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Press Release
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Gateway has restated its financial results for the first, second, and third quarter of 2000 and revised its reported results for the fourth quarter of 2000. Please refer to the company's February 28, 2001 announcement for updated results.
Gateway Posts Record First Quarter Earnings
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® 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® 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 www.gateway.com (1) According to GartnerGroup/Dataquest US PC Quarterly statistics.
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