- First quarter 2000 net income increases 37 percent year-over-year to
$136 million
- Quarterly earnings per diluted share increase to $0.41, up 32 percent
over last year
- Revenues increase 11 percent to $2.34 billion
- Non-PC income exceeds 25 percent of overall income
- Gateway ISP nets another 300,000 subscribers in the quarter,
remains fastest-growing paid ISP
SAN DIEGO, April 13 /PRNewswire/ -- Further demonstrating the growing
strength of its "beyond-the-box" business model, Gateway (NYSE: GTW) today
posted record first quarter profits of $136 million, or $0.41 per diluted
share, a 37 percent increase in net income over last year.
The company also posted better than 25 percent revenue growth in its
Consumer, Asia-Pacific (A-P) and Europe, Middle East and Africa (EMEA) units,
while Gateway Business revenues declined 19 percent as the unit experienced a
sales slump for most of the three-month period.
"Overall, we had a strong quarter, with net income growing at three times
revenues, once again proving our beyond-the-box strategy is gaining traction
in the market and allowing us to meet commitments to shareholders," said Jeff
Weitzen, Gateway president and chief executive officer.
Quarterly Sales
In the first quarter of 2000, Gateway sales rose to $2.34 billion, up 11
percent from year ago levels. Net income rose 37 percent to $136 million.
Gateway earned $0.41 per diluted share, compared with $0.31 per split-adjusted
diluted share a year ago, a 32 percent increase. Gateway shipped 1.3 million
units in the first quarter compared with 1.1 million units a year ago, a 16
percent increase.
Propelled by growth in telephone, Gateway Country(R) stores and Internet
sales, Gateway's Consumer unit recorded a 27 percent increase in revenues in
the first quarter over year-ago levels. Increased availability of mid-range
microprocessors and motherboards allowed Gateway to better meet demand, as
close rates exceeded historical trends.
A continued surge in Internet service subscriptions also helped. Gateway
and AOL jointly netted another 300,000 subscribers in the first quarter. In a
recent survey, Gateway was named the fastest growing paid ISP in the industry,
in terms of percentage growth.
Gateway showed strong growth overseas, led by its EMEA business unit. A
surge in revenue growth in EMEA, 31 percent compared with year-ago levels,
marked the continuation of a turnaround for Gateway in that region of the
world. EMEA enjoyed strong growth across all its major markets, especially
in the United Kingdom and the Netherlands.
After a slow start to the quarter, Gateway's A-P revenues increased 27
percent year over year, fueled by continued strong sales in Japan and a sharp
uptick in southern Asia, including Hong Kong, Malaysia and Singapore.
Gateway's A-P activities accelerated steadily over the quarter, culminating in
a very strong performance in March. In Japan, which accounts for the bulk of
the region's business, revenue grew more than 40 percent during the month of
March from a year earlier.
Despite a ramping of sales in March, Gateway Business saw revenues drop 19
percent in the first quarter versus last year, reflecting a slower than
expected uptick in business sales.
"While we're clearly disappointed with our Business performance for the
first quarter, we're continuing to intensify our focus on our target markets
of small and medium businesses, government and education," Weitzen said. "And
we intend to leverage our government and education sales during the second
quarter peak selling season for those segments."
Gateway Country(R) stores retail channel added 38 locations during the
first quarter, bringing the total to 318 locations worldwide. In the United
States, there were 33 new stores opened during the quarter, bringing the total
to 260 locations. In EMEA, Gateway Country had 27 locations at quarter's end.
In A-P, Gateway added five stores during the quarter, bringing the total to
31. Gateway Country plans to add another 60+ Gateway Country stores worldwide
in the second quarter of 2000.
In addition to Gateway Country outlets, Gateway has another 197 Gateway
store-within-a-store outlets within EMEA and 48 store-within-a-store outlets
in A-P. In addition, Gateway also has opened stores within 35 OfficeMax
locations in the United States to date. Gateway and OfficeMax announced in
February an agreement to convert all 1,000 OfficeMax PC sales departments to
Gateway stores, which will be operated by Gateway employees, by the summer of
2001.
In total, Gateway had 575 retail locations worldwide at quarter's end.
Operating Income
Fueled by sharp increases in Gateway's beyond-the-box businesses
-- products and services sold by Gateway along with the system -- operating
income for the first quarter rose to $193 million, a 37 percent increase over
the first quarter of last year. Non-PC income exceeded 25 percent of overall
income in the first quarter.
"Operating income increased at more than three times revenues through a
combination of productivity improvements, actions we took on gross margins and
SG&A, and the continued strong momentum in our non-PC businesses, which grew
to 25 percent of overall income in the first quarter," said John Todd, senior
vice president and chief financial officer. "Our non-PC, or beyond-the-box,
business profits were led by accelerating contributions from high margin
training, Internet Service and financing."
Selling, General & Administrative (SG&A) expenses were $335 million, down
as a percentage of sales in the first quarter versus a year ago. SG&A was
14.3 percent of sales in the first quarter versus 14.7 percent of sales a year
ago.
The success of Gateway's beyond-the-box strategy is illustrated by the
fact that the first quarter average unit price was 2.8 percent higher than the
fourth quarter, or $1,851. The AUP increase was driven by Gateway's
continuing execution of its strategy to offer clients training, Internet
service and a portal, software, peripherals and financing at the point of
sale. Gross margins were 22.6 percent of sales, an increase of 1.2 percentage
points over last year and the ninth consecutive quarter of year-over-year
improvement.
Net Income
Net income increased to $136 million, a 37 percent increase over year-ago
levels. Earnings per diluted share increased 32 percent to $0.41, up from
$0.31 per split-adjusted diluted share a year ago. The effective tax rate is
35.5 percent, down 0.5 percentage points from last year.
Cash and Marketable Securities
Gateway generated $157 million in operating cash for the first quarter,
ending the quarter with cash and marketable securities of $1.3 billion.
Inventory turns were 41.5, compared with 39.8 a year ago. The cash conversion
cycle remains strong at 6.3 negative days, a 3.1-day improvement over last
year.
Outlook
Gateway enters the second quarter with strong momentum in its Consumer,
A-P and EMEA units. Gateway Business expects an improvement in sales, driven
by seasonal growth trends and continued intense focus on small and medium
businesses. In addition, Gateway is continuing to strengthen its
business-to-business outbound sales force and beyond the box capabilities to
better serve business clients.
On the consumer front, Gateway recently revealed, along with America
Online, a trio of Internet appliances being co-developed by the two companies.
The devices, a wireless web pad, a countertop appliance and a desktop
appliance, are designed to run AOL content on top of a Linux operating system.
The first of the devices will debut by this year's holiday season.
"Anyone can launch an Internet appliance, some already have," Weitzen
said. "The AOL-Gateway difference is that we will be focused on the consumer,
and we know that it's the application and its availability that will change
the way people live, learn, work and play. This is about content, not just
form factor. Ours will create compelling reasons to have them."
Gateway will drive additional growth through a continued focus on
solutions bundles, such as the ones announced in early April under the banner
of Your:)Ware 2.0. With Your:)Ware 2.0, Gateway became the first technology
company to bundle instructor-led training with hardware and software designed
to meet specific consumer computing needs like Internet surfing, photography,
digital music and home finance.
Continuing the momentum in EMEA, Gateway and BT have formed a strategic
partnership to provide BT Cellnet clients with mobile access to their email
and to the Internet. Under the agreement, Gateway becomes the first company
in the U.K to provide clients a seamless Internet package that combines the
PC, WAP Internet telephone, mobile Internet surfing and one account email. In
addition, Gateway will open sales facilities inside 85 BT stores in the U.K.
within the next 12 months.
In A-P, Gateway is accelerating execution of the beyond-the-box strategy
to better serve clients, and examining prudent market expansion opportunities.
"When it comes to our approach to clients, 2000 is the year of the 'how'
in terms of helping them better enjoy the benefits of technology," Weitzen
said. "This is the year we really bring it together and show people how
technology will change their lives."
Annual Meeting
The 2000 Annual Meeting of shareholders of Gateway will be held on
May 18, 2000, at the Sioux City Convention Center, 801 Fourth Street, Sioux
City, Iowa, at 9:00 a.m. CDT.
Special Note
The above statements include forward-looking statements based on current
management expectations. Factors that could cause future results to differ
from these expectations include the following: general economic conditions;
growth in the personal computer industry; competitive factors and pricing
pressures; component supply shortages; risks relating to new or acquired
businesses and joint ventures; and inventory risks due to shifts in market
demand. Additional factors are described in the Company's reports filed with
the Securities and Exchange Commission.
About Gateway
Gateway (NYSE: GTW), a Fortune 250 company founded in 1985, focuses on
building lifelong relationships with consumers and businesses through complete
technology personalization. Gateway ranked number one in U.S. consumer PC
revenue in 1999 (1) and was rated among the top ten best corporate reputations
in America according to a survey conducted in August of 1999 by Harris
Interactive and the Reputation Institute and published in The Wall Street
Journal. Gateway employees worldwide provide clients with services and built-
to-order computers that consistently win top awards from leading industry
publications. Gateway had total global revenue of $8.65 billion in 1999 and
shipped 4.68 million systems. For more information, visit our Web site at
http://www.gateway.com
(1) According to GartnerGroup/Dataquest US PC Quarterly statistics.
Gateway
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended March 31
2000 1999
Net sales $2,337,884 $2,103,411
Cost of goods sold 1,809,747 1,652,907
Gross profit 528,137 450,504
Selling, general, and administrative expenses 334,936 309,697
Operating income 193,201 140,807
Other, net 17,703 14,785
Income before income taxes 210,904 155,592
Provision for income taxes 74,871 56,013
Net income $136,033 $99,579
Net income per share:
Basic $0.43 $0.32
Diluted $0.41 $0.31
Basic weighted average shares outstanding 320,013 312,994
Diluted weighted average shares outstanding 332,541 321,194
Gateway
Consolidated Balance Sheet
(in thousands)
March 31, December 31,
2000 1999
ASSETS:
Current assets:
Cash and cash equivalents $1,152,631 $1,127,654
Marketable securities 175,809 208,717
Accounts receivable, net 652,045 646,339
Inventory 156,855 191,870
Other 522,077 522,225
Total current assets 2,659,417 2,696,805
Property, plant, and equipment, net 794,459 745,660
Intangibles, net 184,036 52,302
Other assets 414,411 459,921
$4,052,323 $3,954,688
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Current maturities of long-term obligations $5,098 $ 5,490
Accounts payable 805,118 898,436
Accrued liabilities 511,407 609,132
Accrued royalties 166,434 153,840
Other current liabilities 214,509 142,812
Total current liabilities 1,702,566 1,809,710
Long-term obligations, net of current
maturities 3,898 2,998
Warranty and other liabilities 134,455 124,862
Total liabilities 1,840,919 1,937,570
Stockholders' equity 2,211,404 2,017,118
$4,052,323 $3,954,688
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
Media: John W. Spelich, Public Relations,
619-799-2657, John.spelich@gateway.com, Investor Relations:
Marlys D. Johnson, Investor Relations, 605-232-2709,
marlys.johnson@gateway.com, both of Gateway, Inc.
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