Exhibit 99
NDS Group Plc Earnings Release for the
Quarter Ended March 31, 2005 in US Dollars in Accordance with United
States Generally Accepted Accounting Principles
LONDON--(BUSINESS WIRE)--May 4, 2005--NDS Group plc (NASDAQ /
Euronext Brussels: NNDS):
-- Revenues up 29% to $127 million for the quarter; Nine month
increase: 60%
-- Operating income up 32% to $22.6 million for the quarter; Nine
month increase: 46%
-- 54.7 million active digital TV smart cards
-- Extension of conditional access contract signed with SkyLife
in Korea
-- New contracts signed with Viasat for XTV PVR
-- XTV PVR solution launched on FOXTEL in Australia
NDS Group plc (NASDAQ / Euronext Brussels: NNDS) today announced
its results for the quarter ended March 31, 2005.
Commenting on NDS's performance, Dr Abe Peled, President and Chief
Executive Officer, said: "The business continues to grow on all
fronts. This quarter we announced the launch of our PVR platform on
FOXTEL in Australia, our sixth PVR customer as well as an extension to
our conditional access contract with SkyLife in Korea. In addition,
our conditional access customer, Viasat, has now chosen to take our
PVR technology and we believe that this strengthens our relationship
with them. We continue to develop our technology with exciting new
security solutions for mobile operators and mobile TV broadcasting."
Alexander Gersh, Chief Financial Officer, added: "In the third
quarter we again were encouraged by our financial performance. NDS
achieved solid results thanks to continued strength in conditional
access and new technologies revenues."
- ----------------------------------------------------------------------
KEY PERFORMANCE MEASURES
- ----------------------------------------------------------------------
Three Three Nine Nine
months months months months
ended ended ended ended
March March March March
31, 31, 31, 31,
2005 2004 % change 2005 2004 % change
- -------------- -------- -------- --------- -------- -------- ---------
- -------------- -------- -------- --------- -------- -------- ---------
Revenues
($'000) 126,594 97,936 +29% 409,496 255,375 +60%
- -------------- -------- -------- --------- -------- -------- ---------
Operating
Income
($'000) 22,630 17,173 +32% 72,045 49,457 +46%
- -------------- -------- -------- --------- -------- -------- ---------
- -------------- -------- -------- --------- -------- -------- ---------
Net Income
($'000) 16,590 12,296 +35% 52,091 37,004 +41%
- -------------- -------- -------- --------- -------- -------- ---------
- -------------- -------- -------- --------- -------- -------- ---------
Diluted
earnings per
share $0.29 $0.22 +32% $0.92 $0.67 +37%
- -------------- -------- -------- --------- -------- -------- ---------
- -------------- -------- -------- --------- -------- -------- ---------
Authorized
cards
- -------------- -------- -------- --------- -------- -------- ---------
Net additions 2.9 3.0 10.7 6.6
million million million million
- -------------- -------- -------- --------- -------- -------- ---------
At end of 54.7 41.0 54.7 41.0
period million million million million
- -------------- -------- -------- --------- -------- -------- ---------
OPERATIONAL REVIEW
As at March 31, 2005 NDS had 54.7 million active digital TV smart
cards an increase of 6% since December 31, 2004. Our middleware
solution, MediaHighway, has been installed in a cumulative total of
19.7 million set-top boxes.
Highlights this quarter include:
-- FOXTEL -- FOXTEL has launched the NDS XTV integrated video
recorder technology to power the FOXTEL iQ PVR service. The
FOXTEL iQ can flexibly record around 60 hours of programming
onto 160 gbyte hard disk in the set-top box. The PVR has two
tuners enabling subscribers simultaneously to watch one
channel and record a different channel, or simultaneously
record two channels whilst watching previously recorded
content.
-- SkyLife -- NDS has signed a five-year extension to its
contract to supply VideoGuard conditional access to SkyLife
digital satellite broadcast operations on an exclusive basis.
NDS has been supplier of conditional access systems to SkyLife
since commercial launch in 2002. SkyLife has grown their
subscriber base to over 1.5 million.
-- Viasat -- Viasat Broadcasting has extended its relationship
with NDS and has selected our XTV personal video recorder
solution to increase choice for their TV viewers thereby
adding a new revenue stream to their business
-- Mobile -- NDS continues to develop solutions for the mobile
industry, based on our world-leading broadcast content
protection technology.
FINANCIAL REVIEW
The results of the fiscal 2005 periods and the comparisons with
fiscal 2004 are significantly affected by business conducted with
DIRECTV. Until August 13, 2003, we provided conditional access
services, including the supply of smart cards to DIRECTV in the United
States. The contract came to an end on August 13, 2003 and
subsequently we received payments under post-termination support
arrangements. Additionally, we realized revenue in the first and
second quarters of fiscal 2004 from DIRECTV for the use of NDS
technology contained within cards which DIRECTV had procured from a
third party.
In March 2004, NDS and DIRECTV signed a new six-year contract for
conditional access services, which was effective from March 1, 2004.
Under the new contract, we receive monthly fees for the provision of
conditional access services, which includes NDS taking on the
obligation to provide periodic replacement smart cards in the future
as an integral part of our security maintenance activities. In June
2004, we also re-commenced the supply of new smart cards.
Comparisons are also affected by the results of the MediaHighway
business which we acquired on December 16, 2003.
Revenues
Revenues were $126.6 million for the quarter ended March 31, 2005
compared to $97.9 million for the quarter ended March 31, 2004. Year
to date revenues in fiscal 2005 were $409.5 million compared to $255.4
million in the prior year.
Conditional access revenues have increased by 87% for the quarter
and by 98% for the nine month period. The increase in conditional
access revenues is due to a combination of an increase in the number
of smart cards supplied and growth in the number of authorized smart
cards in use. The quantity of smart cards delivered in each period is
as follows:
For the three months ended For the nine months ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
--------- -------- --------- ---------
(in millions)
Number of smart cards
delivered 5.1 1.6 22.0 5.0
========= ======== ========= =========
The increase in smart card sales in the quarter compared to the
previous fiscal year is principally due to demand from DIRECTV, to
whom we sold no smart cards in the equivalent quarter of the previous
fiscal year. The increase between the nine month periods is due to
demand from DIRECTV and also to higher purchases from Sky Italia,
which recently completed the migration of all their subscribers to NDS
technology, and higher demand from our Latin America customers.
The number of authorized cards in use at our broadcast platform
customers has grown as follows:
June December March June December March
2003 2003 2004 2004 2004 2005
(in millions) ----- ----- ----- ----- ----- -----
Number of authorized
smart cards 34.4 38.0 41.0 44.0 51.8 54.7
===== ===== ===== ===== ===== =====
The growth in authorized cards in use reflects the demand for
smart cards noted above. The volume of cards supplied exceeds the
increase in authorized smart cards in use due to a mixture of churn
and the build-up of inventory by platform operators. The prior year
periods included only one month of conditional access service fee
income from DIRECTV as the new contract was effective from March 1,
2004. The prior year nine month period includes conditional access
revenues from a third party that used NDS technology within their
smart cards, with no comparable amounts in the current fiscal year.
Revenues from integration, development and support have decreased
by 14% for the quarter. There were no major system deliveries or
upgrades in the quarter ended March 31, 2005. For the nine month
period ended March 31, 2005 revenue was substantially unchanged
compared to the same period in fiscal 2004.
Revenues from license fees and royalties declined by 25% in the
three months ended March 31,2005 compared to the corresponding period
in fiscal 2004. The prior year is affected by our changed contractual
arrangements with DIRECTV. For the nine months ended March 31, 2005,
revenue from license fees and royalties increased by 36% compared to
the equivalent period in fiscal 2004. This was due to higher royalties
from the download of our set-top box software as part of the Sky
Italia migration and the acquisition of the MediaHighway middleware
business. We have not yet recognized revenue from middleware projects
for DIRECTV.
Revenues from new technologies which includes our advanced PVR
deployment, interactive infrastructure, gaming applications and IP-TV
product deployments, grew by 26% for the quarter ended March 31, 2005
and by 41% for the nine month period. The increase is due to the
higher number of subscribers using our technology and the deployment
of our technology on new platforms. We have not yet recognized revenue
from PVR projects for DIRECTV.
Cost of goods and services sold and gross margin
Smart card costs have increased substantially because of the
volumes of smart cards supplied. Our unit prices are usually lower for
customers who take very large volumes of smart cards and therefore
unit margins from smart cards have been lower in fiscal 2005 periods
than for the corresponding periods in fiscal 2004. Operations and
support costs have increased substantially due to the greater number
of NDS employees working on customer delivery and support and on smart
card processing. We pay royalties to certain third parties for use of
technology we have licensed. Changes in royalty costs were due to
changes in the mix of revenues.
Operating expenses
Our main operating costs are employee costs, facilities' costs,
depreciation and travel costs. Our employee numbers have increased to
2,381 as of March 31, 2005, as compared to 1,972 in March 2004. We
have continued to recruit in the areas of research and development,
customer support and smart card processing.
Our research and development facilities in Korea and India are now
well established. While most of the new headcount has been within our
research and development groups, we have transferred some experienced
staff from these groups to groups working on customer delivery and
support and on smart card processing and their costs are included
within the operations and support cost line as part of cost of goods
and services sold. This has resulted in an overall decline in research
and development costs for the three months ended March 31, 2005
compared to the corresponding period in the prior fiscal year. The
increase in research and development costs for the nine months ended
March 31, 2005 compared to the corresponding period is due to the
acquisition of the MediaHighway middleware business.
In March 2005 we commenced planning to re-occupy premises we lease
in the UK to accommodate head count growth. As a result of
management's commitment to re-occupy the premises, we reversed a
charge of approximately $8 million in the quarter ended March 31,
2005. For the nine months ended March 31, 2005 this reversal has
reduced general and administrative expenses by approximately $5
million. Other increases in general and administrative costs are
primarily due to higher headcount.
The increase in amortization expense for the three and nine month
periods of fiscal 2005 compared to the corresponding periods of fiscal
2004 was due to the amortization of the fair value of intellectual
property rights acquired as part of the MediaHighway transaction on
December 16, 2003. The amortization charge in the three and nine
months ended March 31, 2004 was based on a preliminary allocation of
the purchase price which was not finalized until the fourth quarter of
fiscal 2004.
Foreign exchange gains have arisen in the three and nine month
periods ended March 31, 2005 due to the volatility in exchange rates
causing differences to arise between the amounts at which revenues and
expenses are translated into the functional currency of the entity in
which they are recorded and the amount paid or received in cash. We
have re-appraised the nature of these items and have concluded that
such gains and losses should be recorded as part of operating expenses
rather than as an element of other income.
Operating income and other items
As a result of the factors outlined above, operating income was
$22.6 million for the three months ended March 31, 2005 and $72.0
million for the nine months then ended. Equivalent figures for fiscal
2004 were $17.2 million and $49.5 million respectively.
Interest income earned on cash deposits was $2.3 million for the
three months ended March 31, 2005 and $7.1 million for the nine months
then ended. Equivalent figures for fiscal 2004 were $1.8 million and
$5.5 million respectively. The increase is due to higher average cash
balances and slightly higher interest rates.
As a consequence of all these factors, net income for the three
months ended March 31, 2005 was $16.6 million or $0.30 per share
($0.29 on a diluted basis) compared to $12.3 million or $0.23 per
share ($0.22 on a diluted basis) for the three months ended March 31,
2004. For the nine months ended March 31, 2005 net income was $52.1
million or $0.95 per share ($0.92 on a diluted basis) compared to
$37.0 million or $0.68 per share ($0.67 on a diluted basis) for the
nine months ended March 31, 2004.
Cash flow and working capital
As of March 31, 2005 we had cash of $308.9 million. Cash of $78.6
million was generated from operating activities in the nine months
ended March 31, 2005 compared to $51.5 million for the corresponding
period of fiscal 2004. The increase in net cash provided by operating
activities reflects higher receipts from customers, particularly in
respect of conditional access income from DIRECTV and income from the
MediaHighway business. In particular, we have received monthly
security fees which includes amounts for the provision of changeover
smart cards to be procured and delivered in future years. The
increases in receipts were offset in part by higher payments to
suppliers of smart cards and higher payments of payroll costs and
travel expenses as a result of an increase in the number of our
employees.
Cash payments for capital expenditure amounted to $13.3 million
during the nine months ended March 31, 2005 compared to $7.2 million
during the nine months ended March 31, 2004. The increase in
expenditure relates to the purchase of technical development and test
equipment used by our software development engineers and customer
support employees as well as our new facility in Israel. Other
investing activities during the nine months ended March 31, 2004
included the acquisition of the MediaHighway business, involving a net
cash outflow of $65.0 million.
During the nine months ended March 31, 2005 we received $10.5
million from the exercise by employees of stock options compared to
$2.0 million in the nine months ended March 31, 2004.
About NDS
NDS Group plc (NASDAQ/ Euronext Brussels: NNDS), a majority-owned
subsidiary of News Corporation is a leading supplier of open
end-to-end digital pay TV solutions for the secure delivery of
entertainment and information to television set-top boxes and IP
devices. 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 have any obligation to
publicly update any "forward-looking statements" to reflect subsequent
events or circumstances, except as required by law.
CONFERENCE CALL
Dr. Abe Peled, President and Chief Executive Officer and Alex
Gersh, Chief Financial Officer, will host a conference call to discuss
this announcement and answer questions at 2:30 pm UK time (9:30 am New
York time) on Wednesday May 4, 2005.
Dial-in
UK Free Dial-in: 0500 551 099
US Free Dial-in: 1-888-222-0364
Std International Dial-in: +44 207 162 0180
Replay
Replay passcode: 655196 }
UK Toll Free Replay: 0800 358 1860 } Available until
US Toll Free Replay: 1-888-365-0240 } May 12, 2005
Std International Replay: +44 207 031 4064 }
An audio replay will also be available on the NDS website
www.nds.com from midday UK time on May 5, 2005 onwards.
NDS Group plc
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per-share amounts)
For the three months For the nine months
ended ended
March 31, March 31, March 31, March 31,
2005 2004 2005 2004
-------- --------- ---------- ----------
Revenue:
Conditional access $ 66,712 $ 35,677 $ 243,755 $ 122,935
Integration,
development & support 13,855 16,181 42,680 43,232
License fees &
royalties 18,319 24,277 53,157 39,034
New technologies 26,131 20,685 64,641 45,734
Other 1,577 1,116 5,263 4,440
-------- --------- ---------- ----------
Total revenue 126,594 97,936 409,496 255,375
-------- --------- ---------- ----------
Cost of goods and
services sold:
Smart card costs (22,996) (5,242) (94,338) (15,941)
Operations & support (19,751) (12,664) (52,360) (33,873)
Royalties (2,815) (3,032) (10,573) (5,608)
Other (2,399) 246 (2,643) (2,478)
-------- --------- ---------- ----------
Total cost of goods and
services sold (47,961) (20,692) (159,914) (57,900)
-------- --------- ---------- ----------
Gross margin 78,633 77,244 249,582 197,475
-------- --------- ---------- ----------
Operating expenses:
Sales & marketing (7,035) (6,800) (19,154) (18,898)
Research & development (40,847) (41,632) (119,501) (102,208)
General &
administration (4,995) (8,221) (32,280) (25,354)
Amortization of other
intangibles (3,286) (2,981) (9,576) (4,920)
Foreign exchange gains
(losses) 160 (437) 2,974 3,362
-------- --------- ---------- ----------
Total operating expenses (56,003) (60,071) (177,537) (148,018)
-------- --------- ---------- ----------
Operating income 22,630 17,173 72,045 49,457
-------- --------- ---------- ----------
Other income:
Interest 2,313 1,762 7,100 5,504
Gain on sale of
investments -- -- 46 --
-------- --------- ---------- ----------
Total other income 2,313 1,762 7,146 5,504
-------- --------- ---------- ----------
Income before income tax
expense and minority
interests in
subsidiaries, net of tax 24,943 18,935 79,191 54,961
Income tax expense (8,353) (6,639) (27,100) (18,050)
Minority interests in
subsidiaries, net of tax -- -- -- 93
-------- --------- ---------- ----------
Net Income $ 16,590 $ 12,296 $ 52,091 $ 37,004
======== ========= ========== ==========
Net income per share:
Basic net income
per share $0.30 $0.23 $0.95 $0.68
Diluted net income
per share $0.29 $0.22 $0.92 $0.67
======== ========= ========== ==========
NDS Group plc
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
As of As of
March 31, June 30,
2005 2004
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 308,942 $ 228,620
Accounts receivable 104,038 84,295
Accrued income 18,698 21,845
Inventories 44,788 35,972
Prepaid expenses 17,620 15,843
Other current assets 5,533 6,836
--------- ---------
Total current assets 499,619 393,411
Property, plant & equipment, net 31,365 29,472
Goodwill 67,776 66,296
Other intangibles, net 54,095 61,681
Deferred tax assets 11,884 9,153
Other non-current assets 20,400 17,146
--------- ---------
Total assets $ 685,139 $ 577,159
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,647 $ 51,552
Customer deposits & deferred income 145,470 97,864
Accrued expenses 45,922 39,802
Income tax liabilities 19,733 6,812
Other current liabilities 19,181 15,393
--------- ---------
Total current liabilities 248,953 211,423
Accrued expenses 29,546 32,392
--------- ---------
Total liabilities 278,499 243,815
--------- ---------
Stockholders' equity:
Series A ordinary shares of $0.01 par value
per share:
13,110,865 and 12,186,598 shares outstanding
as of March 31, 2005 and June 30, 2004,
respectively 131 122
Series B ordinary shares of $0.01 par value
per share:
42,001,000 shares outstanding as of March 31,
2005 and June 30, 2004 420 420
Deferred shares of GBP 1 par value per share:
42,000,002 shares outstanding as of March 31,
2005 and June 30, 2004 64,103 64,103
Additional paid-in capital 493,090 478,599
Accumulated deficit and other comprehensive
income (151,104) (209,900)
--------- ---------
Total stockholders' equity 406,640 333,344
--------- ---------
Total liabilities and stockholders' equity $ 685,139 $ 577,159
========= =========
NDS Group plc
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
For the nine months ended March 31,
2005 2004
--------- ---------
Operating activities:
Net income $ 52,091 $ 37,004
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 11,621 10,414
Amortization of other intangibles 9,576 4,920
Stock-based compensation 3,957 4,285
Gain on sale of investments (46) --
Minority interest in subsidiaries,
net of tax -- (93)
Change in operating assets and liabilities,
net of acquisitions 966 (5,054)
--------- ---------
Net cash provided by operating activities 78,165 51,476
--------- ---------
Investing activities:
Capital expenditure (13,287) (7,208)
Proceeds from sale of investments 232 --
Business acquisitions, net of cash acquired (17) (65,641)
--------- ---------
Net cash used in investing activities (13,072) (72,849)
--------- ---------
Financing activities:
Issuance of shares 10,543 1,981
Other -- 40
--------- ---------
Net cash provided by financing activities 10,543 2,021
--------- ---------
Net increase (decrease) in cash and cash
equivalents 75,636 (19,352)
Cash and cash equivalents, beginning of
period 228,620 202,185
Exchange movements 4,686 15,041
--------- ---------
Cash and cash equivalents, end of period $ 308,942 $ 197,874
========= =========
CONTACT: NDS Group plc
Margot Field (Media), +44 (0) 208 476 8158
or
Yael Fainaro (IR), +44 (0)208 476 8287
or
Shared Value
Alex Dee, +44 (0) 207 321 5013
or
Breakaway Communications US
Kelly Fitzgerald, +1 212 590 2555