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WMS Reports Fiscal 2013 Second Quarter Results

Gaming Operations Revenues

Gaming operations revenues increased $8.0 million to $72.7 million in the December 2012 quarter from $64.7 million in the year-ago period, marking the second consecutive quarter of year-over-year growth in gaming operations revenues. The installed participation base at December 31, 2012 increased by 342 units over the prior year and was essentially flat with the installed base of 9,632 units at September 30, 2012. The average installed participation base for the December 2012 quarter declined by 95 units year over year to 9,281 units primarily reflecting the impact of units that were offline during the quarter as a result of superstorm Sandy affecting Eastern U.S. casinos, coupled with one customer removing units at the beginning of the quarter. Average revenue per day in the quarter of $63.89 per unit compares to average revenue per day of $65.23 in the September 2012 quarter and $67.62 in the December 2011 quarter.

Revenues from interactive products and services increased $3.5 million, or 37% on a quarterly sequential basis to $13.0 million and were up from $1.2 million in the prior-year period, primarily reflecting the growing success of the Company’s July 2012 launch of the Jackpot Party Social Casino on Facebook.

The Jackpot Party Social Casino is now the fourth most popular social casino on Facebook based on the number of daily active users. Revenue growth for interactive products and services also reflects organic growth in WMS’ UK-based B2C online website and the addition of Phantom EFX retail sales and Jadestone game server integration revenues.

Other gaming operations revenues were flat on a year-over-year basis at $5.1 million.

Costs and Expenses

The following table summarizes key components of costs and expenses for the three months ended December 31, 2012, and 2011 ($ in millions):
  Three Months Ended

December 31,
 

Increase/(Decrease)
Costs and Expenses: 2012   2011 Amount   %
Cost of product sales $ 43.2 $ 48.7 $ (5.5 ) (11.3 )
As a percentage of product sales revenues 50.9 % 49.9 % 100 bp 2.0
Cost of gaming operations 13.7 14.4 (0.7 ) (4.9 )
As a percentage of gaming operations revenues 18.8 % 22.3 % (350)bp (15.7 )
Research and development expense 26.7 23.7 3.0 12.7
As a percentage of total revenues 17.0 % 14.6 % 240 bp 16.4
Selling and administrative expense 37.9 33.2 4.7 14.2
As a percentage of total revenues 24.1 % 20.5 % 360 bp 17.6
Depreciation and amortization expense 29.0 21.2 7.8 36.8
As a percentage of total revenues   18.4 %   13.1 % 530 bp 40.5
Total costs and expenses $ 150.5   $ 141.2   $ 9.3   6.6
Operating income $ 7.0   $ 21.0   $ (14.0 ) (66.7 )
Operating margin 4.4 % 12.9 % (850)bp (65.9 )
 

Cost of product sales declined $5.5 million to $43.2 million in the December 2012 quarter primarily reflecting the lower unit cost of VLTs, lower gaming machine unit costs due to the Company’s strategic sourcing, supply chain and other continuous improvement initiatives, and lower sales of used gaming machines and conversion kit units. As a percent of product sales revenues, cost of product sales increased to 50.9% from 49.9% primarily reflecting the lower average sales price associated with VLTs.

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