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GTECH ANNOUNCES STRONG SECOND QUARTER RESULTS
Company Increases Free Cash Flow Outlook; Now Expects to Generate $210 Million to $230 Million in Fiscal 2006
WEST GREENWICH, RI - (September 23, 2005) - GTECH Holdings Corporation (NYSE: GTK) today announced second quarter earnings for fiscal year 2006, which ended August 27, 2005.
"GTECH experienced a significant quarter-over-quarter increase in service revenues, despite difficult comparisons due to the significant jackpot activity in the second quarter of last year," said GTECH President and Chief Executive Officer W. Bruce Turner. "In addition, we clearly benefited from increased revenue contributions from newer lottery service contracts such as Florida, Virginia, and LILHCo's Caribbean markets."
"We are pleased with the continued strength of our core lottery business, and we are excited about the opportunities we see in each of the markets we serve," said GTECH Senior Vice President and Chief Financial Officer Jaymin B. Patel. "Based upon our current outlook, we are confident we can achieve our goals and objectives in the current fiscal year and beyond."
Operating Results
Revenues for the second quarter of fiscal 2006 were $309.9 million, down 4.2% from revenues of $323.5 million in the second quarter of fiscal 2005. Net income was $49.0 million, or $0.38 per diluted share, compared to net income of $53.1 million, or $0.40 per diluted share for the same period last year.
Revenues for the first six months of fiscal 2006 were $636.3 million, up 5.4% over revenues of $603.7 million in the first six months of fiscal 2005. Net income was $103.8 million, or $0.80 per diluted share, compared to net income of $106.7 million, or $0.80 per diluted share for the same period last year. Net income in the first six months of the prior year includes a one-time, after-tax gain of $6.9 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.
Prior year earnings and dividends per share reflect the 2-for-1 common stock split declared in June 2004.
Cash Flow and Investments
During the first six months of fiscal 2006, the Company generated $215.2 million of cash from operations. This cash was principally used to fund $59.9 million of systems, equipment, and other assets relating to contracts; to repurchase $32.1 million, or 1,326,100 shares of the Company's common stock; and to pay cash dividends of $20.3 million. At August 27, 2005, the Company had $167.8 million of cash and cash equivalents and $236.2 million of short-term investment securities on hand.
At the end of the second quarter of fiscal 2006, the Company had no borrowings under its $500 million senior revolving credit facility.
Financial Outlook
The Company provided guidance for the full year and third quarter of fiscal 2006.
For the fiscal year ending February 25, 2006, the Company expects service revenue growth, over fiscal 2005 service revenues, to be in the range of 10% to 12%, and product sales in the range of $190 million to $210 million.
The Company expects service margins to be in the range of 40% to 42%, and product sale margins to be in the range of 38% to 40%.
Based upon this outlook, the Company continues to expect earnings per share for fiscal 2006 to be in the range of $1.64 to $1.70 on a fully-diluted basis.
Based upon the current operating outlook and investment forecast, the Company now expects to generate free cash flows in the range of $210 million to $230 million, prior to financing dividends, potential stock repurchases, or acquisitions. This is approximately 15% higher than previously anticipated.
For the third quarter of fiscal 2006, ending November 26, 2005, the Company expects service revenue growth, over service revenues for the third quarter of fiscal 2005, to be in the range of 9% to 10%, and product sales in the range of $30 million to $40 million. The Company expects service margins to be approximately 40% and product sale margins in the range of 38% to 40%. Accordingly, the Company expects earnings per share to be in the range of $0.34 to $0.37 per share for the quarter.
Business Highlights
During the second quarter, GTECH continued to grow and defend its core lottery business.
Domestically, Washington 's Lottery selected GTECH to negotiate a long-term contract for a new online and instant lottery system, terminals, communications network, and ongoing services, following a competitive procurement. Washington has been a GTECH customer since 1995. In Ohio, GTECH signed a two-year online/instant ticket system extension and a separate two-year extension for the lease of Instant Ticket Vending Machines (ITVMs).
The Hoosier Lottery in Indiana signed a two-year lease agreement with GTECH for approximately 700 ITVMs. Additionally, a three-year contract was finalized in New Hampshire for 300 ITVMs. In both Indiana and New Hampshire, GTECH provides field service for the machines.
Internationally, GTECH signed an agreement, following a competitive bidding process, with the New Zealand Lotteries Commission for a complete lottery system conversion to include a new integrated online and instant lottery system and new terminals. GTECH's joint venture in Thailand, LOXLEY GTECH Technology Co. Ltd., signed a five-year agreement to provide equipment and services for a national online lottery in Thailand.
The Company's customer in Switzerland, Societe de la Loterie de la Suisse Romande (LoRo), successfully negotiated a new software/hardware maintenance and support services agreement, and a new software license agreement with GTECH. In addition, the Company signed its previously-awarded product sale agreement with LoRo for a new integrated online and instant-ticket lottery system, Altura® terminals, and communications network.
In Germany GTECH signed a five-year agreement to provide ongoing software support and enhancements to Westdeutsche Lotterie GmbH & Co. OHG (WestLotto), the operator of online and instant-ticket lottery games in the German state of Nordrhein-Westfalen.
Organización Nacional de Ciegos Espanoles (ONCE), the $3 billion lottery operated by the Spanish National Organization for the Blind, will receive 5,000 additional handheld lottery terminals, bringing the total handheld terminals ordered to approximately 24,000. GTECH will also upgrade ONCE's central system hardware.
Following a competitive procurement, the operator of the French National Lottery, La Francaise Des Jeux (FDJ), signed an agreement with GTECH to receive a minimum of 575 ITVMs. Additionally, the Company signed a separate agreement with FDJ to provide ITVM repair services over an initial term of six years.
Other Business Developments
During the quarter, the Company, which presently owns approximately 63% of PolCard SA, entered into a share purchase agreement with an affiliate of Innova Capital Sp. z o.o. to purchase additional equity comprising approximately 12% of PolCard, for a purchase price of approximately $21.5 million. This transaction is expected to close in the Company's fiscal 2006 third quarter.
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 is a leading gaming technology and services company. With more than $1.25 billion in annual revenues and 5,300 people in over 50 countries, GTECH provides integrated technology, creative content, and business services to effectively manage and grow today's evolving gaming markets. In targeted emerging economies, GTECH also leverages its operational presence and infrastructure to supply commercial transaction processing services. For more information about the Company, please visit GTECH's website at http://www.gtech.com .
Consolidated financial statements to follow:
