BEIJING, Nov. 17, 2015 /PRNewswire/ -- China Digital TV Holding Co., Ltd. (NYSE: STV) ("China Digital TV" or the "Company"), the leading provider of cloud-based application platforms and conditional access ("CA") systems which enable China's digital cable television market to offer and secure diversified content services, today announced its unaudited financial results for the third quarter ended September 30, 2015.

"The third quarter witnessed further contraction in the overall smart card market, and led to our total revenues and smart card shipments coming in lower than expectations," stated Mr. Jianhua Zhu, China Digital TV's chief executive officer. "Despite the slowness in our traditional smart card business, we made tangible progress with our emerging network broadcasting platform ("NBP") and cloud platform offerings that will set the stage for accelerating growth in future periods. On the NBP side, we have already partnered with several wifi operators nationwide who cover the majority of public places to offer this service to hospitals, factories and other public places across many cities in China. On the cloud side, we now have over 1.5 million registered users, up from approximately 1 million in the previous quarter, with approximately half of these registered users coming from Beijing Gehua. We are very impressed with the rapid adaption of this service, and our focus in the mid-term will remain on developing its operations and expanding its user base, as we gradually move to monetize the platform through platform sales and platform operations."

Ms. Yue Qian, China Digital TV's acting chief financial officer, commented, "Our traditional business continued to show signs of slowing down and we expect that to remain the case over the next couple of quarters as the smart card market reaches maturity and demand cools. Going forward, we will look to our emerging cloud platform and NBP offerings to fuel our business expansion and financial growth. We are cautiously optimistic regarding the prospects of our business as we navigate this challenging market environment in our traditional business and develop next-generation content services for our expanding base of users."

Third Quarter 2015 Results^[1]

In the third quarter of 2015, China Digital TV's smart card shipments decreased by 31.7% to approximately 2.29 million from 3.35 million in the prior year period.

China Digital TV's net revenues decreased by 37.8% to US$10.5 million from US$17.0 million in the prior year period. The decrease was primarily due to a decrease in revenues from the sales of smart cards caused by the general market decline of the mature CA business and decline in average selling price ("ASP") of smart cards.

Revenues from the Company's top five customers accounted for 40.1% of total revenues, as compared to 20.8% in the prior year period, primarily attributable to the consolidation of certain cable operators in the market.

Revenue Breakdown

Revenues from smart cards decreased by 37.2% to US$9.0 million in the third quarter of 2015 from US$14.4 million in the prior year period. The decrease was mainly due to a decrease in shipment volumes of smart cards, as well as a decline in smart card ASPs. Sales of smart cards accounted for 84.6% of total revenues in the third quarter of 2015, as compared to 83.8% in the prior year period.

Revenues from other products decreased by 79.6% to US$0.3 million in the third quarter of 2015 from US$1.6 million in the prior year period. The decrease was mainly attributable to lower sales of surface mounted chips. Sales of other products accounted for 3.0% of total revenues in the third quarter of 2015, as compared to 9.1% in the prior year period.

Revenues from services increased by 7.4% to US$1.3 million in the third quarter of 2015 from US$1.2 million in the prior year period. The increase was primarily due to the increase in revenues from cloud computing games, as well as licensing income, which was partially offset by a decrease in head-end system integration. Revenues from services accounted for 12.4% of total revenues in the third quarter of 2015, as compared to 7.2% in the prior year period.

Cost of revenues from smart cards and other products decreased by 36.3% to US$2.1 million in the third quarter of 2015 from US$3.3 million in the prior year period. The decrease was mainly due to a decline in cost of revenues from smart cards resulting from decreased shipment volumes of smart cards, as well as a decline in cost of revenues from surface mounted chips resulting from decreased shipment volumes of surface mounted chips. Cost of revenues from smart cards and other products accounted for 58.7% and 6.9%, respectively, of total cost of revenues in the third quarter of 2015, as compared to 61.3% and 17.4% in the prior year period.

Cost of revenues from services increased by 23.9% to US$1.1 million in the third quarter of 2015 from US$0.9 million in the prior year period. The increase was mainly due to an increase in cost of revenues from cloud computing games. Cost of revenues from services accounted for 34.5% of total cost of revenues, as compared to 21.3% in the prior year period.

Gross profit in the third quarter of 2015 decreased by 42.5% to US$7.4 million from US$12.8 million in the prior year period. Gross margin, which is equal to gross profit divided by net revenues, was 69.8% in the third quarter of 2015, as compared to 75.5% in the prior year period. The decline in gross margin was primarily due to a decrease in gross margin of smart cards, attributable to the decline in smart card ASPs, which accounts for a high proportion of total revenues.

In the third quarter of 2015, the ASP of smart cards decreased by 8.1% year over year. In addition, the unit cost of smart cards increased by 7.2% year over year.

Operating expenses in the third quarter of 2015 decreased by 19.7% to US$8.4 million from US$10.5 million in the prior year period.

• Research and development expenses in the third quarter of 2015 decreased by 16.5% to US$3.9 million from US$4.7 million in the prior year period. The decline was mainly due to a decrease in personnel related expenses resulting from lower headcount.
• Selling and marketing expenses in the third quarter of 2015 decreased by 22.5% to US$2.6 million from US$3.4 million in the prior year period. The decline was mainly due to a decrease in average compensation and marketing expenses.
• General and administrative expenses in the third quarter of 2015 decreased by 21.9% to US$1.9 million from US$2.4 million in the prior year period. The decline was mainly due to a decrease in consulting expenses.

Loss from operations in the third quarter of 2015 was US$1.0 million, as compared to an income from operations of US$2.3 million in the prior year period.

Income tax expenses in the third quarter of 2015 decreased by 57.4% to US$0.7 million from US$1.6 million in the prior year period. The decline was mainly due to a decrease in taxable income.

Net loss attributable to holders of ordinary shares in the third quarter of 2015 was US$0.5 million, as compared to a net income attributable to holders of ordinary shares of US$1.5 million in the prior year period.

Non-GAAP net loss^[2] attributable to holders of ordinary shares in the third quarter of 2015 was US$0.4 million, as compared to a non-GAAP net income attributable to holders of ordinary shares of US$1.7 million in the prior year period^[3].

Balance Sheet and Cash Flow

As of September 30, 2015, China Digital TV had cash and cash equivalents and restricted cash totaling US$67.3 million. In the third quarter of 2015, cash flow generated from operations was approximately US$0.8 million.

Business Outlook

Based on information available as of November 17, 2015, China Digital TV expects smart card shipment volumes in the fourth quarter of 2015 to be in the range of 2.6 million to 2.9 million. Net revenues in the fourth quarter of 2015 are expected to be in the range of US$10.6 million to US$11.2 million.

Conference Call Information

China Digital TV's management will host an earnings conference call at 7:00 p.m. on Tuesday, November 17, 2015, U.S. Eastern Time (8:00 a.m. on Wednesday, November 18, 2015, Beijing/Hong Kong Time).

Conference Call Dial-in Information:

A replay of the call will be available for one week between 9:00 p.m. on November 17, 2015 and 9:00 a.m. on November 24, 2015, U.S. Eastern Time.

Replay Dial-in Information:

Additionally, a live and archived webcast of this call will be available on the Investor Relations section of China Digital TV's corporate website at http://ir.chinadtv.cn.

About China Digital TV

Founded in 2004, China Digital TV enables television network operators to manage, extend and diversify content services across households and public areas in China. China Digital TV is the leading provider of cloud-based application platforms and network broadcasting platform ("NBP") services to Chinese cable operators, helping them to effectively bring mobile gaming apps and other entertainment options to household television sets, and extend cable programming outside the home to any mobile device. China Digital TV is also the leading provider of Conditional Access ("CA") systems in China's digital television market. CA systems enable television network operators to secure the delivery of content to their subscribers. The Company has existing cooperation with nearly all of China's cable television operators.

For more information please visit the Investor Relations section of China Digital TV's website at http://ir.chinadtv.cn .

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States 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 2015 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.

For investor and media inquiries, please contact:

China Digital TV Holding Co., Ltd.
Nan Hao
Investor Relations Manager
Tel: +86-10-6297-1199 x 9780
Email: ir@chinadtv.cn 

ICR, Inc.
Charles Eveslage
Tel: +1 (646) 328-1950
Email: stv@icrinc.com

Reconciliation of Non-GAAP Measures

Non-GAAP net income (loss) 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 (loss) provides meaningful supplemental information regarding the Company's performance 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.

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SOURCE China Digital TV Holding Co., Ltd.