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Normalizing for taxes, WMS would have reported $0.49 which amounts to a disappointing quarter in light of "great expectations". Our long term thesis hasn't changed

WMS reported an inline quarter as we expected. However, given the "great expectations" going into the call, inline proved not to be good enough. Our long term thesis on WMS's outlook remains unchanged. We will have further thoughts on the quarter out shortly. Below are our notes from the call.


  • Expect only modest increases in customer budgets in 2010
    • Based on IGT's and WMS's replacement units, we estimate replacements will be up nicely y-o-y to roughly 12k units
  • Think that they got higher ship share gains in the quarter
  • Bluebird xD getting launched in the June quarter and should help them to continue gain ship share
  • Repurchased $25MM worth of shares during the quarter (So $5MM post Q filing)
  • 55% product sales margin target
  • Overall environment of constraint and conservative in NA - however, it's the first quarter where units increased y-o-y
  • Expect to deliver higher y-o-y unit increases in the June quarter due to entry into new distribution avenues and launch of xD
  • Expect strong ASP's again in the June quarter, more of their customers are opting to upgrade to their BB2 line when ordering new units
  • Australia will have a drag on ASPs, but will largely be offset by launch of BBxD which will sell at a premium price
  • Increase in their Average Daily Revenue in game ops is largely driven by higher mix shift of WAP units as a % of the overall install base
  • Gross margin decline in their gaming operations was due to mix shift towards WAP games and a benefit of favorable jackpot expense last year. They also had some royalty contracts roll off and are now servicing those customers directly (at a lower margin)
  • Expect their tax rate to be btw 36-37% in the F4Q2010
  • Had a $20MM WC benefit in the quarter partly due to lower demand for extended credit terms - however they are still above historical norms.
  • Expect an increase in capital expenditures to expand gaming operations footprint
  • September 21st analyst day in Chicago
  • 26% ship share in calendar 2009, and believe they had better ship share in the March 2010 quarter
  • Launching BlueBird xD cabinet in the June quarter.  Has a smaller footprint than comparable products.  Performing very well in current trials
  • Launching Price is Right in June Q and Lord of the Rings in July.  Lord of the Rings will have player recognition like Star Wars.
  • Shipped games to New South Wales in the the March quarter. Expect to increase shipments to that market in the June quarter
  • Mexico - shipped Blue Bird 2 units again this quarter and expect to gain further penetration in that market
  • Italy - expect first revenue earning units to be placed this fall
  • IL - expect first units to ship at the end of this calendar year
  • Expect commercial applications of Wage Net and first portal applications to launch at the end of this year (Jackpot Explosion - first commercial application). Working with 9 casinos to trial Jackpot Explosion
  • Revised 4Q Guidance of $213-223MM (lowered the range by $3MM)


  • Ship share in March?
    • Think they gained share in the March quarter vs. Dec Q
  • 50% of profit came from gaming operations
  • Expect to keep disciplined on supply of participation games
  • Thoughts on IGT's discounting - "dynamix package"
    • Continue to believe that as long as their games perform well, pricing will not be an issue
  • Will bring out 105 new titles this year
  • Would they have been able to sell more units if IGT had not bundled or if they had lower prices?
    • No
  • Not concerned about their WAP footprint for Q4 given their product pipeline
  • Got approval for Ruby Slippers at the end of March - so very few of those units are in the March 31st footprint - but they will be accretive to the footprint in June
  • Refresh the stand alone participation footprint each quarter (Monopoly/etc) so they aren't ignoring them at the expense of WAP
  • Why xD vs. BlueBird 2?
    • Same themes run at significant premium on the xD vs the BB2 - pricing is north of $20K at same margins as BB2