China Digital TV Announces Unaudited First Quarter 2009 Results

China Digital TV Announces Unaudited First Quarter 2009 Results

BEIJING, May 12 /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 first quarter ended March 31, 2009.

   Highlights for First Quarter 2009   -- China Digital TV shipped approximately 2.38 million smart cards during      the first quarter, an increase of 3.3% from the corresponding period in      2008. The Company cumulatively had shipped over 25 million smart cards      to customers as of the end of the first quarter of 2009.   -- According to market data collected by the Company, China Digital TV      entered into 4 out of a total of 7 new contracts to install CA systems      in China in the first quarter of 2009.   -- Net revenues in the first quarter were US$14.3 million, close to the      high-end of Company guidance.   -- Diluted earnings per ADS (one ADS representing one ordinary share) in      the first quarter were US$0.13.   

"Similar to the experience of other companies in China's CA industry, the first quarter was a challenging one for China Digital TV because of the weak economic environment and seasonality. Despite these challenges, we achieved net revenues of US$14.3 million, close to the high-end of our guidance, signed four out of seven new contracts available in the market, and strengthened our market leading position," said Mr. Jianhua Zhu, China Digital TV's chairman and chief executive officer.

"Given the current uncertain business conditions in our industry, we remain conservative about our near-term growth prospects. However, we are confident that our smart card shipments will see modest growth in 2009 based on recent customer feedback. For the long term, we are optimistic because the government-backed TV digitalization project will continue to benefit us and the various value-added service applications we have been investing in should drive future growth," Mr. Zhu continued.

Mr. Zhu noted that the Company continues to actively explore growth opportunities by investing in advanced content protection technologies, promising value-added services for digital television, as well as initiating the sale of CA systems to overseas markets.

China Digital TV's chief financial officer, Mr. Mason Xu, commented, "To better position ourselves in this difficult economy, we continue to take initiatives to improve operating efficiency by restructuring our organization to make it more streamlined and cost-efficient, enhancing executive supervision over day-to-day operations and managing headcount expansion. These efforts have begun to pay off in the form of better controlled operating expenses as evidenced in our results for the quarter."

First Quarter 2009 Results

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

In the first quarter of 2009, China Digital TV had net revenues of US$14.3 million, a decrease of 17.0% from the first quarter of 2008 and a decrease of 15.0% from the fourth quarter of 2008. The year-over-year decrease in net revenues was primarily due to decreases in the revenues from smart cards and related products and from head-end system integration. The quarter-over-quarter decrease was largely due to seasonality and decline in revenue from head-end system integration business.

   Revenue Breakdown                                      2009 Q1        2008 Q4         2008 Q1                                        (in U.S. dollars in thousands)   Products     Smart Cards                      13,518         15,351          15,785     Set-top boxes and others             14             71              37     Subtotal                         13,532         15,422          15,822   Services     Head-end system integration         439            873             855     Head-end system development          47             89             155     Licensing income                    260            323             350     Royalty income                      120            164             185     Subtotal                            866          1,449           1,545   Total revenues                     14,398         16,871          17,367    

Revenues from smart cards and related products were US$13.5 million in the first quarter of 2009, a decrease of 14.5% from the corresponding period of 2008 and a decrease of 12.3% from the fourth quarter of 2008. Sales of smart cards and related products accounted for 94.0% of total revenues for the quarter, up from 91.4% in the fourth quarter of 2008. The year-over-year decrease was primarily due to the decreases in the average selling price ("ASP") of smart cards in the past year, which was partially offset by a slight increase in the volume of smart card shipments. The quarter-over-quarter decrease was primarily due to the decrease in the volume of shipments of smart cards in the first quarter of 2009. The Company has historically experienced lower smart card sales in the first quarter of a year, as customers typically defer their major purchasing decisions during such a quarter due to the Chinese Lunar New Year holiday and an annual trade fair for the television broadcasting industry in the PRC that takes place in March every year.

In the first quarter of 2009, out of the Company's approximately 204 existing operator customers, 158 bought smart cards from the Company, compared with 162 in the fourth quarter of 2008. Revenues from the top five customers accounted for 35.4% of total revenues in the first quarter of 2009, compared to 30.4% in the fourth quarter of 2008.

Revenues from services were US$0.9 million in the first quarter of 2009, a decrease of 43.9% from the corresponding period in 2008 and a decrease of 40.2% from the fourth quarter of 2008. Service revenues accounted for 6.0% of total revenues for the quarter. The year-over-year and quarter-over-quarter decreases were primarily due to declines in system integration revenues as fewer head-end CA systems were installed by the Company for customers during the period.

Gross profit in the first quarter of 2009 was US$11.1 million, a decrease of 20.5% from the corresponding period of 2008 and a decrease of 17.3% from the fourth quarter of 2008. Gross margin was 77.4% in the first quarter of 2009, compared to 80.9% in the corresponding period in 2008 and 79.6% in the fourth quarter of 2008.

The year-over-year decline in gross margin was mainly due to the decrease in the ASP of smart cards. The quarter-over-quarter decline in gross margin was primarily due to a decrease in the margin of the head-end system integration business, which generated significantly lower revenues, while related cost of revenues remained relatively flat in the first quarter of 2009.

In the first quarter of 2009, the ASP for smart cards decreased by 2.0% compared to the fourth quarter of 2008. The unit cost for smart cards in the first quarter decreased by 1.7% compared to the fourth quarter due to a decrease in non-chip related costs.

Operating expenses for the first quarter of 2009 were US$4.8 million, an increase of 32.4% from the first quarter of 2008 and a decrease of 15.5% from the fourth quarter of 2008.

   -- Research and development expenses in the first quarter were US$1.9      million, an increase of 32.3% from the corresponding period of 2008 and      in line with the corresponding expenses for the fourth quarter of 2008.      The year-over-year increase was mainly due to increases in both      headcount and average salary, driven by the investment in content      protection technology and VAS.   -- Sales and marketing expenses for the first quarter of 2009 were US$1.5      million, an increase of 46.4% from the corresponding period of 2008 and      a decrease of 9.7% from the fourth quarter of 2008. The year-over-year      increase was mainly due to increases in both headcount and average      salary. The quarter-over-quarter decrease was primarily due to reduced      activities and traveling expenses associated with seasonality of our      sales and marketing operations.   -- General and administrative expenses for the first quarter of 2009 were      US$1.4 million, an increase of 19.8% from the corresponding period of      2008 and a decrease of 33.9% from the fourth quarter of 2008. The      year-over-year increase was mainly due to increases in both headcount      and average salary. The quarter-over-quarter decrease was mainly due to      decreases in professional service fees and bad debt expense. In the      first quarter, the Company also recognized a US$0.36 million      reimbursement from its ADR bank.   

Income from operations in the first quarter was US$6.3 million, a 39.2% decrease from the corresponding period of 2008 and an 18.6% decrease from the fourth quarter of 2008.

Operating margin, defined as income from operations divided by net revenues, in the first quarter of 2009 was 43.8%, compared to 59.8% in the corresponding period of 2008 and 45.7% in the fourth quarter of 2008.

Income tax expenses in the first quarter of 2009 were US$0.5 million, compared to income tax expenses of US$1.3 million in the corresponding period of 2008 and income tax benefits of US$1.6 million in the fourth quarter of 2008. For the first quarter and throughout 2009, the Company expects to be subject to a 7.5% preferential tax rate per relevant PRC taxation regulations.

Net income in the first quarter of 2009 was US$7.6 million, a decrease of 33.6% from the corresponding period of 2008 and a decrease of 38.0% from the fourth quarter of 2008.

Non-GAAP net income, defined as net income excluding certain non-cash expenses, including share-based compensation expenses and amortization related to business acquisitions, in the first quarter of 2009 was US$8.0 million, a decrease of 32.3% from the corresponding period of 2008 and a decrease of 36.7% from the fourth quarter of 2008.

As of March 31, 2009, China Digital TV had cash and cash equivalents, restricted cash and deposits with maturity over three months totaling US$209.5 million. Operating cash flow in the first quarter of 2009 was approximately US$2.3 million.

Business Outlook

Based on information available on May 12, 2009, China Digital TV expects smart card shipments for the second quarter of 2009 to be in the range of 2.35 million to 2.55 million. Net revenues for the second quarter of 2009 are expected to be in the range of US$14.5 million to US$15.5 million, representing a year-over-year decrease in the range of 20% to 25%. Based on internal sales projections, the Company remains confident that the second half of 2009 will see meaningful increases in smart card shipments compared to the first half of 2009.

Conference Call Information

The Company will hold an earnings conference call at 8:00 p.m. on Tuesday, May 12, 2009 Eastern Daylight Time (8:00 a.m. on Wednesday, May 13, Beijing/Hong Kong Time).

   Conference Call Dial-in Information    United States Toll Free:  +1-866-700-6979   International:            +1-617-213-8836   Hong Kong:                +852-3002-1672   China Toll Free:          +10-800-130-0399    Passcode:  China Digital TV Earnings Call   

Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A replay of the call will be available for one week between 10:00 p.m. on May 12, 2009 and 10:00 p.m. on May 19, 2009 Eastern Daylight Time.

   Replay Information    United States:            +1-888-286-8010   International:            +1-617-801-6888    Passcode:  63892592   

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 second quarter of 2009 and full year 2009 and comments by management in this announcement about trends in the CA systems, digital television, cable television and related industries in the PRC and China Digital TV's strategic and operational plans and future market positions. China Digital TV may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about China Digital TV's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from projections contained or implied in any forward-looking statement, including but not limited to the following: competition in the CA systems, digital television, cable television and related industries in the PRC and the impact of such competition on prices, our ability to implement our business strategies, changes in technology, the progress of the television digitalization in the PRC, the structure of the cable television industry or television viewer preferences, changes in PRC laws, regulations or policies with respect to the CA systems, digital television, cable television and related industries, including the extent of non-PRC companies' participation in such industries, and changes in political, economic, legal and social conditions in the PRC, including the government's policies with respect to economic growth, foreign exchange and foreign investment.

Further information regarding these and other risks and uncertainties is included in our annual report on Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. China Digital TV does not assume any obligation to update any forward-looking statements, which 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/ .

   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:   +86-10-6566-9504    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                                          March 31, December 31,  March 31,                                             2009      2008          2008   Revenues:     Products                             $13,532    $15,422  $     15,822     Services                                 866      1,449         1,545   Total revenues                          14,398     16,871        17,367     Business taxes                           (80)       (28)         (126)   Net revenue                             14,318     16,843        17,241    Cost of Revenues:     Products                              (2,663)    (3,050)       (2,624)     Services                                (569)      (390)         (664)   Total Cost of Revenues                  (3,232)    (3,440)       (3,288)   Gross Profit                            11,086     13,403        13,953    Operating expenses:     Research and development expenses     (1,904)    (1,915)       (1,439)     Selling and marketing expenses        (1,528)    (1,693)       (1,044)     General and administrative expenses   (1,387)    (2,097)       (1,158)   Total Operating Expenses                (4,819)    (5,705)       (3,641)    Income from operations                   6,267      7,698        10,312      Interest income                        1,713      2,604         2,379     Other income /(expense)                   28        328            --   Income before income tax                 8,008     10,630        12,691   Income tax benefits / (expenses)     Income tax-current                      (488)     2,054        (1,345)     Income tax-deferred                       27       (480)           35   Net income before net (loss)income    from equity investments                 7,547     12,204        11,381     Net income(loss) from equity      investments                               9        (11)            4   Net income                               7,556     12,193        11,385      Less: Net income attributable to       noncontrolling interest                  4          5            --   Net Income attributable to   China Digital TV Holding Co., Ltd      $ 7,560  $  12,198  $     11,385    Net income per share:   Basic ordinary shares                  $  0.13    $  0.22  $       0.20   Diluted ordinary shares                $  0.13    $  0.21  $       0.19    Weighted average shares used in    computation:    Basic ordinary shares               57,332,914 56,272,562    57,296,932    Diluted ordinary shares             58,479,390 57,613,559    61,082,377                          China Digital TV Holding Co., Ltd.                Unaudited Condensed Consolidated Balance Sheets                        (in U.S. dollars in thousands)                                                    March 31,     December 31,   ASSETS                                           2009               2008   Current assets:    Cash and cash equivalents                   $    132,924   $    202,947    Restricted cash                                       24             24    Bank deposit maturing over three months           76,539         68,887    Accounts receivable, net                          13,592         12,509    Inventories, net                                   3,076          4,014    Prepaid expenses and other current assets          5,790          3,974    Deferred costs-current                               319            326    Deferred income taxes - current                      224            201   Total current assets                              232,488        292,882    Property and equipment, net                        2,013          1,880    Intangible assets, net                             1,688          1,854    Goodwill                                             498            499    Long-term investments-equity method    investments                                          446            437    Long-term investment - held to maturity    security                                           7,749             --    Deferred costs-non-current                           301            338    Deferred income taxes - non-current                   90             86   Total assets                                      245,273        297,976    LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities:    Accounts payable                                     174           1103    Accrued expenses and other current    liabilities                                        5,828          7,888    Deferred revenue - current                         3,947          3,704    Payable to shareholders                               --         57,210    Income tax payable                                   621           1088   Total current liabilities                          10,570         70,993    Deferred revenue-non-current                         849            957   Total Liabilities                                  11,419         71,950    Equity:   Shareholders' equity:     Ordinary shares                                      29             29     Additional paid-in capital                      156,184        154,643     Statutory reserve                                10,184         10,184     Accumulated profit                               60,470         52,910     Accumulated other comprehensive income            6,427          6,696       Total Shareholders' equity                    233,294        224,462     Noncontrolling interest                             560          1,564   Total equity                                      233,854        226,026    TOTAL LIABILITIES AND EQUITY                 $    245,273   $    297,976     Reconciliation of Non-GAAP Measures  

Non-GAAP net income excludes certain non-cash expenses, including share-based compensation expenses and amortization of acquired intangible assets. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain non-cash expenses that may not be indicative of our operating performance from a cash perspective. We believe that both management and investors benefit from referring to this additional information in assessing our performance and when planning and forecasting future periods.

                                       For the three months ended                                   March 31,     December 31,      March 31,                                       2009             2008           2008    Net Income - GAAP           $      7,560    $      12,198    $    11,385   Share-based compensation             376              386            382   Amortization related to    business acquisition                 99              103             99    Net Income - Non-GAAP       $      8,035    $      12,687    $    11,866  

Source: China Digital TV Holding Co., Ltd.

CONTACT: In China: Eric Yuan, China Digital TV, +86-10-8279-0021, or
ir@chinadtv.cn; Cynthia He, Brunswick Group LLC, +86-10-6566-9504, or
chinadigital@brunswickgroup.com; In the US: Kate Tellier, Brunswick Group LLC,
+1-212-706-7879, or ktellier@brunswickgroup.com, for China Digital TV Holding
Co., Ltd.

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

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