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GTECH ANNOUNCES THIRD QUARTER RESULTS
Company Offers Preliminary Outlook for Fiscal Year 2005
(West Greenwich, Rhode Island -- December 16, 2003) – GTECH Holdings Corporation (NYSE:GTK) today announced third quarter earnings for fiscal year 2004 ended November 22, 2003.
"GTECH's third quarter results reflect continued strength in the core business, with service revenues up by a healthy 11 percent," said GTECH President and CEO W. Bruce Turner.
"A substantial amount of that growth was driven by stronger same store sales and new customers in the core business," continued Mr. Turner. "In fact, same store lottery sales, on a global basis, have grown by approximately five percent or more every quarter for the last six consecutive quarters. Our recent PolCard and Interlott acquisitions also played a part, contributing a total of $11 million of service revenues in the quarter."
Commenting on the quarter, GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel said, "We are pleased with the continued improvement in the underlying performance of the business, particularly with the substantial increase in service revenues and the continued improvements in profit margins."
"At this stage of the planning process, we are pleased that the outlook for fiscal 2005 is shaping up well, giving us confidence that 2005 will be another solid year in terms of revenue growth, profitability, and value creation for our shareholders," continued Mr. Patel.
Operating Results
Revenues for the third quarter of fiscal 2004 totaled $254.9 million, comparable to revenues of $256.5 million in the third quarter of fiscal 2003. Net income was $45.9 million, or $0.69 per diluted share, up 39.7% over net income of $32.8 million, or $0.57 per diluted share, for the same period last year. Net income for the fiscal 2004 third quarter includes a one-time, after-tax, non-cash gain of $3.3 million, or $0.05 per diluted share, associated with the consolidation of the partnership that owns the Company's corporate headquarters in West Greenwich, Rhode Island.
Revenues for the first nine months of fiscal 2004 were $771.8 million, up 8.9% over revenues of $708.8 million in the first nine months of fiscal 2003. Net income was $135.4 million, or $2.12 per diluted share, up 35.3% over net income of $100.1 million, or $1.71 per diluted share, for the same period last year.
Cash Flow and Investments
During the first nine months of fiscal 2004, GTECH generated $309.9 million of cash from operations which, along with cash on hand, was used to fund investing activities totaling $328.2 million, including the acquisitions of PolCard and Interlott. In addition, during the most recent quarter, the Company issued $250 million of 4.75% Senior Notes. At the end of the fiscal 2004 third quarter, the Company had no borrowings under its credit facility.
During the fiscal 2004 third quarter, GTECH paid its second quarterly cash dividend of $0.17 per share, for a total of $10.0 million.
Financial Outlook
The Company also updated guidance for the fiscal year ending February 28, 2004.
The Company expects service revenue growth in the range of 8% to 9%. The Company expects product sales to be in the range of $105 million to $110 million.
The Company expects service margins to be in the range of 41% to 43%, and product margins in the range of 33% to 35%.
Based on the current outlook, GTECH expects earnings per share for fiscal 2004 to be in the range of $2.75 to $2.80 on a fully diluted basis, including $0.05 per diluted share, associated with the $3.3 million after tax non-cash gain from the consolidation of the partnership that owns the Company's corporate headquarters in West Greenwich, Rhode Island.
Earnings per diluted share for the fourth quarter are expected to be in the range of $0.63 to $0.68.
For fiscal 2005, ending February 26, 2005, the Company expects total revenue growth of approximately 20% to 21%, including contributions from PolCard, Interlott, and Spielo. The Company expects service revenue growth in the range of 7% to 8%, reflecting a 4% to 6% increase in same store sales, net contract wins, and the impact of acquisitions, offset by a number of factors, including contractual rate changes and fluctuations in foreign exchange rates against the U.S. Dollar.
The Company expects product sales in the range of $230 million to $250 million, including approximately $70 million to $80 million from acquisitions.
The Company expects to maintain service margins in the range of 41% to 43% and expects product margins in the range of 36% to 38%.
Based upon a diluted share estimate of 67.4 million, the Company believes that earnings per share will be in the range of $2.95 to $3.05 for fiscal 2005.
Third Quarter Highlights
In the third quarter of fiscal 2004, GTECH continued to strengthen its market leadership in the core lottery market. The Company was awarded a seven-year integrated services contract with the Tennessee Lottery to provide an online lottery system, terminals, and a telecommunications network. GTECH was also awarded a six-year contract to provide a new online and instant ticket lottery system, terminals, and a telecommunications network for the Florida Lottery. Both wins were the result of public, competitive procurements.
Additionally, GTECH signed a 12-year contract extension to provide online lottery products and services to SAZKA, a.s., the operator of lottery and betting games in the Czech Republic, and extended its relationship with lottery customers in Denmark and Portugal.
In addition, GTECH advanced its position in the video lottery industry when the Company announced its intention to acquire Spielo, a leading video lottery solutions provider. It is expected that this acquisition will be completed in the second quarter of GTECH's fiscal year 2005.
"In the third quarter alone, we won five contracts," said Mr. Turner. "There were two new contracts, in Tennessee and Florida, and contract extensions in Denmark, the Czech Republic, and Portugal. We expect that these contracts will result in more than $500 million in aggregate revenue to the Company over the respective contract terms.
It is also clear that our technology investments have had a major impact on our competitiveness and success in winning new lottery contracts," continued Mr. Turner. "In four of our last five procurements, GTECH received the highest technical scores of any vendor."
Other Business Developments
In the third quarter, GTECH successfully completed the acquisition of Interlott Technologies, Inc., a leading provider of instant ticket vending machines (ITVMs) for the lottery industry worldwide.
After the close of the quarter, GTECH signed a 10-year contract to provide online, instant, and passive lottery technology and management services in Sri Lanka, which the Company expects will contribute over $100 million in revenue over the contract's term.
Certain statements contained in this press release are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, without limitation, statements relating to the prospects and financial outlook for the Company, which reflect management assumptions regarding: (i) the future prospects for and stability of the lottery industry and other businesses in which the Company is engaged or expects to be engaged, (ii) the future operating and financial performance of the Company (including, without limitation, expected future growth in revenues, profit margins and earnings per share), and (iii) the ability of the Company to retain existing business and to obtain and retain new business. Such forward looking statements reflect management's assessment based on information currently available, but are not guarantees and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in the forward looking statements.
These risks and uncertainties include, but are not limited to, those set forth above, in the Company's subsequent press releases and on reports by the Company on Forms 10?K, 10?Q and 8?K, and other reports and filings with the Securities and Exchange Commission, as well as risks and uncertainties respecting: (i) the potential impact of extensive and evolving government regulations upon the Company's business; (ii) the ability of the Company to continue to retain and extend its existing contracts and win new contracts; (iii) the possibility of slower than expected growth or declines in sales of lottery goods and services by the Company or the Company's customers; (iv) exposure to foreign currency fluctuations; (v) risks and uncertainties inherent in doing business in foreign jurisdictions; (vi) the relatively large percentage of the Company's revenues attributable to a relatively small number of the Company's customers; (vii) the possibility of significant fluctuation of quarterly operating results; (viii) the intensity of competition in the lottery industry; (ix) the possibility of substantial penalties under and/or termination of the Company's contracts; (x) the ability of the Company to respond to technological change and to satisfy the future technological demands of its customers; (xi) opposition to expansion of lottery and gaming; (xii) the Company's ability to attract and retain key employees; and (xiii) the possibility of adverse determinations in pending legal proceedings.
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GTECH, a leading global information technology company with $1 billion in revenues and approximately 4,900 people in 43 countries, provides software, networks, and professional services that power high-performance, transaction processing solutions. The Company's core market is the lottery industry, with a growing presence in financial services transaction processing. For more information about the Company, please visit GTECH's website at http://www.gtech.com.
Consolidated statement of operations to follow:
Third Quarter Income Statement
Income Statement Year-to-Date
Consolidated Balance Sheets
Consolidated Statement of Cash Flows
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