337)
--- ---- ----

Total gross profit 12,802 12,579 17,097
------ ------ ------


Operating expenses:

Research and development expenses

CA (1,829) (1,987) (2,628)

Others (2,848) (2,134) (2,681)
------ ------ ------

Total research and development expenses (4,677) (4,121) (5,309)
------ ------ ------


Selling and marketing expenses

CA (1,203) (1,230) (1,673)

Others (2,165) (2,020) (1,855)
------ ------ ------

Total selling and marketing expenses (3,368) (3,250) (3,528)
------ ------ ------


General and administrative expenses

CA (1,301) (1,349) (1,222)

Others (1,127) (604) (1,121)
------ ---- ------

Total general and administrative expenses (2,428) (1,953) (2,343)
------ ------ ------


Total operating expenses (10,473) (9,324) (11,180)
------- ------ -------


Income (loss) from operations:

CA 8,468 8,481 11,911

Others (6,139) (5,226) (5,994)
------ ------ ------

Income from operations $2,329 $3,255 $5,917
====== ====== ======


SOURCE China Digital TV Holding Co., Ltd.

China Digital TV Holding Co., Ltd.

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


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