WMS reported in line earnings and reiterated guidance. Given WMS's lofty multiple, in-line probably wasn't quite good enough for the stock. WAP's performance and backlog provide optimism though.



WMS reported Adjusted EPS of $0.36 in line with consensus and revenues of $165.3MM which missed street numbers by $2.5MM. WMS came in a penny light of our EPS number and $1.6MM shy of our revenue number.


3Q09 Detail: 


The entire revenue miss vs our expectations came from lower "other product sales revenues" while the Street was too aggressive on slot shipments.  WMS sold 4,851 new units, well below the Street projection of 5,500 units - one analyst actually projected 6,829 units.  We suspect that at least one analyst was incorrectly telling clients that WMS's shipment to Firekeepers was excluded from 4Q09 results and would be in 1Q2010.

  • New unit sales revenues came in line with our estimate, with higher ASPs compensating for slightly lower shipments
    • NA new unit shipments of 4,851 were 43 units below our estimate and international unit shipments were 77 light of our estimate
    • We estimate that WMS got 15% of new openings and expansions in NA and over 30% of replacement shipments - although we will have to wait for the other suppliers to report their results to confirm those numbers
    • Higher ASP's made up the revenue gap.  This is not unexpected, since any upside to new shipments would likely come from Class II or Helios platform jurisdictions, which have lower ASP
    • WMS expects flattish ASP's to from the current quarter starting in the 2H2010 with higher Blue Bird 2 (BB2) mix being offset by lower priced Helios sales
  • "Other product sales revenues" missed our mark by $1.6MM despite higher conversion kit shipments
    • Most of what was in used games this quarter were trade-in resales, not BlueBirds, so they were very low margin. Some quarters in the past they sold refurbished units which had higher prices and better margins
  • Gross profit was in line with our number, due to margins being 90 bps higher mix of BB2's 


Gaming operations revenues were in line with our expectations and gross margin was $1MM better than our estimate. As we wrote in our preview for the quarter on 10/23/2009, it was "all about WAPs"

  • WAPs had another huge quarter, adding 374 units sequentially after adding 386 units last quarter. Not only did the install base for WAPs growth 15% sequentially, but we estimate that average revenue per day also increased y-o-y
    • While there were many questions focused on growth in revenue per day and it's sustainability, a large portion of the growth was also mix driven, as WAP's generate more then 2x the average daily win of other participation products
  • Gains in WAP placements were offset by sequential declines in the install base for LAPs (116 units), stand alone games (271 units), and casino-owned daily fee games (101 units)
    • From a development standpoint WMS has put more emphasis behind the WAP platform, as can be seen with 3 major WAP game launches in the quarter. WMS has a large backlog for WAPs and should have another strong quarter in Dec. 
    • Some of the standalone's had very good longevity and that caught up with them this quarter.  We should see similiar attrition on standalone and LAPs next quarter.  In the second half of the year standalone units should grow if WMS's new games are successful, while LAPs are expected to stabilize and stay flattish in the back half of FY 2010. 

Below the gross margin line, R&D came in $2.3MM, or 10%, above our estimate, while D&A came in $0.4MM below our estimate due to the lower number of net additions to the participation install base


FY 2010 guidance was left unchanged but revenue guidance for 2Q2010 of $184-190MM is below consensus of $192MM. 

  • The December quarter should have higher domestic unit sales as there are materially more new openngs and expansions shipping in the quarter, including:
    • City Center (1,940 slots), River City (2,000), Choctow Casino in Oklahoma (3,000)
  • The December quarter is also seasonally slightly stronger for replacements than September ahead of New Year's and the holidays

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more