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GTECH HOLDINGS CORPORATION ANNOUNCES STRONG FIRST QUARTER RESULTS
(West Greenwich, Rhode Island -- June 22, 2004) – GTECH Holdings Corporation (NYSE: GTK) today announced first quarter earnings for fiscal year 2005 ended May 29, 2004.
“It was a quarter of continued progress at GTECH, with our financial, operational, and strategic plans all moving forward as expected,” said GTECH President and CEO W. Bruce Turner. “Both revenue and earnings were in line with our expectations, and we continued to see steady growth in same-store sales. The first quarter marked the eighth consecutive quarter of meaningful growth in same-store sales.”
“We continue to be encouraged by the positive trends we have been seeing in the business,” said GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel. “We are pleased with the strength of our core business and excited about the opportunities our new acquisitions offer. Based upon our current outlook, we are confident we can achieve our goals and objectives in fiscal 2005 and beyond.”
Operating Results
Revenues for the first quarter of fiscal 2005 were $280.2 million, up 17.0% over revenues of $239.6 million in the first quarter of fiscal 2004. Net income was $53.6 million, or $0.80 per diluted share, up 30.7% over net income of $41.0 million, or $0.68 per diluted share, for the same period last year. Net income in the first quarter of fiscal 2005 includes a net, one-time, after-tax gain of $6.4 million, or approximately $0.09 per diluted share, associated with the sale of the Company's 50% interest in Gaming Entertainment (Delaware) L.L.C., net of charges associated with the early retirement of the remainder of the Company's 2007 private placement notes.
Cash Flow and Investments
During the first quarter of fiscal 2005, the Company generated $85.8 million of cash from operations which, along with other sources of liquidity, was principally used to fund the Spielo Manufacturing Incorporated and Leeward Islands Lottery Holding Company, Inc. acquisitions of $193.0 million, and to purchase systems, equipment, and other assets relating to contracts of $53.9 million. In addition, in the first quarter, the Company repaid the remaining $90.0 million of its 7.87% Senior Notes; repurchased $28.3 million, or 545,000 shares, of the Company's common stock; and paid cash dividends of $10.1 million.
At the end of the first quarter of fiscal 2005, GTECH had no borrowings under its $300.0 million credit facility.
Recent Development
This morning, the Company announced that its Board of Directors approved a 2-for-1 stock split of the Company's common stock. The stock split will be effected in the form of a stock dividend to be distributed on July 30, 2004 , to shareholders of record on July 1, 2004 , with shareholders receiving one additional share of common stock for each share held. The Company had 58,993,004 shares of common stock outstanding as of May 29, 2004.
Financial Outlook
The Company also revised its guidance upward for fiscal year ending February 26, 2005.
The Company continues to expect total revenue growth of 20% to 21%, with service revenue growth in the range of 7% to 9%, and product sales in the range of $210 million to $220 million.
The Company continues to expect that service profit margins will be in the range of 41% to 43%, and product sale profit margins to be in the range of 36% to 38%.
The Company now expects a reduction in the effective tax rate from 37% to 36% for the fiscal year, and it expects to effect this change in the second half of the fiscal year.
Based upon this outlook, the Company now expects earnings per share for fiscal 2004 to be in the range of $3.05 to $3.15 on a fully-diluted basis, rather than the previous guidance of $3.00 to $3.10 per diluted share.
For the second quarter of fiscal 2005 ending August 28, 2004, the Company expects service revenue growth in the range of 7% to 9%, and product sales in the range of $80 million to $90 million. The Company expects service margins in the range of 40% to 42%, and product margins in the range of 38% to 40%. The Company expects the effective tax rate to be comparable to the first quarter of fiscal 2005. Accordingly, the Company expects earnings per share to be in the range of $0.75 to $0.80 per share for the quarter, compared with $0.74 reported in the same period last year.
This guidance is provided on a pre-split basis.
First Quarter Highlights
During the first quarter, GTECH continued to execute against its growth strategy by signing new contracts and contract extensions both abroad and domestically. Oeuvre Nationale de Secours Grande-Duchesse Charlotte, the operator of Loterie Nationale of Luxembourg , signed a five-year extension with the Company to provide new lottery terminals, products, and ongoing services through October 2012. In addition, South Australian Lotteries Commission (SALC) extended its contract with GTECH through June 26, 2007 . Under this extension, GTECH will continue to provide SALC with software licensing for both online and instant ticket lottery systems, and a keno game. GTECH's customer in Turkey , Milli Piyango, also extended its contract with GTECH through November 10, 2005 , as did Spain 's Loto Catalunya for an additional year through March 2005.
Domestically, the Company was notified of the Virginia Lottery's intent to award a seven-year contract to Oberthur Gaming Technologies Corporation (OGT) under which GTECH will be subcontracted to provide new Instant Ticket Vending Machines (ITVMs) and management of warehousing and distribution of instant tickets. The contract, which was recently executed and commenced earlier this month, includes options to renew for up to three years.
Additionally, GTECH was awarded contracts with the Illinois Lottery and Washington Lottery for Instant Ticket Dispensing Machines (ITDMs) and Lottery Product Vending Machines (LPVMs), respectively.
Also in the quarter, GTECH's wholly-owned subsidiary, Spielo Manufacturing Incorporated, announced that it would provide the Oregon Lottery with approximately 2,000 PowerStation 5 ™ video lottery terminals (VLTs). GTECH completed the acquisition of Spielo in April 2004.
In the last month of the quarter, GTECH closed on the acquisition of Leeward Islands Lottery Holding Company, a lottery operating company headquartered on the Caribbean islands of Antigua and St. Croix.
“We successfully launched the online games in Tennessee in April and debuted HotTrax, a new 3D, animated monitor game, at 50 locations in Rhode Island in late May,” continued Mr. Turner. “HotTrax holds much promise for GTECH and raises the bar in new game development. It is just one of several initiatives that will help drive continued growth in same-store sales.”
Other initiatives include e-scratch™, an innovative web-based, interactive suite of scratch and reveal games; the development of new instant online games along the lines of Extra ™ and Bingo ™ ; as well as branded games, beginning with the Monopoly brand the Company recently licensed from Hasbro Properties Group, the intellectual property development arm of Hasbro, Inc.
After the close of the quarter, Organización Nacional de Ciegos Espanoles (ONCE) exercised an option in its existing agreement with GTECH for the provision of 7,000 additional handheld lottery terminals for visually-impaired retailers in Spain . This will bring the total count of hand-held terminals to 14,000 by the end of the calendar year.
Other Business Developments
In April, GTECH was notified that its selection as the apparent successful vendor to provide equipment and services for a new online lottery system and associated telecommunications network in Mexico to Pronósticos para la Asistencia Pública (Pronósticos) was retracted. As part of a ruling by the Mexican Comptroller Ministry on a protest filed by unsuccessful competitors, GTECH's bid was declared non-compliant and disqualified. Subsequently, Pronósticos announced that it disqualified the sole remaining bidder as also being non-compliant and formally ended the procurement.
GTECH believes that it submitted a fully compliant bid to Pronósticos that was in the best interest of the lottery. The Company is pursuing all appropriate avenues available to contest the Comptroller's decision in this matter. In the interim, as the incumbent lottery vendor, GTECH will continue to operate the lottery under its existing contract.
In May, GTECH was notified by Lotería Electrónica de Puerto Rico of its intent to negotiate a contract to provide equipment and services for a new online lottery system, terminals, and associated telecommunications network with another vendor. In an effort to understand the rationale behind the decision, GTECH filed a petition with the Court of Appeals to obtain a copy of the evaluation report, which was withheld by Lotería Electrónica. GTECH also requested, and was granted, a stay of contract negotiations between Loteria Electronica and the apparent successful vendor. The Company is currently awaiting the court's decision.
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 and gaming 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 and gaming industries; (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 over $1 billion in revenues and more than 5,500 people in 45 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 commercial gaming technology and financial services transaction processing. For more information about the Company, please visit GTECH's website at http://www.gtech.com/.
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