WMS Industries' CEO Discusses F3Q12 Results - Earnings Call Transcript

WMS Industries Inc. (WMS)

F3Q12 Earnings Call

May 3, 2012 04:30 pm ET


Bill Pfund - VP, IR

Brian Gamache - Chairman & CEO

Scott Schweinfurth EVP, CFO & Treasurer

Orrin Edidin - President


Carlo Santarelli - Deutsche Bank

Steven Kent - Goldman Sachs

Joe Greff - JPMorgan

Mark Strawn - Morgan Stanley

Harry Curtis - Nomura

Steven Wieczynski - Stifel Nicolaus

Joel Simkins - Credit Suisse

Bill Lerner - Union Gaming

Dennis Forst - KeyBanc

Todd Eilers - ROTH Capital Partners



Thank you for standing by and welcome to the WMS Industries fiscal 2012 third quarter conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question-and-answer session. As a reminder today's conference on April 30, 2012 is being recorded. I would now like to turn the call over to Bill Pfund, Vice President of Investor Relations for WMS Industries. Please go ahead sir.

Bill Pfund

Thank you, operator. Before beginning the review of our financial results and operating progress, I'd like to remind everybody that our call today contains forward-looking statements concerning the outlook for WMS and future business conditions. These statements are based on currently available information and involve certain risks and uncertainties. The company's actual results may differ materially from those anticipated in the forward-looking statements depending on the factors described under Item 1 business and Item IA risk factors in the company's annual report on Form 10-K for the year ended June 30, 2011 and in our more recent press releases and reports filed with the SEC. The forward-looking statements made on this call and webcast, the archived version of the webcast, and in any transcripts of this call are only made as of this date, April 30, 2012.

This afternoon, Brian Gamache, Chairman and Chief Executive Officer, will provide an overview of recent milestones and of the third quarter results followed by Scott Schweinfurth, our CFO and Orrin Edidin, WMS' President and then we will open the call up for your questions.

Now, let me turn the call over to Brian.

Brian Gamache

Thanks, Bill, and good afternoon, everyone. WMS' fiscal third quarter results demonstrate further operating progress and quarterly sequential improvements in financial results. For the March 2012 quarter WMS generated total revenue of $176 million compared to a $193 million a year ago. Our revenues increased 9% or $14 million on a quarterly sequential basis. With a significantly improved gross profit margins and continued cost containment our operating margin grew sequentially to 18% and was about flat with the March 2011 quarter on less revenue. As a result both operating income and diluted earnings per share increased almost 50% on a quarterly sequential basis from the December 2011 quarter, with EPS excluding the $0.02 per share second quarter benefit of litigation settlement going from $0.27 per share to $0.40 per diluted share.

And cash flow confirms our operating progress as cash flow generated from operating activities is up 6% for the nine months for the comparable period a year ago. Our fiscal third quarter operating results reflect ongoing progress consistent with the sequential goals we set earlier this fiscal year. But investors should also note several key milestones that occurred during the quarter. We believe these milestones highlight the meaningful ongoing progress we are making with our strategies to build a foundation for steady and sustainable long-term growth.

These include, our quarter end installed participation base increased by more than 100 units or 1% from the December 31, 2011 quarter reversing the trend of the past seven quarters and our average revenue per day also increased. Our new CLUE themed wide area progressive game was launched in the March quarter at numerous Caesar Entertainment properties in Nevada and Atlantic City, New Jersey with open order for now over 2100 units and five new participation games expected to receive their regulatory approvals this quarter.

And with our improving product performance, we expect further growth in the installed participation base and revenue per day in June quarter and beyond. Next our new unit sales continue to increase on a quarterly sequential basis with 600 more units sold for replacements on casino floors in US and Canada compared with the December 2011 quarter. Contributing to this improvement was the successful launch of the Bluebird2e cabinet which adds emotive lighting to the Bluebird2 cabinet. We shipped more than 1500 of these units in the March quarter.

And that's particularly noteworthy, we improved product sales gross margin by 320 basis points over the prior year to 52% which is up 170 basis points sequentially from the December quarter. Ongoing benefits from our cost containment and continuous improvement initiatives more than offset the roughly $1100 decrease in average selling prices that primarily reflected a greater mix of lower price VLT sales, the impact from higher discounts given our larger volume orders, fewer premium for sale of units and the continued impact of a competitive market place.

Next our ongoing cost containment efforts coupled with the savings program instituted earlier this fiscal year resulted in a R&D and SG&A expenses in aggregate being $8 million lower than the prior year period. Next the operating leverage inherent in our balance model was once again validated, as we increased unit sales volumes roughly 480 basis points increase in operating margin on a quarterly sequential basis.

The $11 million quarterly increase sequential and gross profit contribution when tax affected, largely dropped straight through the bottom line. I think it is plainly evident that since we implemented the organizational realignment and revised product commercialization plan early in fiscal 12, WMS achieved measurable progress in our core business, but we still have much to achieve and our opportunities to assist customers and grow remains plentiful. Most importantly the flow of new game approvals is back to a normalized rate. This is a significant milestone as it begins to revalidate our historical consistency for bringing innovative new products to market and these new games are expanding our portfolio of the unique innovative gaming features in a more diverse range of math models.

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