Pretty much an in-line quarter.  Commentary in a forthcoming note.

“Fiscal 2011 first quarter total revenues and product sales revenues rose to record first quarter levels as strong demand for our new Bluebird xD gaming machine contributed to our ability to overcome the challenging industry environment for replacement unit sales”

- Brian R. Gamache, Chairman and Chief Executive Officer

HIGHLIGHTS FROM THE RELEASE

  • New unit shipments in the U.S. and Canada: 3,192
    • Replacement: 2,900 units
  • International shipments: 2,146
    • "Growth in Mexico and New South Wales, Australia, along with modest growth in Asia and Latin America, were the primary contributors to the Company’s international growth that more than offset lower shipments to Europe, which continues to be impacted by the challenging economic environment."
  • 10% ASP increase was attributed to "significant initial demand for the new Bluebird xD category-creating gaming machine that was launched in June 2010."
    • "The premium-featured, networked-ready Bluebird®2 and Bluebird xD units represented 90% of total global new unit sales"
    • "Bluebird xD units accounting for 35% of total global shipments"
    • "Mechanical reel products were 20% of global new unit shipments"
  • "Gaming operations revenues were essentially flat at $76.3 million, reflecting a 1% increase in the average installed participation footprint to 10,379 gaming machines and average daily revenue of $76.36 per unit"
  • "The launch of THE LORD OF THE RINGS game on our Adaptive Gaming® platform was the principal contributor to the 556 unit year-over-year net increase in the percentage of coin-in participation category. Other gaming operations revenues reflect a slight decline in royalty income as a result of WMS’ direct entry into markets previously served through content licenses to third-parties."
  • Guidance for Dec 2010 Q:
    • Revenue of $198-to-$205 million with an operating margin of 19.0%-to-19.5%
    • "Our December 2010 quarterly revenue guidance anticipates that the domestic marketplace will continue to reflect gaming operators’ restrained capital budgets and a lower rate of new casino openings and expansions. The operating margin guidance for the December 2010 quarter reflects sequential improvements in product sales gross margin and operating costs declining as a percentage of revenues compared with the September 2010 quarter."
  • Reaffirmed FY2011 revenue guidance of $830-to-$850 million
  • "$3.8 million pre-tax, or $0.04 per diluted share, charge related to the costs of closing the Company’s main Netherlands facility and consolidating its operations into other WMS facilities"
  • "During the September 2010 quarter, we invested $22.9 million in gaming operations equipment...and $50 million in share repurchases.... Our balance sheet remains strong with $122.5 million in total cash and no debt."

CONF CALL NOTES

  • They are seeing improving sentiment among operators to refresh their floors
  • Units for Penn's new MD casino were not in this quarter's shipment but will be accounted for in the Dec quarter
  • In New South Wales: WMS had 4 of the top penny denomination games and therefore believe that there is meaningful upside to sales here
  • Revenues from gaming operations were basically flat. Average win per day was lower YoY as a result of WAP product that was really refresher product vs. growing the footprint, and the weak consumer environment.
  • Lord of the Rings is pricing as a % of coin in despite being a stand alone unit. 
  • 54% of their sales came from product sales this quarter vs 59% last year.
  • They have identified things to increase xD gross margins and expect to reach margin parity btw xD and BB2 by June 2011, even as they plan to increase BB2 margins at the same time
  • D&A continued to decrease as they benefited from the greater longevity of their units in gaming operations.  They do expect the absolute D&A to increase in the future.
  • Increase in notes receivable reflects their increased direct selling into markets that traditionally depend on 3rd party financing like Indian gaming markets or markets where they go through a distributor
  • In the December quarter this year, there are fewer new openings and expansions in NA but there are opportunities in portal applications, UK margins, Mexico and New South Wales
  • Ultra Hit progressive is live at 5 sites across 100 games. Coin in has increased as much as 35% across these machines.
  • Piggy Banking - 2nd themes in the 1st portal family will launch soon. There will also be a Pengwin launch as the 1st theme in the 2nd portal family.
  • Expect to commercially launch their UK online casino later this quarter but their revenue guidance has very little coming from this business and they expect slightly negative margins
  • PlayersLife web services was also recently launched
  • Already have over 500 Lord of the Rings games rolled out, already have over 125,000 unique sign-ons for LoRs
  • Will demonstrate over a dozen games with PlayersLife capabilities at G2E
  • Will have 4 unique games that will demonstrate the capability of CPUNext 3
  • Do not expect any meaningful increase in replacements in 2011 over 2010 levels
  • Expect to reach their 55% margin for product sales as they fix their margins on xD

Q&A

  • Thoughts on shipshare?
    • Guess that it's similar to last quarter "31-32%"
    • Of the trade-in games they took - 2/3rds were competitor games
    • Feel like they gained share in the Q
  • Game Ops - was a good quarter vs. their budget. Have 4 WAP launches in Q2 & 3 - lots of the growth is derived from launches which will make for a good Q4. Up against a tough comp when Wizard of Oz was at its zenith.
  • Product sales growth margin - BB2 margins are likely in-line with what it was last year. The issue is that they sold a higher % of xD than they thought and that had a bigger margin impact.
  • Price Is Right didn't place as many units as they thought probably bc they launched with the mechanical spinning reel version instead of the video
  • Margin guidance for FY2011 excludes the Netherlands charge
  • Customer feedback on replacement demand seems similar to last year's - hoping that this year isn't a head fake
  • Is operating margin guidance ambitious for the back half of the year, given their guidance for the Dec quarter?
    • Price increases in Jan
    • xD improvement
    • Additional volume
  • Italy - when should that start to have an impact?
    • Start in the June 2011 quarter
    • Operating lease market rather than a for sale market
  • They have been providing conversion and sale packages to customers for a long time. There is no difference to that approach. That ends up being deferred revenues until they are used by the customers.
  • Discrepancy between cash used on stock buyback in the release and what's on the CFS is due to the closing of the trades during the last 2 days of the quarter
  • Did Cosmo ship in the Sept quarter?
    • yes - most of them shipped 
  • There was no capex spent on Italy in the quarter. Two thirds was on the BB1 to BB2 refresher and the rest was on the Lord of the Rings roll out.
  • Reason that the MD units was delayed was because of the 90 day acceptance clause in the contract.  All the games were for sale.
  • There is an uptick in the quality of their competitor participation product
  • Think that less than 40% of new unit shipments will be international over the next few quarters - still thinks it will be closer to 35%
  • Any overall slowdown in Mexico for Class 3 conversions? Think that the market could be much larger than it is today (40,000 units)
  • Order size in NA is still on average 15-18/units per facility. Class II was a little bigger for them in terms of unit size orders.
  • Bally's lawsuit - litigation cost baked into guidance given in F4Q 2010 earnings release.