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WMS Reports Fiscal 2013 Second Quarter Results

WMS Industries Inc. (NYSE:WMS) today reported revenue of $157.5 million and net income of $4.3 million, or $0.08 per diluted share, for the quarter ended December 31, 2012, inclusive of a $2.0 million after-tax impact, or $0.04 per diluted share, for a discrete non-U.S. tax item and $2.5 million of pre-tax expense, or $0.03 per diluted share, for costs incurred in the process leading to the recently announced definitive merger agreement with Scientific Games Corporation (NASDAQ:SGMS). These results compare to revenue of $162.2 million and net income of $16.1 million, or $0.29 per diluted share, in the December 2011 quarter, which included a benefit of $2.1 million pre-tax, or $0.02 per diluted share, related to the settlement of litigation.

Net income and diluted earnings per share in the December 2012 quarter reflect a year-over-year increase in research and development and online marketing expenses to support growth in the Company’s interactive products and services initiatives, as well as the impact of the two interactive acquisitions completed in the June 2012 quarter. In addition, December results reflect the ongoing development and commercialization of a greater number of new participation and for-sale games and cabinets, including the new Blade™ and Gamefield xD™ cabinets with WMS’ CPU-NXT®3 operating system, both of which are on schedule to launch in the March 2013 quarter.

Recent Highlights:

  • Gaming operations revenues increased $8.0 million on a year-over-year basis and $1.6 million on a quarterly sequential basis to $72.7 million, primarily reflecting continued interactive products and services revenue growth, as well as growth in the installed participation base, which was 342 gaming machines higher at December 31, 2012 than at December 31, 2011.
  • Cash flow provided by operating activities for the six months ended December 31, 2012, was $71.2 million, a year-over-year increase of $5.5 million or 8%.
  • During the quarter, Jackpot Party® Social Casino, the fourth most-popular casino game on Facebook® as measured by number of daily active users, generated continued revenue growth, averaging more than $100,000 a day in revenues after the Facebook payment processing fee, primarily due to higher monetization rates and higher average daily payments by paying players.
  • Jackpot Party Social Casino was launched on the Apple® iOS on the iPhone® during December. As a native application on iOS available in the Apple iTunes Store®, the app quickly became among the top ten largest grossing casino game apps on the iPhone from Apple.
  • WMS was selected by the Western Canada Lotteries Corporation to replace existing VLT units throughout the province of Saskatchewan, adding to its previous selection by the Alberta Liquor and Gaming Commission and Manitoba Lotteries Corporation to participate in their VLT replacement initiatives.
  • In the December quarter, WMS agreed to make its library of classic slot gaming content available to the British Columbia Lottery Corporation for its online casino.
  • In the December 2012 quarter, WMS’ innovative new My Poker® video poker dedicated gaming machines were introduced at casinos in several regional locations.

“WMS’ progress with the commercialization of new innovative game content and products is evident in the sequential quarterly growth of domestic replacement units shipped and solid demand for our Canadian and Illinois VLT units,” said Brian R. Gamache, Chairman and Chief Executive Officer. “Importantly, in the current quarter we have installed our new unique Gamefield xD participation gaming machines at casinos in New Jersey and expect initial installations in more jurisdictions throughout the quarter. Further, following the December 2012 launch of our My Poker® video poker platform in select regional locations, we have now launched the product at Station Casinos’ properties in the Las Vegas area and continue to roll it out in additional casinos in various jurisdictions. We also recently shipped our first units of the sleek, new Blade cabinet to a casino in Detroit. Customer demand for the Blade cabinet is running at record levels for a WMS product launch and in the March and June quarters we expect to ship more than twice the units we shipped in the first two quarters after launching our Bluebird2 cabinet almost five years ago. We also have very high customer demand for the Gamefield xD product. In its first four weeks of being orderable, we have booked more than 500 unit placements. The early performance of our new video poker product is also very encouraging and we have more than 750 My Poker gaming machines shipped to-date or on order. Reflecting the commercialization of these multiple new cabinet launches, in the current quarter WMS will go from having the oldest set of gaming machines amongst our competitive set to offering the freshest group of new cabinets.

“In addition, with the revenue growth achieved to date for interactive products and services, our investment in this attractive new product distribution channel is proving to be very prudent,” continued Gamache. “The early success of Jackpot Party Social Casino contributed to the $12 million in year-over-year revenue growth from interactive products and services.”

Fiscal 2013 Second Quarter Financial Review

The following table summarizes key components related to revenue generation for the three months ended December 31, 2012, and 2011 (dollars in millions, except unit, per unit and per day data):

  Three Months Ended

December 31,

 

Increase/(Decrease)

2012   2011 Amount   %
Total Revenues $ 157.5 $ 162.2 $ (4.7 ) (2.9 )
Product Sales Revenues:
New gaming machine sales revenues $ 75.6 $ 79.1 $ (3.5 ) (4.4 )
Other product sales revenues   9.2   18.4   (9.2 ) (50.0 )
Total product sales revenues $ 84.8 $ 97.5 $ (12.7 ) (13.0 )
 
Average sales price per new unit $ 15,558 $ 16,325 $ (767 ) (4.7 )
New unit shipments to the U.S. and Canada 2,778 2,759 19 0.7
New unit shipments to International markets   2,080   2,087   (7 ) (0.3 )
Total new units on which revenue was recognized 4,858 4,846 12 0.2
Used unit shipments   924   1,575   (651 ) (41.3 )
Total unit shipments   5,782   6,421   (639 ) (10.0 )
 
Conversion kit unit sales 1,390 5,000 (3,610 ) (72.2 )
Cost of product sales $ 43.2 $ 48.7 $ (5.5 ) (11.3 )

 

 

 

Gaming Operations Revenues:
Participation revenues $ 54.6 $ 58.4 $ (3.8 ) (6.5 )
Interactive products and services revenues 13.0 1.2 11.8 nm
Other gaming operations revenues   5.1   5.1    
Total gaming operations revenues $ 72.7 $ 64.7 $ 8.0   12.4
 
Installed base of participation units at period end 9,624 9,282 342 3.7
Average installed participation units 9,281 9,376 (95 ) (1.0 )
Average daily revenue per participation unit $ 63.89 $ 67.62 $ (3.73 ) (5.5 )
Cost of gaming operations $ 13.7 $ 14.4 $ (0.7 ) (4.9 )
 

Product Sales Revenues

Total product sales revenues for the December 2012 quarter were $84.8 million compared to $97.5 million in the prior-year period. WMS shipped 2,778 new gaming machines to customers in the U.S. and Canada, inclusive of 1,060 VLTs for Canada and 204 VLTs for the new Illinois VLT market. Total global shipments increased 1,067 units on a quarterly sequential basis, and were flat on a year-over-year basis. Lower demand in the December quarter for our current gaming cabinets reflects heightened interest by customers in purchasing the new Blade cabinet after seeing it at G2E®, which resulted in some customers deferring purchases of Bluebird2 gaming machines. This purchase behavior is not unusual for the launch of a new gaming product. Although these deferrals impacted our total shipments, we sold 3,245 Bluebird2-style cabinets and 1,412 Bluebird xD cabinets in the December quarter. Replacement units shipped to U.S. and Canadian customers were 2,434 units, inclusive of the Canadian VLT units, compared with 2,200 gaming machines in the prior-year period, while new gaming machine sales for new casino openings and expansions totaled 344 units compared with approximately 600 units in the December 2011 quarter. WMS shipped 2,080 new units, or 43% of total global new unit shipments, to international customers in the December 2012 quarter, compared to 2,087 new units, or 43% of global sales in the year-ago period. The Company’s average sales price of $15,558 declined on a quarterly sequential and year-over-year basis primarily reflecting the mix impact and lower average selling prices associated with VLTs and the new Bluebird®2-lite cabinet for select international markets, as well as the impact of the competitive marketplace and challenges from having a five-year old cabinet just ahead of launching the Blade cabinet.

Other product sales revenues declined by 50% to $9.2 million, reflecting lower conversion kit sales revenue compared to the record level in the year-ago period, and lower used gaming machine revenues as a result of a smaller number of trade-in units accepted which, translated into a smaller number of unit sales at slightly lower prices than the year-ago period.

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