- Q1 net loss was $5 million, or $0.01 per share, on revenue of
$838 million
- Third consecutive quarter of non-GAAP profits, $3 million, or 1 cent
profit per diluted share, excluding restructuring, transformation and
integration expenses
- Continued sequential retail market share growth, according to initial
IDC and NPD data
- Continued cost structure improvement, as Q1 SG&A declined to
$88 million on a GAAP basis, down 17 percent from the prior quarter
and down 70 percent from a year ago (non-GAAP SG&A declined to
$80 million, excluding restructuring, transformation and integration
expenses)
IRVINE, Calif., April 28 /PRNewswire-FirstCall/ -- Gateway, Inc.
(NYSE: GTW) today reported results for its first quarter ended March 31, 2005.
Revenue amounted to $838 million, compared with $1.029 billion in the
fourth quarter and $868 million a year earlier. The year earlier period
includes revenue from eMachines, which was acquired on March 11, 2004, for the
20 days from March 12 through March 31, 2004.
The company recorded a first-quarter net loss of $5 million, or a 1 cent
loss per share, which includes restructuring, transformation and integration
expenses of $8 million, or 2 cents per share. Excluding these items, non-GAAP
net income was $3 million, or a 1 cent profit per diluted share. Actual
restructuring, transformation and integration costs were higher than the
estimates provided with our first quarter guidance due to higher than expected
facility charges, partially offset by better than expected recovery on Gateway
retail store lease buyouts. All non-GAAP financial information in this
release is reconciled to GAAP in the attached Analysis of Consolidated
Condensed Statement of Operations.
Also included in the first quarter net loss is $4 million in proceeds from
legal claims and a $4 million reduction in liabilities associated with retail
customer rebates.
In the prior quarter, the company reported net income available to common
shareholders of $94 million, which included a $100 million gain on the
retirement of the Series A and C preferred stock. Basic earnings per share,
or net income per common share, was 25 cents and diluted earnings per share
was a negative two cents. Excluding $22 million in restructuring,
transformation and integration expenses, and the gain on the retirement of the
previously mentioned stock -- the company recorded a non-GAAP net profit of
$15 million. The resulting non-GAAP net profit per diluted share, before
restructuring, transformation and integration expenses and the gain on
retirement of stock was 4 cents. In the prior year, the company reported a
first quarter net loss of $172 million, or 51 cents per share. On a non-GAAP
basis excluding $104 million in restructuring, transformation and integration
expenses, and a $13 million tax benefit, the company recorded a non-GAAP net
loss of $81 million, or $0.24 per share.
"As our financial results show, Gateway is on the right track
strategically and our long-term growth plans are credible," said Wayne Inouye,
president and chief executive officer. "We are driving to a world-class cost
structure, we're focused on markets in which we can make a profit, and we
believe we have the right mix of well-designed products and services at a
price and quality that represent value and will translate into profitable
growth, especially in our Retail and Professional business units, and
continuously improving financial results into the future."
Financial Performance
The company sold 941,000 PC units in the first quarter, down 22 percent
sequentially, and up 56 percent year-over-year. The sequential decrease in
unit sales is due to seasonal declines in all segments. On a normalized
basis, which adds eMachines sales and subtracts Gateway-owned retail stores
from the first quarter of 2004 comparison, PC unit sales decreased 12 percent
year-over-year.
In the notebook area, one of the company's key growth objectives, units
grew approximately 72 percent year-over-year, or 30 percent on a combined
company basis. Notebook growth resulted in an increase in U.S. portable
market share both sequentially and year-over-year.
The Retail segment delivered revenue of $476 million, with PC units of
718,000. Sequentially, Retail revenue decreased 21 percent and PC units
decreased 23 percent. The sequential decrease in Retail revenue and PC units
reflects normal seasonality and buying patterns of our major retail customers.
Initial IDC and NPD data indicate that Gateway gained Retail market share in
the first quarter, reflecting increases in both the desktop and notebook
categories.
The Direct sales segment delivered revenue of $150 million, with PC units
of 76,000. Sequentially, Direct sales revenue decreased 20 percent and PC
units decreased 26 percent. The sequential decrease in Direct Sales revenue
and PC units is a result of seasonal demand and market share loss.
The Professional segment delivered revenue of $212 million, with PC units
of 147,000. Sequentially, Professional revenue decreased 11 percent and PC
units decreased 14 percent. The sequential revenue decrease generally
reflects seasonal buying patterns in the education and government sectors.
Total CE and non-PC revenue was down 11 percent sequentially and down
41 percent year-over-year. The sequential and year-over-year decreases are
due to lower CE revenue, largely associated with the Gateway retail store
closures in April 2004 and the company's renewed focus on its core PC
business. CE and non-PC sales represented 19 percent of total revenue, which
compares with 18 percent in the fourth quarter and 31 percent a year earlier.
Gross margin contribution from CE and non-PC products and services
represented 74 percent of the gross margin dollars in the first quarter,
compared to 62 percent in the prior quarter and 72 percent a year earlier.
Gross margin contribution from non-PC products more than offset the reduced
contribution from CE products as compared to the previous quarter.
Gross margin percentage for the first quarter was 9.6 percent with no
impact from restructuring, transformation and integration costs. This
compares with 8.8 percent in the prior quarter (including 0.4 percentage
points impact from restructuring, transformation and integration costs) and
12.5 percent in the first quarter of 2004 (including 1.2 percentage points
impact from restructuring, transformation and integration costs). On a
non-GAAP operational basis, excluding restructuring, transformation and
integration costs, sequential gross margins increased 0.4 percentage points
primarily due to the previously mentioned legal settlement, the retail
customer rebate benefit and continued component cost declines.
SG&A expense was $88 million (including $8 million in restructuring,
transformation and integration costs) compared to $106 million (including
$18 million for restructuring, transformation and integration costs) in the
prior quarter. On a non-GAAP operational basis, excluding restructuring,
transformation and integration costs, SG&A was down 9 percent sequentially and
61 percent year-over-year. The year-over-year reductions in SG&A resulted
from the closure of Gateway's retail stores, reduced direct marketing costs
partially related to the shift toward third-party retail, rationalization of
headcount costs and IT expenses, and continued focus on other SG&A cost
savings.
SG&A expense as a percentage of revenue was 10.5 percent compared to
10.3 percent in the prior quarter and 34.1 percent a year earlier. On a
non-GAAP operational basis -- excluding restructuring, transformation and
integration costs -- SG&A as a percent of revenue was 9.6 percent in the first
quarter, compared to 8.5 percent in the fourth quarter and 23.4 percent a year
earlier.
Restructuring, transformation and integration costs
Including the $8 million of restructuring, transformation and integration
costs in the first quarter, our current estimate is that all but approximately
$3 million of the previously announced restructuring, transformation and
integration expenses have now been incurred. The cash outlays associated with
these restructuring, transformation and integration plans were $15 million in
the first quarter, leaving approximately $20 million of remaining net cash
outlays to be incurred over the next several quarters under the previously
announced plans. These cash outlays are primarily associated with ongoing
lease obligations.
Cash and marketable securities
Gateway ended the quarter with $584 million in cash and marketable
securities. Cash and marketable securities decreased $60 million during the
first quarter, primarily due to the pay down of $25 million of borrowings
under the previously announced revolving credit facility and the
restructuring, transformation and integration cash outlays of $15 million. At
quarter end, $25 million remained outstanding under the revolving credit
facility.
Conference call information
Gateway will host a conference call for analysts on Thursday, April 28 at
5:30 pm EDT/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. After acquiring
eMachines in early 2004, Gateway is now 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.
Certain non-GAAP financial information
This press release contains certain non-GAAP financial information,
including disclosure of the portion of the company's SG&A, gross margins and
results of operations relating to, or affected by, certain restructuring,
transformation and integration expenses. This non-GAAP financial information
is provided as supplementary information and is not an alternative to GAAP.
This non-GAAP financial information is used by management and management
believes it is useful to investors to analyze the company's baseline
performance before charges and expenses that are considered by management to
be outside of Gateway's core operating results, notwithstanding the fact that
such restructuring, transformation and integration expenses may be recurring.
This non-GAAP information is among the primary indicators management uses as a
basis for evaluating Gateway's financial performance as well as for
forecasting of future periods. The presentation of this additional
information is not meant to be considered in isolation or as a substitute for
reported results determined in accordance with GAAP.
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,
2005 2004
Net sales $837,781 $ 868,383
Cost of goods sold 757,416 760,054
Gross profit 80,365 108,329
Selling, general, and administrative expenses 88,126 296,024
Operating loss (7,761) (187,695)
Other income, net 1,814 6,167
Loss before income taxes (5,947) (181,528)
Benefit for income taxes (761) (12,785)
Net loss $(5,186) $(168,743)
Preferred stock dividends and accretion -- (2,789)
Net loss attributable to common
stockholders $(5,186) $(171,532)
Basic and diluted net loss per share $(0.01) $(0.51)
Basic and diluted weighted average shares
outstanding 371,152 335,399
Gateway, Inc.
Consolidated Condensed Balance Sheets
(in thousands)
(unaudited)
March 31, December 31,
2005 2004
ASSETS:
Current assets:
Cash and cash equivalents $354,194 $382,972
Marketable securities 229,589 260,537
Accounts receivable, net 314,879 342,121
Inventory 186,120 196,324
Other 271,745 217,663
Total current assets 1,356,527 1,399,617
Property, plant, and equipment, net 69,422 102,657
Intangibles, net 248,399 251,011
Other assets 17,942 18,502
$1,692,290 $1,771,787
LIABILITIES AND EQUITY:
Current liabilities
Revolving credit facility $25,000 $50,000
Accounts payable 567,869 532,329
Accrued liabilities 211,613 271,912
Accrued royalties 52,270 41,796
Other current liabilities 216,791 226,615
Total current liabilities 1,073,543 1,122,652
Senior convertible notes 300,000 300,000
Other long-term liabilities 84,051 104,098
Total liabilities 1,457,594 1,526,750
Stockholders' equity 234,696 245,037
$1,692,290 $1,771,787
Gateway, Inc.
Analysis of Consolidated Condensed Statement of Operations
For the three months ended March 31, 2005
(in thousands, except per share amounts)
(unaudited)
Results of
Operations,
net of
Restructuring
Charges and
Results of Restructuring Transformation Transformation
Operations Charges(1) Expenses(1) Expenses(1)
Net sales $837,781 $-- $-- $837,781
Cost of
goods sold 757,416 -- -- 757,416
Gross profit 80,365 -- -- 80,365
Selling,
general,
and
administrative
expenses 88,126 7,586(2) 494(3) 80,046
Operating
income (loss) (7,761) (7,586) (494) 319
Other income, net 1,814 -- -- 1,814
Income (loss)
before
income taxes (5,947) (7,586) (494) 2,133
Benefit for
income taxes (761) -- -- (761)
Net income
(loss) $(5,186) $(7,586) $(494) $2,894
Net income (loss)
per share $(0.01) $(0.02) $(0.00) $0.01(4)
(1) This non-GAAP financial information is provided as supplementary
information and is not an alternative to GAAP. The presentation of
this additional information is not meant to be considered in
isolation or as a substitute for results of operations presented in
accordance with GAAP.
(2) Represents costs related to the closure of facilities and
accelerated depreciation, and the severance of employees.
(3) Represents outsourcing transition costs and other expenses related
to the Company's integration following the acquisition of eMachines
in the first quarter of 2004.
(4) Based on diluted weighted average shares outstanding for the period
of 408,111.
Gateway, Inc.
Preliminary Analysis of Consolidated Condensed Statement of Operations
For the three months ended December 31, 2004
(in thousands, except per share amounts)
(unaudited)
Results of
Operations,
net of
Transformation Restructuring
and Charges,
Integration Transformation
Expenses and and
Preferred Integration
Stock Expenses and
Results of Restructuring Redemption Redemption
Operations Charges(1) Gain(1) Gain(1)
Net sales $1,028,627 $-- $-- $1,028,627
Cost of goods
sold 938,036 2,398(2) 1,544(4) 934,094
Gross profit 90,591 (2,398) (1,544) 94,533
Selling, general,
and
administrative
expenses 105,709 16,318(3) 1,450(4) 87,941
Operating
income (loss) (15,118) (18,716) (2,994) 6,592
Other income,
net 8,956 -- -- 8,956
Income (loss)
before income
taxes (6,162) (18,716) (2,994) 15,548
Provision for
income taxes 437 -- -- 437
Net income (loss) (6,599) $(18,716) $(2,994) $15,111
Gain on redemption
of preferred
stock, net of
dividends 100,513 -- 100,513 --
Net income (loss)
attributable
to common
stockholders $93,914 $(18,716) $97,519 $15,111
Net income (loss)
per share:
Basic $0.25 $(0.05) $0.26 $0.04
Diluted $(0.02)(5) $(0.05) $(0.01) $0.04
Weighted average
shares
outstanding:
Basic 373,844 373,844 373,844 373,844
Diluted 398,958 398,958 398,958 407,486
(1) This non-GAAP financial information is provided as supplementary
information and is not an alternative to GAAP. The presentation of
this additional information is not meant to be considered in
isolation or as a substitute for results of operations presented in
accordance with GAAP.
(2) Represents costs related to the severance of employees.
(3) Represents costs related to the closure of facilities and
accelerated depreciation and the severance of employees.
(4) Represents outsourcing transition costs and other expenses related
to the Company's integration following the acquisition of eMachines
in the first quarter of 2004.
(5) The calculation of diluted loss per share assumes conversion of the
Series A and Series C preferred stock at the beginning of the
quarter rather than redemption for a gain. The $100.5 million gain
on redemption has been excluded from the calculation of this figure.
Had the gain been included, weighted average shares outstanding
would have been 407,486 and diluted earnings per share would have
been $0.23.
Gateway, Inc.
Analysis of Preliminary Consolidated Condensed Statement of Operations
For the three months ended March 31, 2004
(in thousands, except per share amounts)
(unaudited)
Results of
Operations,
net of
Restructuring
Charges,
Results Transformation
of Restructuring Transformation Expenses and
Operations Charges(1) Expenses(1) Taxes(1) Taxes(1)
Net sales $868,383 $-- $-- $-- $868,383
Cost of
goods
sold 760,054 4,905(2) 5,803(4) -- 749,346
Gross
profit 108,329 (4,905) (5,803) -- 119,037
Selling,
general,
and
admini-
strative
expenses 296,024 75,876(3) 17,021(4) -- 203,127
Operating
loss (187,695) (80,781) (22,824) -- (84,090)
Other
income,
net 6,167 -- -- -- 6,167
Loss
before
income
taxes (181,528) (80,781) (22,824) -- (77,923)
Benefit for
income
taxes (12,785) -- -- 12,785(5) --
Net
loss $(168,743) $(80,781) $(22,824) $12,785 $(77,923)
Preferred
stock
dividends
and
accretion (2,789) -- -- -- (2,789)
Net
loss
attri-
butable
to
common
stock-
holders $(171,532) $(80,781) $(22,824) $12,785 $(80,712)
Net loss
per share $(0.51) $(0.24) $(0.07) $0.04 $(0.24)
(1) This non-GAAP financial information is provided as supplementary
information and is not an alternative to GAAP. The presentation of
this additional information is not meant to be considered in
isolation or as a substitute for results of operations presented in
accordance with GAAP.
(2) Represents costs related to the severance of employees and the
closure of facilities.
(3) Represents costs related to the closure of facilities and
accelerated depreciation, and the severance of employees.
(4) Represents redundant costs associated with the reintegration of
previously outsourced activities and other expenses related to the
Company's transformation.
(5) Represents an income tax benefit based on information received from
tax authorities.
SOURCE Gateway, Inc.
 back to top
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.
|
