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WMS 3Q REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

OVERALL

  • SAME: Product revenues and gross margins came in ahead of our estimates but the beat was driven by other product revenues rather than new game sales, most of which could be categorized as one time.  Gaming operations sales and margins were also above our estimate, but the beat was not on the core install base or yields, but rather related to interactive.  The "interactive" beat came at a steep price - higher SG&A, R&D, and D&A- all higher than we thought.  So bottom line is that the core business is still "eh" and the verdict is still out on interactive but the additional disclosure was good.

OPERATOR BUDGETS

  • SAME:  WMS expects regional budgets will be flat YoY with maybe a 3-5% uptick.
  • PREVIOUSLY: "We expect economic conditions and the gaming industry sentiment to remain challenging....We believe it will take several quarters of meaningful improvements in general economic conditions before we see operator confidence build to the point where they're notably increasing annual capital budgets, and right now we're not expecting such a rebound."

F1Q REVENUES

  • LITTLE BETTER:  Revenues were actually up modestly YoY and WMS expects continued improvement in the balance of the year.
  • PREVIOUSLY: "For our first quarter, we expect revenues to approach the levels of revenues in the September 2011 quarter with stronger revenue growth in the back half of the fiscal year."

R&D GUIDANCE

  • SAME:  WMS reiterated the same range with ramp down as the year progresses to the lower end of the range.
  • PREVIOUSLY: "We expect R&D in fiscal 2013 to increase to a range of 15% to 16% of revenues and that SG&A depreciation will also increase as a percentage of revenues."

NEW CASINO FLOOR SHARE

  • SAME:  Ship share of new openings has been in the high teens.
  • PREVIOUSLY: "Our floor share of new casinos continues to average in the high teens."

GAME OPS FOOTPRINT

  • SAME:  There was growth this Q and WMS expects continued growth throughout the year.
  • "With a healthy number of open orders for participation units, we expect growth in the installed participation footprint in fiscal 2013.”

CAPITAL SPEND ON GAME OPS

  • SAME:  With more than 70% of their install base refreshed and with 35% having the latest content launched over the last 3 quarters, capital spend on gaming operations equipment and PP&E should be 20% lower in FY13.
  • We do expect aggregate capital spend on gaming operations equipment and property, plant and equipment to decline in fiscal 2013 by 20%.

D&A GUIDANCE

  • SAME:  Given the refreshed and growing install base, completion of a major facility plus amortization of Finite Life intangible assets from two acquisitions completed in the June Q, D&A will be higher in FY13.
  • PREVIOUSLY: The participation footprint expansion, coupled with placements of VLTs in Illinois, of gaming machines on operating leases and the completion of two large PP&E projects in early fiscal 2013 will continue to drive higher depreciation in fiscal 2013."

OPERATING INCOME GUIDANCE FOR FY13

  • SAME:  On an annual basis, WMS stated that higher revenues will be offset by planned higher spending that supports new product flow and the building of a foundation for interactive products and services.
  • PREVIOUSLY: "We expect the increased spending on operating expenses will largely offset the increased gross profit contributions from higher revenues in fiscal 2013."

JACKPOT PARTY CASINO ON FACEBOOK

  • BETTER:  Since launching in July, they already have 2MM active monthly users and 550,000 daily active users averaging $55k of daily revenues to WMS.
  • PREVIOUSLY: "Our social gaming pursuits were bolstered by the Phantom EFX acquisition and we recently directly published a suite of slot-based games with our Jackpot Party Casino on Facebook. I'm pleased to note that the initial beta results are far exceeding our expectations."

FY2013 ASPs

  • SAME:  WMS expects variability in ASPs especially if they start shipping more units to IL.
  • PREVIOUSLY: "So I think ASP, the upside is limited for fiscal 2013 on ASP. But I do believe that in the second half of the year when we launch our new products and cabinets and form factors, we'll have an ability to see an uptick in our pricing. But I'm not sure, given the first half, if it will offset it enough."