China Digital TV Announces Unaudited First Quarter 2008 Results

BEIJING, China, May 14 /Xinhua-PRNewswire/ -- China Digital TV Holding, Co. Ltd. ('China Digital TV' or the 'Company'), the leading provider of conditional access (CA) systems to China's rapidly growing digital television market, announced today its unaudited financial results for the first quarter ended March 31, 2008.

Highlights for the First Quarter 2008 -- Total revenues in the first quarter were US$17.4 million, an increase of 65.7% from the corresponding period in 2007 and a decrease of 11.7% from the fourth quarter of 2007. -- Net income for the first quarter was US$11.4 million, an increase of 84.1% from the corresponding period in 2007 and a decrease of 11.5% from the fourth quarter of 2007. -- Basic earnings per share in the first quarter were US$0.20, compared to US$0.14 in the same period of 2007 and US$0.23 in the fourth quarter of 2007. -- China Digital TV sold 2.3 million smart cards during the first quarter, an increase of 78.3% from the corresponding period in 2007 and a decrease of 11.5% from the fourth quarter of 2007. -- Gross margin was 80.9% for the first quarter of 2008, compared to 83.7% in the same period in 2007 and 79.8% in the fourth quarter of 2007. -- Operating margin, defined as income from operations divided by net revenue, for the first quarter of 2008 was 59.1%, compared to 64.0% for the same period of 2007, and 54.0% for the fourth quarter of 2007. -- During the first quarter, according to market data collected by the Company, China Digital TV entered into 6 new contracts to install CA systems out of a total of 9 contracts entered into in China during the quarter, demonstrating the Company's superior competitive advantage in the CA market.

'I am pleased to report another quarter of solid growth,' said Mr. Jianhua Zhu, China Digital TV's chief executive officer. 'Despite expected seasonal weakness in the first quarter, we saw impressive growth across all sectors of our business compared to the corresponding period of 2007. This quarter alone we shipped 2.3 million smart cards, bringing our total number of cards shipped to date to more than 15 million. We continue to be the market leader with 170 contracts signed with network operators to provide CA systems. As those network operators deepen the penetration of digital television in their respective areas, we expect to maintain strong momentum of smart card sales in the near future.'

Dr. Zengxiang Lu, China Digital TV's chairman and chief strategy officer, commented, 'Our revenue from smart cards has been so strong that we've been able to invest heavily in our newly established subsidiary, Beijing Novel- Super Media Investment Co., Ltd., which is dedicated to the exploration of revenue-sharing models with network operators. We now have about 70 employees working for the subsidiary and continued to work on PC-TV services and electronic program guides (EPG) based advertising platforms this quarter. Our PC-TV products are in trial phases with five cable operators and our EPG-based platform is already in use with select operators. We are confident that these value-added services will contribute to China Digital's growth in the future.'

First Quarter 2008 Results

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

For the first quarter of 2008, China Digital TV reported net revenues of US$17.2 million, an increase of 65.4% from US$10.4 million in the first quarter of 2007 and a decrease of 11.8% from US$19.5 million in the fourth quarter of 2007. The quarter-over-quarter decrease in net revenues was expected as the first quarter is typically the weakest season for smart card shipments. During the Chinese New Year period, the working calendar is shortened by one to two weeks when most network operators are not in operation. Additionally, cable operators tend to delay their purchase decisions until after the annual China Content Broadcasting Network (CCBN) industry show in March of each year.

In the first quarter of 2008, China Digital TV entered into 6 new contracts to install CA systems with network cable operators out of a total of 9 such contracts signed in China.

Revenues from smart cards and related products were US$15.8 million in the first quarter of 2008, an increase of 75.6% from the same period of 2007 and a decrease of 11.4% from US$17.9 million in the fourth quarter of 2007. The movement in revenue generally reflected the change in volume of smart cards sold. Sales of smart cards and related products made up 91.1% of the total revenues for this quarter. China Digital TV sold 2.3 million smart cards in the first quarter 2008, an increase of 78.3% from the same period of 2007 and a decrease of 11.5% from the fourth quarter of 2007.

Revenues from services were US$1.6 million in the first quarter 2008, an increase of 5.0% from the same period in 2007 and a decrease of 14.9% from the fourth quarter 2007. Service revenue was 8.9% of total revenues for this quarter.

Gross profit for the first quarter of 2008 was US$14.0 million, an increase of 60.0% from US$8.7 million in the same period of 2007 and a decrease of 10.5% from US$15.6 million in the fourth quarter of 2007. Gross margin was 80.9% for the first quarter of 2008, compared to 83.7% in the same period in 2007 and 79.8% in the fourth quarter of 2007. The slight quarter- over-quarter increase was mainly due to the Company's ability to maintain a relatively stable average selling price (ASP) of smart cards.

Operating expenses for the first quarter of 2008 were US$3.7 million, an increase of 83.6% from US$2.0 million in the same period of 2007 and a decrease of 25.4% from US$5.0 million in the fourth quarter of 2007.

-- Research and development expenses for this quarter increased 59.2% to US$1.4 million from US$0.9 million in the same period of 2007 and decreased 3.2% from US$1.5 million in the fourth quarter of 2007. The year-over-year increases were largely due to an increase of more than 70 R&D headcount during the year-long period. -- Sales and marketing expenses for the first quarter of 2008 increased 65.7% to US$1.0 million from US$0.6 million in the same period of 2007 and decreased 37.3% from US$1.7 million in the fourth quarter of 2007. The year-over-year increases were primarily due to increased sales and marketing headcount while the quarter-over-quarter decreases were mainly the result of slight decreases in marketing campaign spending and a break from marketing efforts during the Chinese New Year holiday. -- General and administrative expenses for the first quarter of 2008 increased 148.6% to US$1.3 million from US$0.5 million in the same period of 2007 and decreased 32.5% from US$1.9 million in the fourth quarter of 2007. The year-over-year increase was primarily due to additional headcount. The G&A expense declined quarter-over-quarter mainly because the Company incurred certain significant professional service expenses in the fourth quarter of 2007 as a result of being a newly listed public company in the US.

Operating margin, defined as income from operations divided by net revenue, for the first quarter of 2008 was 59.1%, compared to 64.0% for the same period of 2007 and 54.0% for the fourth quarter of 2007.

Income tax expense in the first quarter of 2008 was US$1.3 million, an increase of 138.6% year-over-year and 182.3% sequentially, due to the significant increase in the income before tax and the new Enterprise Income Tax Law of the PRC, which took effect in January, 2008. The Company plans to apply for 'New and High-Tech Enterprise' status, with an applicable 15% tax rate and a 50% reduction in 2008. But under applicable accounting rules, until the Company receives official approval of this status, income tax expense is calculated based on the 25% statutory tax rate provided for in the new Enterprise Income Tax Law and a 50% reduction, resulting in a 12.5% income tax rate for the first quarter of 2008, rather than the 7.5% tax rate used last year. Such an increase in tax rate contributed to the increase in our income tax expense in the first quarter.

Net income for the first quarter of 2008 was US$11.4 million, an increase of 84.1% from US$6.2 million in the same period of 2007 and a decrease of 11.5% from US$12.9 million in the fourth quarter of 2007. In the first quarter of 2008 basic and diluted earnings per share were US$0.20 and US$0.19, respectively.

As of March 31, 2008, China Digital TV had cash and cash equivalents, restricted cash and deposits with maturity over three months totaling US$258.5 million. Operating cash flow in the first quarter of 2008 was a net inflow of approximately US$9.7 million.

Non-GAAP net income, defined as net income excluding certain non-cash expenses, including share-based compensation expenses and amortization of acquired intangible assets, for the first quarter of 2008 was US$11.9 million, an increase of 39.5% from US$6.7 million in the same period of 2007 and a decrease of 20.0% from US$13.2 million in the fourth quarter of 2007.

Outlook for the second quarter ended June 30, 2008

Based on information available on May 14, 2008, China Digital TV expects its net revenues for the second quarter of 2008 to be in the range of US$17.5 million to US$19.5 million, representing year-over-year growth in the range of 57.2% to 75.2%.

Updated Outlook for the full year 2008

Based on information available on May 14, 2008, China Digital TV reiterates its expectation of net revenues for the full year 2008 to be in the range of US$79 million to US$84 million, representing year-over-year growth in the range of 42.5% to 51.5%.

China Digital TV's management will hold a conference call at 8 p.m. on May 14, 2008 U.S. Eastern Time (8a.m. on May 15, 2008 Beijing/Hong Kong time).

Dial-in details for this conference call are as follows: United States Toll Free: 1.800.884.5695 International: 1.617.786.2960 Hong Kong: 852.3002.1672 China Toll Free: 10.800.130.0399

Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode for all regions is 'China Digital TV Earnings Call.'

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/ .

A replay may be accessed by phone at the following number until June 10, 2008:

United States: 1.888.286.8010 International: 1.617.801.6888 Passcode: 20810162 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 2008 and full year of 2008 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. China Digital TV may also make written or oral 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 those 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 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 registration statement on Form F-1 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 conditional access ('CA') systems to China's rapidly growing 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 subsidiaries, Beijing Super TV Co., Ltd. and Beijing Novel-Super Media Investment Co., Ltd, and its affiliate, Beijing Novel-Super Digital TV Technology Co., Ltd.

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: [phone] Email: [e-mail] Plummer Ogilvy Public Relations Worldwide (Beijing) Tel: [phone] Email: [e-mail] the United States: Jessica Barist Cohen Ogilvy Public Relations Worldwide (New York) Tel: [phone] Email: [e-mail] 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, 2008 2007 2007 Revenues: Products 15,822 17,851 9,010 Services 1,545 1,815 1,471 Total revenues 17,367 19,666 10,481 Business taxes (126) (121) (59) Net revenue 17,241 19,545 10,422 Cost of Revenues: Products (2,624) (3,613) (1,195) Services (664) (339) (507) Total Cost of Revenues (3,288) (3,952) (1,702) Gross Profit 13,953 15,593 8,720 Operating expenses: Research and development expenses (1,439) (1,486) (904) Sales and marketing expenses (1,044) (1,666) (630) General and administrative expenses (1,273) (1,886) (512) Total Operating Expense (3,756) (5,038) (2,046) Income from operation 10,197 10,555 6,674 Interest income 2,379 2,522 60 Other income 115 263 - Income before income tax 12,691 13,340 6,734 Income tax benefits / (expenses) Income tax - current (1,345) (612) (556) Income tax - deferred 35 148 7 Net income before income(loss) from equity investments 11,381 12,876 6,185 Net income(loss) from equity investments 4 (6) - Net income 11,385 12,870 6,185 Net income per share: Basic ordinary shares 0.20 0.23 0.14 Basic preferred shares - 0.30 0.14 Diluted ordinary shares 0.19 0.22 0.13 Weighted average shares used in computation: Basic ordinary shares 57,296,932 54,511,429 34,000,000 Basic preferred shares - 1,135,503 9,496,932 Diluted ordinary shares 61,082,377 58,377,611 36,970,396 China Digital TV Holding Co., Ltd. Unaudited Condensed Consolidated Balance Sheets ( in U.S. dollars in thousands ) March 31, December 31, ASSETS 2008 2007 Current assets: Cash and cash equivalents 228,092 228,958 Restricted cash 1,462 706 Deposits with maturity over three months 28,986 17,948 Accounts receivable 8,419 6,118 Inventories, net 2,559 2,967 Prepaid expenses and other current assets 1,903 1,254 Amounts due from related parties 1,475 1,277 Deferred costs-current 371 541 Deferred income taxes - current 195 184 Total current assets 273,462 259,953 Property and equipment, net 1,444 1,379 Intangible assets, net 941 1,002 Goodwill 486 467 Long-term investments 433 396 Deferred costs-non-current 397 488 Deferred income taxes - non-current 84 50 Total assets 277,247 263,735 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 341 485 Accrued expenses and other current liabilities 2,846 4,757 Deferred revenue - current 5,606 4,784 Income tax payable 1,627 722 Total current liabilities 10,420 10,748 Deferred revenue-non-current 1,116 1,136 Deferred income taxes - non-current - - Total Liabilities 11,536 11,884 Minority interest 4,000 4,000 Shareholders' equity: Ordinary shares 29 29 Additional paid-in capital 225,245 224,863 Statutory reserve 5,688 5,688 Accumulated profit 25,729 14,344 Accumulated other comprehensive income 5,020 2,927 Total shareholders' equity 261,711 247,851 TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY 277,247 263,735 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, 2008 2007 2007 Net Income - GAAP 11,385 12,870 6,185 Share-based compensation 382 230 309 Amortization of intangible assets 99 97 164 Net Income - Non-GAAP 11,866 13,197 6,658