HIGHLIGHTS
* Revenues for second quarter up 8% to $165 million; six month revenue up 11% to $329 million. * Operating income for second quarter up 9% to $37 million; six month operating income up 17% to $82 million. * 69.9 million active digital TV smart cards. * 50.2 million cumulative set-top boxes activated with NDS middleware. * 5.3 million cumulative DVR deployments. * Completed the acquisition of Jungo Limited.
NEW YORK and LONDON, Jan. 30, 2007 (PRIME NEWSWIRE) -- 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 December 31, 2006.
Commenting on NDS's performance, Dr. Abe Peled, Chairman and Chief Executive Officer of NDS, said: "NDS has completed another successful quarter, and has made tangible progress in developing products for the rapidly changing media distribution landscape. The acquisition of Jungo, a leader and pioneer in the broadband residential gateway software, coupled with our Synamedia Metro system solution, and our VG Key digital rights management offering position NDS well to support the secure distribution of content over broadcast as well as broadband IP networks to any device, anywhere."
KEY FINANCIAL MEASURES
Three month Six month
period ended period ended
December 31, December 31,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue
(in thousands) $165,062 $152,203 $329,224 $296,698
Operating income
(in thousands) $ 37,400 $ 34,320 $ 81,990 $ 70,055
Operating margin 22.7% 22.5% 24.9% 23.6%
Net Income
(in thousands) $ 30,291 $ 25,960 $ 65,379 $ 53,065
Diluted net income per
share $ 0.52 $ 0.45 $ 1.13 $ 0.92
-------- -------- -------- --------
KEY NON-FINANCIAL MEASURES
Three month Six month
period ended period ended
December 31, December 31,
---------------- ------------------
2006 2005 2006 2005
------- ------- ------- -------
Smart card deliveries
(in millions)
Quantity delivered in period 6.3 6.1 13.0 11.6
------- ------- ------- -------
Authorized cards (in millions)
Net additions 3.3 2.9 4.9 4.7
At end of period 69.9 61.4 69.9 61.4
------- ------- ------- -------
Middleware deployments
(in millions)
Set-top boxes deployed in period 5.5 7.4 8.6 13.7
Cumulative set-top boxes, end of
period 50.2 34.1 50.2 34.1
------- ------- ------- -------
DVR deployments (in millions)
Set-top boxes in period1.1 1.1 0.3 1.8 0.6
Cumulative set-top boxes, end of
period 5.3 2.0 5.3 2.0
------- ------- ------- -------
Employees
Full-time equivalents, end of
period 3,212 (a) 2,725
------- -------
---------
(a) Excludes 136 employees of Jungo Limited, acquired on
December 31, 2006
BUSINESS DEVELOPMENTS
* On December 31, 2006, we completed the acquisition of Jungo Limited
("Jungo"). Jungo, which is based in Israel, develops and supplies
software for residential gateway devices. The residential gateway
device and the software contained in it act as the interface between
the broadband network and the various consumer electronic devices
that are attached in a home network. The residential gateway device
plays an important role in controlling the quality and management of
the individual services. Residential gateway devices have grown in
sophistication and are increasingly deployed by telecom companies as
the main service termination point in consumers' premises for the
delivery of a variety of services, including broadband data, video
content over broadband ("IPTV"), voice over internet protocol
telephony, video telephony and convergent wireless/wireline
telephony. Providing the underlying software for both the residential
gateway device and the set-top box will allow us to develop
integrated solutions for enhanced IPTV and broadband services. The
acquisition of Jungo was completed on the last day of the fiscal
period; therefore, there was no impact on net income for either of
the three or six month periods ended December 31, 2006.
* At the recent Consumer Electronics show in Las Vegas, NDS
demonstrated a number of new technologies, including new solutions to
protect broadcast content over a variety of networks and devices.
These include secure video delivery across WiFi hotspots,
applications that turn PCs into TVs, and a new generation of
interactive gaming for the set-top box platform.
* We have signed an agreement with Dogan TV, owned by Turkey's leading
media group Dogan Yayin Holding, to deploy a broad range of NDS
technologies and applications. This will enable Dogan TV to launch an
advanced digital interactive television service, D-SMART, that will
be available to an estimated total of more than 17 million households
in Turkey.
* We have signed a number of contracts with new customers during the
current fiscal year which we expect to increase the penetration of
our technologies, especially in Europe.
FINANCIAL REVIEW
Total revenues for the three month period ended December 31, 2006 were $165.1 million, an increase of 8% over the corresponding period of the previous fiscal year. For the six month period ended December 31, 2006, revenues were $329.2 million, an increase of 11% over the corresponding period of the previous fiscal year.
The increase in conditional access revenues of 12% in both the three and six month periods ended December 31, 2006 over the corresponding periods of the previous fiscal year was due to higher security fees and a higher volume of smart cards delivered to customers, especially to new customers in Europe, China and India. Higher security fees arise from increases in the number of authorized smart cards in use at our broadcast platform customers. Integration, development and support revenues increased by 7% and 21% in the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year. The increases were due to revenues from new customers and from the delivery of enhancements to several of our major customers. License fee and royalty revenues decreased by 13% and 7% in the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year. This revenue stream is substantially affected by the number of set-top boxes deployed with our MediaHighway middleware technology in a given period. The volume of MediaHighway set-top boxes enabled during the first and second quarters of fiscal 2006 was unusually high, as DIRECTV commenced the initial download of MediaHighway and other of our related technologies to certain models of set-top boxes in use by their subscribers during that period. The decline in license fees and royalty revenues was offset in part by the recognition of license fee and royalty revenue following the launch of the Tata-Sky broadcast platform in India in August 2006. The increase in revenues from new technologies of 25% and 29% in the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year, was due to higher revenues from our DVR technologies.
In addition to the matters referred to above, comparisons of revenues for the three and six month periods ended December 31, 2006 to the corresponding periods in the prior fiscal year were also affected by the relative weakness of the U.S. dollar over the periods. Approximately 49% of our revenues were denominated in currencies other than the U.S. dollar (principally pounds sterling and the euro). We estimate that the weaker U.S. dollar has favorably impacted our total reported revenues for the six month period ended December 31, 2006 by approximately $10 million, or 3%, compared to the corresponding period of the prior fiscal year.
Cost of goods and services sold was in line with the corresponding periods of the previous fiscal year. Gross margin as a percentage of revenues was 63.0% and 62.5% in the three and six month periods ended December 31, 2006, respectively, compared to 59.4% and 59.0% in the corresponding periods of the previous fiscal year, respectively.
Our main operating costs are employee costs (including the cost of stock option awards), facilities costs, depreciation, and travel costs. These have increased due to the higher number of employees and the increase in facilities occupied by those employees, and include the impact of investments made in new facilities and infrastructure during the latter part of fiscal 2006.
Research and development costs increased by 19% and 17% for the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year, as a result of higher employee headcount due to more research and development being performed. The increase in research and development expenses for the six month period ended December 31, 2006, compared to the corresponding period of the previous fiscal year, due to higher employee costs and infrastructure costs, was partially offset by 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, we received an equivalent grant of $5.3 million. Sales and marketing expenses increased by 38% and 23% in the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year, as a result of higher employee headcount, increased facilities costs, attendance at trade shows and corporate communications activities. General and administrative expenses increased by 8% and 20% in the three and six month periods ended December 31, 2006, respectively, compared to the corresponding periods of the previous fiscal year, due to higher costs in respect of stock options, higher legal expenses and business development costs and higher facilities and infrastructure costs.
In addition to the matters referred to above, comparisons of expenses for the three and six month periods ended December 31, 2006 and the corresponding periods of the previous fiscal year were also affected by the relative weakness of the U.S. dollar. In the six months ended December 31, 2006, approximately 71% of our total expenses were denominated in currencies other than the U.S. dollar (principally pounds sterling, Israeli shekels and the euro). We estimate that the weaker U.S. dollar has adversely impacted our total reported expenses in the six month period ended December 31, 2006 by approximately $10 million, or 4%, compared to the corresponding period of the previous fiscal year.
As a result of the factors outlined above, operating income was $37.4 million, or 22.7% of revenue, for the three month period ended December 31, 2006, compared to $34.3 million, or 22.5% of revenue, for the corresponding period of the previous fiscal year. For the six month period ended December 31, 2006, operating income was $82.0 million, or 24.9% of revenue, compared to $70.1 million, or 23.6% of revenue, for the corresponding period of the previous fiscal year.
Interest income earned on cash deposits was $6.5 million and $12.5 million in the three and six month periods ended December 31, 2006, respectively, compared to $3.5 million and $6.4 million, respectively, in the corresponding periods of the previous fiscal year. This was due to higher average cash balances and higher interest rates. Our effective tax rate was approximately 31% for all periods under review.
As a consequence of all these factors, net income for the three month period ended December 31, 2006 was $30.3 million, or $0.53 per share ($0.52 per share on a diluted basis), compared to $26.0 million, or $0.46 per share ($0.45 per share on a diluted basis), for the corresponding period of the previous fiscal year. Net income for the six month period ended December 31, 2006 was $65.4 million, or $1.15 per share ($1.13 per share on a diluted basis), compared to $53.1 million, or $0.95 per share ($0.92 per share on a diluted basis), for the corresponding period of the previous fiscal year.
As of December 31, 2006, we had cash, cash equivalents and short-term investments totalling $483.4 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, 2006, we paid a net $82.5 million in respect of business acquisitions and invested a net of $19.0 million in bank deposits with an initial maturity of more than three months. As a result of this, we had a net outflow of cash and cash equivalents of $45.1 million, compared to a net cash inflow of $41.1 million in the corresponding period of the previous fiscal year.
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 UK time) on Tuesday, January 30, 2007.
Dial-in US Dial-in: 1-866-832-0717 UK Dial-in: 0800 073 8967 International Dial-in: +44 1452 562 716 Replay (available for 7 days) US Toll Free Replay: 1-866-247-4222 UK Toll Free Replay: 0845 245 5205 International Replay: +44 1452 550 000 Replay passcode: 6056657#
An audio replay will also be available on the NDS website www.nds.com from January 31, 2007.
NDS Group plc
Unaudited Consolidated Statements of Operations
For the three months For the six months
ended ended
December 31, December 31,
-------------------- --------------------
(in thousands, except
per-share amounts) 2006 2005 2006 2005
--------- --------- --------- ---------
Revenue:
Conditional access $ 98,184 $ 87,619 $ 191,031 $ 170,764
Integration, development
& support 12,683 11,860 31,095 25,694
License fees & royalties 23,450 26,941 47,800 51,507
New technologies 28,922 23,047 56,421 43,906
Other 1,823 2,736 2,877 4,827
--------- --------- --------- ---------
Total revenue 165,062 152,203 329,224 296,698
--------- --------- --------- ---------
Cost of goods and services
sold (exclusive of items
shown separately below):
Smart card costs (19,255) (23,082) (40,074) (44,707)
Operations & support (38,064) (34,902) (74,995) (68,581)
Royalties (3,582) (2,781) (7,096) (5,678)
Other (217) (1,011) (1,188) (2,633)
--------- --------- --------- ---------
Total cost of goods and
services sold (61,118) (61,776) (123,353) (121,599)
--------- --------- --------- ---------
Gross margin 103,944 90,427 205,871 175,099
--------- --------- --------- ---------
Operating expenses:
Research & development (43,309) (36,341) (77,975) (66,445)
Sales & marketing (9,314) (6,734) (17,291) (14,005)
General & administration (11,411) (10,574) (23,688) (19,798)
Amortization of other
intangibles (2,510) (2,458) (4,927) (4,796)
--------- --------- --------- ---------
Total operating expenses (66,544) (56,107) (123,881) (105,044)
--------- --------- --------- ---------
Operating income 37,400 34,320 81,990 70,055
Other income:
Interest, net 6,500 3,508 12,512 6,384
--------- --------- --------- ---------
Income before income tax
expense 43,900 37,828 94,502 76,439
Income tax expense (13,609) (11,868) (29,123) (23,374)
--------- --------- --------- ---------
Net income $ 30,291 $ 25,960 $ 65,379 $ 53,065
--------- --------- --------- ---------
Net income per share:
Basic net income per share $ 0.53 $ 0.46 $ 1.15 $ 0.95
Diluted net income per
share $ 0.52 $ 0.45 $ 1.13 $ 0.92
--------- --------- --------- ---------
NDS Group plc
Consolidated Balance Sheets
As of As of
December 31, June 30,
(in thousands, except share amounts) 2006 2006
(Unaudited) (Audited)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 280,058 $ 320,636
Short-term investments 203,387 184,401
Accounts receivable, net 123,855 97,716
Accrued income 43,931 37,050
Income tax receivable 192 1,411
Inventories, net 50,719 39,340
Prepaid expenses 16,920 17,031
Other current assets 2,565 3,650
---------- ----------
Total current assets 721,627 701,235
Property, plant & equipment, net 49,081 46,239
Goodwill 122,398 66,917
Other intangibles, net 70,662 43,299
Deferred tax assets 9,720 7,506
Other receivables 14,098 6,681
Other non-current assets 29,788 25,244
---------- ----------
Total assets $1,017,374 $ 897,121
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,013 $ 26,966
Deferred income 79,119 45,492
Accrued payroll costs 21,633 26,647
Accrued expenses 31,450 26,245
Income tax liabilities 24,375 19,039
Other current liabilities 15,786 16,762
---------- ----------
Total current liabilities 189,376 161,151
Accrued expenses 39,034 33,747
Deferred income 134,206 134,529
Deferred tax liabilities 4,546 --
---------- ----------
Total liabilities 367,162 329,427
---------- ----------
Shareholders' equity:
Series A ordinary shares, par value $0.01
per share: 15,199,340 and 14,873,262 shares
outstanding as of December 31 and June
30, 2006, respectively 152 148
Series B ordinary shares, par value $0.01
per share: 42,001,000 shares outstanding
as of December 31 and June 30, 2006,
respectively 420 420
Deferred shares, par value GPB 1 per share:
42,000,002 shares outstanding as of
December 31 and June 30, 2006, respectively 64,103 64,103
Additional paid-in capital 546,005 534,668
Accumulated deficit (14,242) (79,621)
Other comprehensive income 53,774 47,976
---------- ----------
Total shareholders' equity 650,212 567,694
---------- ----------
Total liabilities and shareholders' equity $1,017,374 $ 897,121
---------- ----------
NDS Group plc
Unaudited Consolidated Statements of Cash Flows
For the six months ended
December 31,
----------------------
(in thousands) 2006 2005
--------- ---------
Operating activities:
Net income $ 65,379 $ 53,065
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,120 7,838
Amortization of other intangibles 4,927 4,796
Stock option-based compensation 4,378 1,712
Other compensation cost 399 --
Change in operating assets and liabilities,
net of acquisitions:
Inventories (11,371) 8,545
Receivables and other assets (38,168) (53,223)
Deferred income 31,465 22,282
Accounts payable and other liabilities (6,730) (568)
--------- ---------
Net cash provided by operating activities 59,399 44,447
--------- ---------
Investing activities:
Capital expenditure (10,361) (15,014)
Proceeds from sale of property, plant and
equipment 241 382
Business acquisitions, net of cash acquired (82,456) (3,121)
Short-term investments, net (18,986) --
--------- ---------
Net cash used in investing activities (111,562) (17,753)
--------- ---------
Financing activities:
Issuance of shares (inclusive of realized
excess tax benefits of $1,790 and $4,578) 7,035 14,365
--------- ---------
Net (decrease) increase in cash and cash
equivalents (45,128) 41,059
Cash and cash equivalents, beginning of
period 320,636 339,791
Exchange movements 4,550 (1,216)
--------- ---------
Cash and cash equivalents, end of period $ 280,058 $ 379,634
--------- ---------