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GTECH ANNOUNCES STRONG THIRD QUARTER RESULTS
WEST GREENWICH, RI - ( December 21, 2004 ) - GTECH Holdings Corporation (NYSE: GTK) today announced third quarter earnings for fiscal year 2005 ended November 27, 2004.
"GTECH enjoyed a solid and productive third quarter. We met both our revenue and earnings targets, and we made significant progress towards ensuring our continued long-term growth," said GTECH President and CEO W. Bruce Turner. "Our business was strong, leading to a number of key wins around the world. On the operational side, we continued to improve the efficiency of our business, and we furthered our strategic progress in both Commercial Services and Gaming Solutions with the announcements of two solid acquisitions."
"We are pleased with the continued strength of our business and excited about the future," said GTECH Senior Vice President and CFO Jaymin B. Patel. "At this stage of the planning process, we are comfortable that the outlook for fiscal 2006 is shaping up well, giving us confidence that we remain on track in terms of achieving our long-term goals for growth, profitability, and value creation for our shareholders."
Operating Results
Earnings and dividends per share for the three and nine month periods of the prior year have been restated to reflect the 2-for-1 common stock split effected in the form of a stock dividend, which was distributed on July 30, 2004, to shareholders of record as of July 1, 2004.
Revenues for the third quarter of fiscal 2005 were $315.6 million, up 23.8% over revenues of $254.9 million in the third quarter of fiscal 2004. Net income was $45.9 million, or $0.35 per diluted share, comparable to the same period last year.
Revenues for the first nine months of fiscal 2005 were $919.4 million, up 19.1% over revenues of $771.8 million in the first nine months of fiscal 2004. Net income was $152.6 million, or $1.16 per diluted share, up 12.7% over net income of $135.4 million, or $1.06 per diluted share, for the same period last year. Net income in the first nine months of fiscal 2005 includes a net, one-time, after-tax gain of $6.5 million, or approximately $0.05 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. Net income in the first nine months of fiscal 2004 includes a one-time, after-tax gain of $3.3 million, or approximately $0.03 per diluted share, from the consolidation of the partnership that owns the Company's corporate headquarters in West Greenwich, Rhode Island.
Cash Flow and Investments
During the first nine months of fiscal 2005, the Company generated $278.5 million of cash from operations. This cash, along with cash generated by the sale of available-for-sale investment securities, was principally used to fund the Spielo Manufacturing Incorporated, Leeward Islands Lottery Holding Company, Inc., and BillBird S.A. acquisitions of $200.8 million and to fund $189.4 million of systems, equipment, and other assets relating to contracts. In addition, the Company issued $300 million of Senior Notes during the third quarter of fiscal 2005; repaid the remaining $90.0 million of the Company's 7.87% Senior Notes; repurchased $100.5 million, or 4,409,500 shares of the Company's common stock; and paid cash dividends of $30.0 million. At November 27, 2004, the Company had $309.6 million of cash and cash equivalents on hand, which includes the net proceeds from the issuance of $300 million of Senior Notes.
During the fiscal 2005 third quarter, GTECH entered into a new $500 million senior revolving credit facility. The new credit facility is unsecured and matures in October 2009. At the end of the current fiscal quarter, GTECH had no borrowings under the credit facility.
Financial Outlook
The Company also updated the guidance for fiscal year ending February 26, 2005.
The Company continues to expect total revenue growth of approximately 19%, with service revenue growth in the range of 6% to 7%. The Company expects product sales to be in the range of $240 million to $250 million.
The Company expects service margins to be approximately 40% and product margins in the range of 34% to 36%.
Based on the current operational outlook, GTECH now expects earnings per share for fiscal year 2005 to be in the range of $1.46 to $1.48 on a fully-diluted basis, rather than the previously announced $1.43 to $1.48 per share.
Earnings per diluted share for the fourth quarter are expected to be in the range of $0.31 to $0.33.
For fiscal year 2006, ending February 25, 2006, the Company expects service revenue growth in the range of 7% to 9%, reflecting a 5% to 6% increase in same store sales, the net effect of contract wins and the impact of acquisitions, offset by a number of factors, including contractual rate changes.
The Company expects product sales in the range of $215 million to $235 million.
The Company expects service margins of approximately 40% and product margins in the range of 37% to 39%.
Based upon the preliminary outlook, the Company believes that earnings per share will be in the range of $1.53 to $1.58 for fiscal year 2006.
Third Quarter Highlights
In the third quarter of fiscal year 2005, GTECH continued to successfully execute against the Company's strategic objectives of maintaining and expanding the core lottery business, winning new customers, and growing perimeter businesses.
Domestically, GTECH signed a three-year contract extension with the Minnesota State Lottery commencing in February 2008. The Colorado Lottery granted GTECH a 90-day extension, which commenced November 1, 2004, in order to provide the new vendor additional time to convert the system. Lotteries in Arizona and New Mexico also extended GTECH's Instant Ticket Vending Machine (ITVM) contracts for three and two years, respectively.
Outside of the U.S., GTECH signed a new six-year integrated services contract in Mexico with Pronosticos para la Asistencia Publica. In addition, GTECH's joint venture in Thailand, LOXLEY GTECH Technology Co. Ltd., was named the preferred bidder for a national online lottery. In Finland, GTECH's lottery customer, Veikkaus Oy, selected the Company to provide a new interactive software solution, central system, and terminals. Societe de la Loterie de la Suisse Romande chose GTECH for a new integrated online and instant ticket system, as well as new terminals and a wireless communications network. GTECH was also selected by Atlantic Lottery Corporation for a new video lottery central system and ongoing services.
Singapore Pools PTY Ltd. signed a five-year contract with GTECH for ES Connect T, which will enable the existing lottery system to support internet protocol (IP) networks and IP lottery terminals. In addition, GTECH will provide Singapore Pools with ES Connect T B2B, providing an interface for third-party systems.
"Our successes throughout this year, combined with our ongoing commitment to improving efficiencies, our increased financial flexibility, and the prudent investment of shareholder capital have positioned us for continued success in fiscal 2006," said Mr. Turner.
Also in the quarter, GTECH's majority-owned subsidiary, PolCard, completed the acquisition of privately-held BillBird S.A., the leading provider of electronic bill payment services in Poland, making GTECH the Commercial Services leader in Poland.
After the close of the quarter, GTECH announced it was acquiring a 50 percent controlling equity position in the Atronic group of companies owned by the Gauselmann Group, based in Germany. Atronic is one of the five largest slot machine makers globally, and is a market leader in Europe, Russia, and Latin America, with a solid presence in the United States.
Also after the close of the quarter, GTECH was awarded a seven-year integrated services contract to supply new equipment and services to the Missouri Lottery, and signed an agreement with its customer in Germany, Lotterie-Treuhandgesellschaft mbH Thuringen, for a new central system and terminals.
Earlier today, GTECH announced it was selected by the Multi-State Lottery Association (MUSL) to supply equipment, software, services, and communications network for the first ever multi-vendor, multi-state video lottery Wide Area Progressive (WAP) solution.
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. The Company identifies forward looking statements by words such as "may," "will," "should," "could," "expect," "plan," "anticipate," "intend," "believe," "estimate," "continue," or similar words that refer to the future. 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.
GTECH, a leading global information technology company with over $1 billion in revenues and more than 5,400 people in over 50 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 .
Consolidated financial statements to follow:
Income Statement 3 month
Income Statement 9 month
Balance Sheet
Cash Flow
