Bad CYQ4 for any other company, but not that bad for WMS.



“Reflecting the quarterly sequential improvements in unit shipments, revenues, diluted EPS and cash flow from operations, and the ongoing improvements in the pace of jurisdictional approvals for our newest products, we believe the inflection point in our operating and financial performance is now behind us”


- Brian R. Gamache, WMS Chairman and Chief Executive Officer




  • Believe that their quarterly ship share increased sequentially and expect to realize continued ship share gains 
    • We agree but then again they always experience a sequential share increase from the September to December quarter
  • Think that they can get to previous ship share levels
    • We disagree - it's not going to happen for many reasons
      • Better competition
      • They were very under-represented on older floors and therefore got an outsized portion of the replacements - now that their floor share has normalized, their replacement share should be closer to their new share.
  • Think that they will get high teens ship share in new openings
  • Alberta: WMS selected to replace 25% of VLTs - shipping in 1H13'
  • Manitoba and Saskatchewan are also expected to announce RFP results over the next few months
  • 1,500 unit deal they got with a large casino operator will be shipping end of FY12
  • New participation products introduced in 2H12 will feature new 'hooks' and player life features
  • Networked gaming: continue to grow their global presence - WAGE-NET connects 900 games worldwide.  Goal is to be installed in 100 locations worldwide by their fiscal year-end.
  • Their online strategy is to move to B2B once they demonstrated their success on their own site
  • $16MM of savings achieved in SG&A in the last 6 months 



  • They aren't selling their participation games.  Typically, for every two games they install, one comes out, but this time they only got 1 for 1.  They have a 1,900 unit backlog now and are hoping that 50% of those are incremental. 
  • 15% of their product mix was premium vs. 25% a year ago and that coupled with competitive pressures, resulted in a small YoY decrease in pricing. They don't think that prices are going to be declining for the longer term.
  • Their 1,500 unit placement wasn't that unusual in terms of what they normally get
  • Average revenue per day is a combination of the economy and better competitive content.  A little softer than they thought but hope for an uptick in 2H12.
  • Hope to be flat YoY in their install base
  • Participation backlog is 70% new themes and 30% refreshes
  • Expect sequential margin improvement in product sales - not YoY
  • When will the shipped but not recognized units be recognized? 
    • 2H12 - unclear if it will all be next quarter
  • Their litigation settlement benefit was in interest and other income
  • Their online strategy has always been to move from B2C to B2B
  • Will be spending roughly the same on the participation swap out as last year- $65-70MM but that number will decline in FY13
  • The benefit from cost reductions will be less in the back half since costs cuts are going to start lapping
  • 55 new games approved in F1H'12
  • One aspect of the revenue recognition policy wasn't met; hence, the deferral
  • CPU Next-3 is launching on Aladdin first in Q4 and then a whole bunch of games in F13'.  When they released CPU Next 2 that was a catalyst for them to gain a lot of share. 
  • Legislator in Australia has proposed nationalizing gaming.  Therefore, operators have to cut back a bit on purchasing as they wait to see if there are going to be nationalized rules implemented.
  • 1,500 unit deal - recognized in the quarter that they ship as game sales
  • Where did the international sequential unit growth come from?
    • Macau: Sands Cotai Central opening
    • Argentina and Latin Am has been particularly active
    • Europe remains slow but ICE show was promising
  • They sell their international units in USD so there is no FX benefit
  • This past quarter they bought back stock with cash - the draw on their line was from last quarter
  • They see growth in the online space
  • The refreshed gaming operations products are all outperforming the games that they are replacing
  • When they had 30% ship share, they got too aggressive on their product development schedule; so basically started developing product that was "too forward looking" which made the products difficult to approve and digest by their clients. 



  • WMS reports $0.27, missing consensus by 3 cents when you exclude the litigation settlement benefit. 
  • Reached agreement with a major multi-site casino operator to replace 1,500 Bluebird gaming machines with Bluebird2 and xD units
  • "Surpassed 800,000 unique log-in users for Player’s Life Web Services in January 2012"
  • “We expect quarterly sequential improvements in revenues and operating margin to accelerate in the second half of fiscal 2012, as the return to a more ratable schedule for the development and ongoing commercialization of innovative new products continues, as we realize the benefit of increased demand from new casino openings, and as we maintain our disciplined focus on improving operational execution and cost containment. These improvements are expected to drive year-over-year growth in both total revenue and operating margin in the second half of fiscal 2012. We believe the continued improvements and operational progress will lead to an even stronger year in fiscal 2013 for WMS.” 
  • "Momentum for the commercialization of our forward-thinking network gaming system continues to gain traction with more than 50 casinos around the world now running our networked gaming solutions on their slot floors"
  • Product sales:
    • 4,846 units recognized and 5,803 shipped
      • NA: 2,759; with 2,200 replacement units
        • There were "957 additional new units for new casino openings and expansions that were shipped at the customers’ request, but not recognized as revenue in the December 2011 quarter"
      • International units: 2,087
        • YoY decline primarily attributed to Mexico and Australia
    • ASP: $16,325
      • YoY price decline "reflecting the competitive marketplace and a lower mix of premium games"
    • Bluebird xD units: 34% and mechanical reel products: 13%
    • Used games: 1,600
    • Conversion kits: 5,000
  • Gaming operations: EOP install base of 9,282 at an average revenue per day of $67.62
    • So much for stabilization in game operations - this quarter saw another sequential decline of over 300 units and YoY yields fell by 9%. The company claims that these are normal seasonal declines and that the unit drop is attributable to the already disclosed product delays.
    • Lower YoY gross margins "reflecting unfavorable jackpot expense experience and increased costs from the networked gaming and online gaming businesses that were launched within the last twelve months"
  • "WMS expects to achieve sequential growth in its installed participation base and average revenue per day in both the March and June 2012 quarters." 
  • "Company expects its effective tax rate in the second half of fiscal 2012 to be 36%-to-37%."
  • "During the three months ended December 31, 2011, the Company purchased $9.6 million of its common stock, or 500,449 shares, under its share repurchase authorization"
  • Outlook:
    • "WMS expects to achieve further quarterly sequential growth in revenue and operating margin in both the March and June 2012 quarters, leading to year-over-year growth in the second half of fiscal 2012"
    • "WMS continues to believe fiscal 2012 annual revenue will be below fiscal 2011 revenue" 
    • "Annual operating margin is expected to improve year over year due to the Company’s cost containment and restructuring initiatives."
    • "Expect that sequential growth in the second-half of the fiscal year will be driven by improvements in the flow of approvals for new products, modest growth in the gaming operations business and an improvement in new unit demand from new casino openings. The Company does not expect revenue in fiscal 2012 from the opening of the Illinois VLT market or from the VLT market in Italy." 
    • "Only limited improvement in the industry replacement cycle in calendar 2012." 
    • "R&D spending in fiscal 2012 is targeted to approximate 13-to-14% of total annual revenues." 

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