HIGHLIGHTS: -- Revenues for first quarter up 14% to $164 million -- Operating income for first quarter up 25% to $45 million -- 66.6 million active digital TV smart cards -- 44.7 million cumulative set-top boxes activated with NDS middleware -- 4.2 million cumulative DVR deployments -- New business wins in Europe, Asia and the United States
NEW YORK and LONDON, Oct. 31, 2006 (PRIMEZONE) --NDS Group plc ("NDS" or the "Company") (Nasdaq:NNDS), a majority owned subsidiary of News Corporation, and which supplies open end-to-end digital technology and services to digital pay-television platform operators and content providers, announced today its results for the quarter ended September 30, 2006.
Commenting on NDS's performance, Dr. Abe Peled, Chairman and Chief Executive Officer of NDS, said: "NDS has enjoyed a strong quarter, and has introduced a number of new products that expand our range of solutions and position us to participate in the new markets for secure content distribution that are emerging as a result of the rapid expansion of broadband band-width and penetration."
KEY FINANCIAL MEASURES
Three month period ended
September 30,
--------------------
2006 2005
-------- --------
Revenue (in thousands) $ 164,162 $ 144,495
Operating income (in thousands) $ 44,590 $ 35,735
Operating margin 27.2% 24.7%
Net Income (in thousands) $ 35,088 $ 27,105
Diluted net income per share $ 0.61 $ 0.47
-------- --------
KEY NON-FINANCIAL MEASURES
Three month period ended
September 30,
--------------------
2006 2005
-------- --------
Smart card deliveries (in millions)
Quantity delivered in period 6.7 5.5
-------- --------
Authorized cards (in millions)
Net additions 1.6 1.8
At end of period 66.6 58.5
-------- --------
Middleware deployments (in millions)
Set-top boxes deployed in period 3.1 6.3
Cumulative set-top boxes, end of period 44.7 26.7
-------- --------
DVR deployments (in millions)
Set-top boxes in period 0.7 0.3
Cumulative set-top boxes, end of period 4.2 1.7
-------- --------
Employees
Full-time equivalents, end of period 3,089 2,640
-------- --------
STRATEGIC DEVELOPMENTS
-- Tata-Sky launched its DTH pay television service in India using NDS
conditional access, broadcast management and middleware technology.
-- Canal Digital, a distributor of digital TV channels and services
and applications to the Nordic market, agreed to integrate NDS's
MediaHighway middleware into set-top boxes for deployment across
Sweden, Denmark, Norway and Finland.
-- Get, the Norwegian cable TV and broadband company, selected NDS
technology to support its digital cable TV platform. NDS will
provide Get with conditional access, middleware, DVR and EPG
solutions.
-- SES AMERICOM, a satellite operator and services provider in North
America, has agreed to distribute NDS's Synamedia Metro IPTV
middleware solution to the North American telecommunications
market.
-- Romtelecom, the leading telecommunications company in Romania, is
to deploy a full end-to-end system, including NDS conditional
access, middleware and EPG, on a new DTH satellite TV platform.
-- NDS has added new digital rights management capabilities to its NDS
VideoGuard solution, enabling pay-TV operators to securely provide
content across any platform to any type of device. The solution has
been designed to address today's consumer viewing habits, with a
focus on ensuring that subscribers can access their desired content
when they want to watch it over whatever network and device they
choose to watch it on. The additional components of VideoGuard
include a unified conditional access and digital rights' management
head end, a security agent that is integrated within consumer
electronics devices and a secure media player integrated into PCs.
The solution also includes a VideoGuard Key, a portable storage
device containing robust hardware-based conditional access that
enables consumers to securely view and transfer content between a
range of devices, including PCs, mobile devices and set-top boxes.
-- NDS has also launched XTend, a new solution that enables content
stored on the subscriber's PC to be transferred seamlessly to the
set-top box over a home network and viewed on the TV.
-- NDS has extended its capabilities in games technologies through
the acquisition of Interactive Television Entertainment ApS, a
company based in Copenhagen, Denmark.
FINANCIAL REVIEW
Revenue for the first quarter of fiscal 2007 was $164.2 million, an increase of 14% compared to the corresponding period of the previous fiscal year. Conditional access revenue increased by 12% from the corresponding period in the previous fiscal year, due to higher smart card sales and higher security fees, resulting from an increase in the number of authorized cards using NDS technologies to 66.6 million at September 30, 2006 from 58.5 million at September 30, 2005. Revenue from integration, development and support increased by 33% from the corresponding period in the previous fiscal year to $18.4 million, due primarily to the recognition in the current period of revenue realized on the launch of the Tata-Sky satellite pay-TV platform in India. License fees and royalties declined by 1% from the corresponding period in the previous fiscal year. This was a consequence of the high revenues recognized in the corresponding period in the previous financial year from initial download of NDS middleware to DIRECTV set-top boxes in the United States. Offsetting this decrease in part were license fees recognized on the launch of Tata-Sky. A 32% increase in revenue from new technologies from the corresponding period in the previous fiscal year was due to higher income from DVR technologies.
Cost of goods and services sold increased by 4% in the three month period ended September 30, 2006 compared to the corresponding period of the previous fiscal year. This was primarily due to higher operations and support costs. Additionally, royalty expense increased due to changes in the mix of revenues from different types of applications, principally an increase in conditional access revenues. Gross margin as a percentage of revenues was 62.1% in the three month period ended September 30, 2006, compared to 58.6% in the corresponding period of the previous fiscal year.
Total operating expenses increased by 17% in the three month period ended September 30, 2006, compared to the corresponding period of the previous fiscal year. The expansion of the employee base has resulted in higher payroll and benefits, travel and facilities costs. Research and development expenses benefited from a $5.5 million grant from the French government as a consequence of being engaged in certain eligible research projects. In the corresponding period of the previous fiscal year, the Company received an equivalent grant of $5.3 million.
As a result of the factors outlined above, operating income was $44.6 million, or 27.2% of revenue, for the three month period ended September 30, 2006, compared to $35.7 million, or 24.7% of revenue, for the corresponding period of the previous fiscal year. The Company estimates that the weaker U.S. dollar has favorably impacted its operating income by approximately 2%, in the three month period ended September 30, 2006, compared to the corresponding period in the previous fiscal year.
Interest income earned on cash deposits was $6.0 million in the three month period ended September 30, 2006, compared to $2.9 million in the corresponding period of the previous fiscal year. This increase was due to higher average cash balances and higher interest rates. The Company's effective tax rate was 30.7% for the three month period ended September 30, 2006, compared to 29.8% for the corresponding period in the previous fiscal year, due to higher foreign taxes.
As a consequence of all these factors, net income for the three month period ended September 30, 2006 was $35.1 million, or $0.62 per share ($0.61 per share on a diluted basis), compared to $27.1 million, or $0.49 per share ($0.47 per share on a diluted basis), for the corresponding period of the previous fiscal year.
Cash provided by operating activities was $8.3 million in the three month period ended September 30, 2006, compared to $10.8 million in the corresponding period of the previous fiscal year. Higher receipts from customers were more than offset by higher payments for the purchase of smart cards, higher payments for operating expenses and higher tax payments. As a result of $7.7 million in payments for capital items and business acquisitions and $0.6 million received from the exercise of employee stock options, cash and short-term investments was $506.6 million as of September 30, 2006.
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 contains 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 and regulatory factors. More detailed information about these and other factors that could affect future results is contained in our filings with the Securities and Exchange Commission. The "forward-looking statements" included in this document are made only as of the date of this document and we do not undertake any obligation to update any "forward-looking statements" to reflect subsequent events or circumstances.
CONFERENCE CALL
Dr. Abe Peled, Chairman and Chief Executive Officer and Alex Gersh, Chief Financial Officer, will host a conference call to discuss this announcement and answer questions at 9:00 am New York time (2:00 pm U.K. time) on Tuesday, October 31, 2006.
Dial-in U.S. Dial-in: 1-866-832-0717 U.K. Dial-in: 0800 073 8967 International Dial-in: +44 1452 562 716 Replay (available for 7 days) U.S. Toll Free Replay: 1-866-247-4222 U.K. Toll Free Replay: 0845 245 5205 International Replay: +44 1452 550 000 Replay passcode: 8521439 followed by the pound key
An audio replay will also be available on the NDS website www.nds.com from November 1, 2006.
NDS Group plc
Unaudited Consolidated Statements of Operations
For the three months ended
September 30,
---------------------
(in thousands, except per-share amounts) 2006 2005
--------- ---------
Revenue:
Conditional access $ 92,847 $ 83,145
Integration, development & support 18,412 13,834
License fees & royalties 24,350 24,566
New technologies 27,499 20,859
Other 1,054 2,091
--------- ---------
Total revenue 164,162 144,495
--------- ---------
Cost of goods and services sold:
Smart card costs (20,819) (21,625)
Operations & support (36,931) (33,679)
Royalties (3,514) (2,897)
Other (971) (1,622)
--------- ---------
Total cost of goods and services sold (62,235) (59,823)
--------- ---------
Gross margin 101,927 84,672
--------- ---------
Operating expenses:
Research & development (34,666) (30,104)
Sales & marketing (7,977) (7,271)
General & administration (11,611) (8,577)
Amortization of other intangibles (2,417) (2,338)
Other (666) (647)
--------- ---------
Total operating expenses (57,337) (48,937)
--------- ---------
Operating income 44,590 35,735
Other income:
Interest, net 6,012 2,876
--------- ---------
Income before income tax expense 50,602 38,611
Income tax expense (15,514) (11,506)
--------- ---------
Net income $ 35,088 $ 27,105
--------- ---------
Net income per share:
Basic net income per share $ 0.62 $ 0.49
Diluted net income per share $ 0.61 $ 0.47
========= =========
NDS Group plc
Consolidated Balance Sheets
As of As of
September 30, June 30,
(in thousands, except share amounts) 2006 2006
(Unaudited) (Audited)
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 219,848 $ 320,636
Short-term investments 286,753 184,401
Accounts receivable, net 110,640 97,716
Accrued income 45,750 37,050
Income tax receivable 1,073 1,411
Inventories, net 46,318 39,340
Prepaid expenses 17,805 17,031
Other current assets 3,725 3,650
--------- ---------
Total current assets 731,912 701,235
Property, plant & equipment, net 46,073 46,239
Goodwill 67,435 66,917
Other intangibles, net 44,022 43,299
Deferred tax assets 7,971 7,506
Other receivables 13,450 6,681
Other non-current assets 26,219 25,244
--------- ---------
Total assets $ 937,082 $ 897,121
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,486 $ 26,966
Deferred income 47,400 45,492
Accrued payroll costs 19,383 26,647
Accrued expenses 26,157 26,245
Income tax liabilities 23,774 19,039
Other current liabilities 14,480 16,762
--------- ---------
Total current liabilities 154,680 161,151
Accrued expenses 35,061 33,747
Deferred income 141,248 134,529
--------- ---------
Total liabilities 330,989 329,427
--------- ---------
Shareholders' equity:
Series A ordinary shares, par value $0.01
per share: 14,905,323 and 14,873,262
shares outstanding as of September 30,
and June 30, 2006, respectively 149 148
Series B ordinary shares, par value $0.01
per share: 42,001,000 shares outstanding 420 420
Deferred shares, par value (pound)1 per
share: 42,000,002 shares outstanding 64,103 64,103
Additional paid-in capital 537,615 534,668
Accumulated deficit (44,533) (79,621)
Other comprehensive income 48,339 47,976
--------- ---------
Total shareholders' equity 606,093 567,694
--------- ---------
Total liabilities and shareholders' equity $ 937,082 $ 897,121
========= =========
NDS Group plc
Unaudited Consolidated Statements of Cash Flows
For the three months ended
September 30,
---------------------
(in thousands) 2006 2005
--------- ---------
Operating activities:
Net income $ 35,088 $ 27,105
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,376 3,837
Amortization of other intangibles 2,417 2,338
Stock option-based compensation 2,315 977
Other compensation cost 176 --
Change in operating assets and
liabilities, net of acquisitions:
Inventories (6,978) 2,455
Receivables and other assets (29,538) (31,498)
Deferred income 8,627 5,673
Accounts payable and other liabilities (8,205) (45)
--------- ---------
Net cash provided by operating activities 8,278 10,842
--------- ---------
Investing activities:
Capital expenditure (4,077) (9,049)
Proceeds from sale of property, plant
and equipment 27 292
Short-term investments (102,352) --
Business acquisitions, net of cash acquired (3,634) (2,922)
--------- ---------
Net cash used in investing activities (110,036) (11,679)
--------- ---------
Financing activities:
Issuance of shares 634 2,797
--------- ---------
Net (decrease) increase in cash and
cash equivalents (101,124) 1,960
Cash and cash equivalents, beginning of period 320,636 339,791
Exchange movements 336 274
--------- ---------
Cash and cash equivalents, end of period $ 219,848 $ 342,025
========= =========