Strong NA unit sales but game ops were very disappointing. Guidance of flat fiscal 2013 EPS is disappointing.



“We have returned to a normalized rate of new product introductions; and our newest for-sale and participation products are providing customers with the strong performance historically associated with WMS products. As we continue to introduce creative and differentiated new products, we expect to grow our product sales ship share, as well as our installed participation base."

-  Brian R. Gamache, Chairman and Chief Executive Officer




  • Floor share of new casinos was in the high teens in NA
  • Pricing is more important now to customers than over the last decade
  • For the second year in a row top management will not receive a bonus, however, they decided that they could not go another year without giving their other employees a small bonus
  • Have upgraded 2/3rds of their install base at this point
  • Used their balance sheet to help their customers purchase equipment and expect to continue granting credit.  Bad debt expense remains under control
  • Interactive initiatives:  Believe that their investments will drive significant growth for WMS in the future. 
    • UK Jackpot Party
    • Group Partouche collaboration for an online casino in Belgium
    • Jadestone: multi-player skill based gaming. Plan to put all their content on Jadestone's websites
    • Phantom EFX: entrance into social gaming 
    • 888 Partnership
    • Initial results are exceeding expectations - also expect to expand their investment in their efforts
  • Don't expect any meaningful improvement in the replacement market and expect a reduction in new casino openings and expansion. They do expect some offset though from VLT market growth 
  • Expect "greater variability" in ASP's in FY13 given the higher VLT mix
  • Will remain open to certain selective alliances and licensing opportunities in FY13
  • Will be showcasing more product than ever before at G2E this year



  • Competitive pressures have never been more aggressive on the participation side. Their new content is working well but given the macro and that 70% of their games are on variable pricing its tough to show improvement
  • Think that they had about 20% share for in the quarter - which is pretty good given that they don't have a new hardware platform (coming out soon). Don't expect any major up or downtick in pricing from here until their new platform comes out next year. 
  • Why was their average install base lower than the EOP install base last Q? Units came out in the beginning of the Q and then they grew starting in June. Expect to exceed their peak install base in FY13. Not sure how their churn will look like Q to Q next year. So they may continue to experience fluctuation in their average install base
  • Expect their new products to be margin neutral next year
  • Yes  - their guidance implies flatish EPS
  • A lot of the expense growth is head count related. Think that their FY13 outlook has potential for upside
  • To be conservative, there is very limited upside for ASP's next year. Don't think that their new products will be able to offset low pricing on VLTs
  • Higher R&D and SG&A expense are the largest reason for the YoY increases. Some of it also relates to consolidation of their M&A deals
  • Vendor financing has been going on since 2009. Initially it was for large NA operators. Then it was for markets like Mexico and Australia.  Now other international markets are also expecting it. Bad debt expense has stayed below 1%. Collected $8MM on those receiveables as well
  • My Poker STN deal is for a few hundred units at the start 
  • Doesn't seem like their incremental capex is contributing to better Game ops performance. So the spend is more defensive. If they don't spend on it that business will be in jeopardy
  • The 20% decrease in capex will have more of an impact on PP&E rather than gaming operations spend. Last 1/3 of their install base will be replaced over the next few years. IL will be an area of investment since they believe that at least part of those units will be leased. The capital spending on their new Chicago facility and Oracle investing will go away next year
  • Their biggest opportunity is replacing their BB1's that they no longer support
  • Have no Ohio VLTs in their FY13 guidance 
  • 3,900 replacements was across all the jurisdictions
  • This quarter they had a higher margin on used gaming machine sales and a lot of conversion kits which also helped margins



  • FY2013:
    • "The Company expects the general economic environment to remain unchanged in the next twelve months, as customers’ capital spending plans are likely to remain relatively flat throughout the remainder of calendar 2012 and into calendar 2013."
    • Revenue growth in FY2013 is expected to reflect: 
      • modest growth in product sales ship share in the U.S. and Canada and in the installed participation base
      • the introduction of innovative new gaming content, platforms and cabinets
      • an increased contribution from the ongoing commercialization of the Company’s networked gaming system and portal game applications
      • an increase in revenues from the Company’s interactive products and services  
      • higher VLT replacement demand from Canadian VLT operators that will partially offset lower domestic new casino and expansion unit demand, but at lower average selling prices as VLT’s typically are lower priced than gaming machines sold to new casino openings and expansions. 
    • WMS also expects that it will begin to ship units to the Illinois VLT market, with a portion of these units being operating leases. 
    • F1Q13 revenues to be down a bit YoY with "growth occurring in the second half of the fiscal year."
    • R&D spending: 15-16% of revenues (higher spend on interactive)
    • SG&A will rise as a % of revenue YoY due to interactive investments
    • D&A: "Increase primarily reflecting the Company’s investment in expanding its gaming operations installed base with newer cabinets and upgraded equipment throughout fiscal 2012 and incremental depreciation associated with property, plant and equipment resulting from two significant projects being placed in service early in fiscal 2013."
    • "Increased gross profit contribution from higher revenues mostly will be offset by higher operating expenses in fiscal 2013"
    • "Consistent with fiscal 2012, quarterly revenues and operating margin are anticipated to be lowest in the September 2012 quarter and increase in each subsequent quarter with the highest revenue levels and operating margin in the June 2013 quarter."
  • Product sales: 
    • 6,146 global new units shipped
      • US & Canada shipments: 4,672 (including 3,900 replacement units and 775 new units)
      • International: 1,474 ("Demand in Australia, Mexico and Europe continues to lag prior-year levels")
    • ASP: $15,982
      • "Reflecting the effect of larger-volume orders that carry higher volume discounts, a lower mix of premium games in the quarter compared with the same period a year ago and the competitive marketplace"
    • Bluebird xD units represented 36% of total global new unit shipments compared with 26% of total shipments in the prior year period
    • Gross Margin: 54.6%
    • Conversion kits totaled 5,500 vs. 2,100 in the prior-year period
    • "2,500 used gaming machines were sold in the June 2012 quarter, including a significant number of refurbished units at higher average selling prices and higher gross margin compared with approximately 1,700 used units in the prior-year quarter."
  • Gaming operations:
    • Install base:  EOP-  9,561; Average- 9,250
    • Average win per day: $66.50
    • Gross Margin: 77.4%
    • "Launched the first two slot games powered by WMS’ next-generation CPU-NXT3 platform – the Aladdin & the Magic Quest game featuring unique synchronized motion of the chair with the game play and the Super Team game featuring player-customizable superheroes made possible by WMS’....Player’s Life Web Services."
    • Install base QoQ increase: 172 and 135 increase in the average installed footprint
    • Quarterly sequential revenue decrease reflects" "lower royalties from licensing proprietary intellectual property and technologies and reflects the absence of normal seasonal improvement due to soft consumer spending in the June 2012 quarter as reported across most regional gaming markets"
    • Lower YoY gross margins are "primarily reflecting an increase in wide-area progressive units and the related higher jackpot expense, as well as higher costs to support our interactive gaming products and services, partially offset by the $1.7 million of other asset write-downs recorded in fiscal 2011."
  • "Entered into agreement to launch My Poker video poker games by 2012 calendar year-end at Station Casinos’ properties in Las Vegas"
  • "WMS’ networked gaming products were installed at 98 casino properties in 16 countries around the world, on more than 1,900 gaming machines"
  • "We have enhanced our focus and accelerated spending in a measured manner to build a comprehensive suite of interactive products and services that provide our customers with solutions that enable them to benefit from interactive gaming opportunities. While this spending impacts near-term financial results, we believe it favorably positions WMS to participate in the tremendous high-margin growth potential of these opportunities that will create longer-term shareholder value.”
  • R&D: "The year-over-year decline reflects the savings generated from the organizational changes announced in August 2011 and $3.0 million of write-down charges for intellectual property impairment recorded in the June 2011 quarter, while the quarterly sequential increase reflects higher spending and investment on innovative new gaming products, coupled with higher incentive compensation expense and the increased spending to support the Company’s participation in long-term, high-margin growth opportunities in interactive gaming."
  • Higher SG&A: "Reflecting $2.1 million for legal settlements in the quarter, increased costs associated with our interactive gaming products and services, including acquisition-related expenses, and higher incentive compensation expense, partially offset by savings from the organizational changes announced in August 2011 and a $0.7 million reduction in bad debt reserves related to Mexican customer receivables."
  • "The Company expects an aggregate 20% decline in capital spending on gaming operations equipment and property, plant and equipment in fiscal 2013."
  • Cash: $76MM 
  • Capex in 4Q: $58MM
  • "During the three months ended June 30, 2012, the Company purchased 349,515 shares of its common stock for $7.1 million.... Approximately $148 million remains available pursuant to WMS’ share repurchase authorization"


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