* Q1 revenue of $1.078 billion, a 29 percent increase over last year
* According to recent IDC data, Gateway was the fastest growing PC company
in the U.S. among the top six vendors on both a sequential and
year-over-year basis and the only company to experience sequential unit
growth
* Gateway had a Q1 net loss of $12.3 million, or $0.03 per diluted share,
which includes a total of $14 million in litigation expenses
IRVINE, Calif., April 27 /PRNewswire-FirstCall/ -- Gateway, Inc. (NYSE:
GTW) today reported results for its first quarter ended Mar. 31, 2006.
The company recorded a first quarter net loss of $12.3 million, or 3
cents per diluted share, compared with a net loss of $20.9 million, or a
loss of 5 cents per diluted share in the prior quarter, and a net loss of
$5.2 million, or a loss of 1 cent per share a year earlier. Gateway's first
quarter results include a total of $14 million in litigation expenses.
Revenue amounted to $1.078 billion, compared with $1.124 billion in the
fourth quarter of 2005 and $838 million a year earlier.
"In the first quarter, our Retail business unit, which also includes
our international sales, continued to perform very well in terms of both
sales and margin," said Rick Snyder, Gateway chairman and interim chief
executive officer. "Unfortunately, our positive Retail results were
partially offset by losses in our Professional sales unit. As a result, we
essentially broke even in the quarter, prior to litigation expenses of $14
million."
"Recently, we installed new leadership at the top of our Professional
and Direct business units and our plan is to continue to aggressively
address issues in those areas so that we can return Pro and Direct to
profitability over the next three to four quarters. We continue to view
Professional and Direct as strategic components to our long-term success."
Gateway's prior quarter operating results included a one-time $16.7
million charge associated with the cross-license and settlement agreement
with HP and a $26.6 million charge related to a prior years' tax liability
dispute, of which $24.8 million was recorded as a selling, general and
administrative (SG&A) expense.
Overall Performance
The company sold 1,379,000 PC units in the first quarter, up 1.5
percent sequentially, and up 47 percent year-over-year. The increase in
unit sales on a sequential and year-over-year basis is primarily due to
market share gains in Retail. Based on recent IDC data, Gateway was the
fastest growing PC company in the U.S. among the top six vendors on both a
sequential and year-over-year basis. Among the top six vendors, Gateway was
the only company to experience sequential unit growth in the U.S. in the
first quarter.
Gross margin percentage for the first quarter was 7.3 percent, compared
with 6.2 percent in the prior quarter and 9.6 percent in the first quarter
of 2005. The sequential increase in gross margin is due primarily to a
$16.7 million charge in the fourth quarter associated with the HP
agreement. The year-over-year declines in gross margin percentage are due
to lower margins in Professional and strong growth in the Retail business,
which typically has lower margins.
SG&A expense in the first quarter was $103 million, or 9.6 percent of
revenue, down from $113 million (including $2.8 million in restructuring
costs) in the prior quarter, and up from $88.1 million (including $8
million in restructuring costs) in the first quarter of 2005. The first
quarter sequential decrease in SG&A was due to a one-time $24.8 million
increase in accrual for sales/use taxes in the fourth quarter that was
partially offset by $14 million in litigation expenses in the first
quarter.
Segment Results
The Retail segment, which includes the company's international sales,
delivered revenue of $767 million, with PC units of 1,163,000. Retail
revenue was down 3 percent sequentially and up 61 percent year-over-year.
Retail PC units increased 3 percent sequentially and 62 percent
year-over-year. The sequential decrease in revenue reflects lower average
unit prices that were mitigated by strong market share gains. The
year-over-year revenue increases reflect strong market share gains in U.S.
Retail, including growth in the company's international business. Gateway
and eMachines products are now sold in more than 7,000 retail locations in
the U.S. and Canada and in more than 2,500 retail locations
internationally, including France, Japan, Mexico and the UK.
The Professional segment delivered revenue of $202 million, with PC
units of 158,000. Professional revenue decreased 7 percent sequentially and
4 percent year-over-year. Professional PC units were down 5 percent
sequentially and increased 7 percent year-over-year. The sequential and
year-over-year decreases in revenue were predominantly due to competitive
pressures.
The Direct sales segment delivered revenue of $109 million, with PC
units of 58,000. Direct revenue decreased 6 percent sequentially and 27
percent year-over-year. PC units were flat sequentially and decreased 23
percent year-over-year. The year-over-year decline in revenue was due to
changes in product and marketing strategies.
Total non-PC revenue, which includes sales of stand-alone monitors,
software, peripherals, services and accessories, was down 15 percent
sequentially and up 21 percent year-over-year, excluding consumer
electronics (CE). The year-over-year increase reflects strong sales of
stand-alone monitors, particularly those sold through Retail. Non-PC sales,
excluding CE, represented 17 percent of total revenue in the first quarter,
which compares with 19 percent in the fourth quarter and 18 percent a year
earlier. Gross margin contribution from non-PC products and services,
excluding CE, was down 12 percent sequentially and down 8 percent from a
year earlier.
Cash and marketable securities
Gateway ended the quarter with $590 million in cash and marketable
securities, an increase of $4.5 million from the fourth quarter of 2005.
This increase was driven by a $37.3 million decrease in inventory and a
$17.5 million decrease in other current assets which were offset by a $45.8
million decrease in accounts payable and a $7.3 million increase in
accounts receivable.
Revised reporting schedule
Gateway will report earnings for the second quarter on Thursday, Aug.
3, 2006.
Conference call information
Gateway will host a conference call for analysts on Thursday, Apr. 27
at 5:30 pm EST/2:30 pm PDT, which will be accessible via live audio webcast
at http://www.gateway.com.
About Gateway
Since its founding in 1985, Irvine, Calif.-based Gateway (NYSE: GTW)
has been a technology pioneer, offering award-winning PCs and related
products to consumers, businesses, government agencies and schools. Gateway
is the third largest PC company in the U.S. and among the top ten
worldwide. The company's value-based eMachines brand is sold exclusively by
leading retailers worldwide, while the premium Gateway line is available at
major retailers, over the web and phone, and through its direct and
indirect sales force. See http://www.gateway.com for more information.
Special note
This press release contains forward-looking statements that involve
risks and uncertainties, as well as assumptions that, if they do not
materialize or prove incorrect, could cause Gateway's results to differ
materially from those expressed or implied by such forward-looking
statements. All statements, other than statements of historical fact, are
statements that could be forward-looking statements, including any
projections or preliminary estimates of earnings, revenues, or other
financial items; any statements of plans, strategies and objectives of
management for future operations; the extent of seasonal changes in demand;
any statements regarding proposed new products, services or developments;
any statements regarding future economic conditions or performance;
statements of belief and any statement of assumptions underlying any of the
foregoing. The risks that contribute to the uncertain nature of these
statements include, among others, risks related to shifting our
distribution model to third-party retail; competitive factors and pricing
pressures, including the impact of aggressive pricing cuts by larger
competitors; general conditions in the personal computing industry,
including changes in overall demand and average selling prices, shifts from
desktops to mobile computing products and information appliances and the
impact of new microprocessors and operating software; the ability to
simplify the company's business, change its distribution model and
restructure its operations and cost structure; component supply shortages;
short product cycles; the ability to access new technology; infrastructure
requirements; risks of international business; foreign currency
fluctuations; risks relating to new or acquired businesses, joint ventures
and strategic alliances; risks related to financing customer orders;
changes in accounting rules; the impact of litigation and government
regulation generally; inventory risks due to shifts in market demand; the
impact of employee reductions and management changes and additions; and
general economic conditions, and other risks described from time to time in
Gateway's Securities and Exchange Commission periodic reports and filings.
Gateway assumes no obligation to update any forward-looking statements to
reflect events that occur or circumstances that exist after the date on
which they were made.
Gateway, Inc.
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three months ended March 31,
2006 2005
Net sales $1,077,822 $837,781
Cost of goods sold 999,094 757,416
Gross profit 78,728 80,365
Selling, general, and administrative
expenses 103,096 88,126
Microsoft benefit 8,625 0
Operating income (loss) (15,743) (7,761)
Other income, net 2,237 1,814
Income (loss) before income taxes (13,506) (5,947)
Benefit (Provision) for income taxes (1,171) (761)
Net income (loss) (12,335) (5,186)
Gain on redemption of preferred stock,
net of dividends -- --
Net income (loss) attributable to
common stockholders $(12,335) $(5,186)
Net income (loss) per share:
Basic $(0.03) $(0.01)
Diluted $(0.03) $(0.01)
Weighted average shares outstanding:
Basic 372,982 371,152
Diluted 372,982 371,152
Gateway, Inc.
Consolidated Condensed Balance Sheets
(in thousands)
(unaudited)
March 31, 2006 December 31, 2005
ASSETS:
Current assets:
Cash and cash equivalents $458,012 $422,488
Marketable securities 132,194 163,200
Accounts receivable, net 352,548 345,288
Inventory 182,015 219,344
Other 392,929 423,752
Total current assets 1,517,698 1,574,072
Property, plant, and equipment, net 86,860 83,156
Intangibles, net 38,223 39,462
Goodwill and non-amortizable
intangible assets 205,219 205,219
Other assets 19,685 19,156
$1,867,685 $1,921,065
LIABILITIES AND EQUITY:
Current liabilities:
Notes payable $50,000 $50,000
Accounts payable 716,118 761,895
Accrued liabilities 286,479 249,111
Accrued royalties 57,520 68,216
Other current liabilities 161,543 175,745
Total current liabilities 1,271,660 1,304,967
Long-term debt 300,000 300,000
Other long-term liabilities 54,007 60,825
Total liabilities 1,625,667 1,665,792
Stockholders' equity 242,018 255,273
$1,867,685 $1,921,065
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
Media, David Hallisey, +1-949-471-7703,
david.hallisey@gateway.com, or John W. Spelich, +1-949-471-7710,
john.spelich@gateway.com, or Investors, Marlys Johnson,
+1-605-232-2709, marlys.johnson@gateway.com, all of Gateway, Inc.
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