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Video software

NDS Reports Q1

NEW YORK and LONDON -- NDS Group plc (``NDS'' or the ``Company'') (NASDAQ:NNDS - News), 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."

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.

NDS Ltd.

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