F3Q12 WMS PREVIEW

04/05/12 08:43AM EDT

In-line should be good enough.

We’re not as bullish on the stock as we were in mid-March when the whisper was that WMS was going to miss another Q.  The stock was trading at sub-$22 then so expectations for the quarter have probably risen.  However, we think there are still quite a few people expecting a FQ3 punt yet there is a decent chance they make the number.  Our EPS and revenue projections of $0.44 and $193MM, respectively, are in-line with consensus.

We estimate product sales of $121.5MM and $62MM of gross profit, boosted by recognition of the Ohio units that were deferred last quarter.

  • 6.3k new units sales at $16.4k
    • 4.1k domestic units
    • WMS will likely recognize Ohio shipments in the March quarter.  We believe IGT will defer recognition of their Ohio shipments until the casinos are licensed and ready to open.  The operators have “provisional licenses”/“letters of acceptance” which give them authorization to receive slot machines but are not fully licensed so there is some room for interpretation on whether manufacturers can recognize the revenue this quarter.  Of the 957 deferred units shipped by WMS in December, we are fairly confident all of them were to the PENN and CZR’s Ohio casinos; implying a low 20’s share which should be viewed positively by investors. 
    • 2.2k international shipments, up QoQ but down 6% YoY
  • $18MM of parts, used machines and conversion kit sales
    • 4.4k conversion kit sales
    • 2k used machine sales

Gaming operations revenue and gross margin of $65.5MM and $51.8MM, respectively

  • Flattish sequential EOP install base of 9.3k but a sequential decrease in the average install base
  • A small sequential improvement in win per day, mostly benefiting from seasonality
  • Incremental revenue growth from portal application and the UK casino
  • Their approvals of titles and game rollout are proceeding on schedule - Clue has been featured in several of the CZR’s properties for over a month now.

Other stuff:

  • R&D of $24MM
  • SG&A of $33MM
  • D&A of $21MM
  • $2MM of interest and other income
  • 36.5% tax rate
  • 55.8MM diluted shares 
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