WMS reported results for 2012 second quarter

These results showed sequential growth over the September 2011 quarter in which the company reported revenues of us$ 155.6 million.

In the December 2010 quarter, revenue was us$ 199.9 million and net income was us$ 27 million, including a us$ 0.02 per diluted share benefit due to the retroactive reinstatement of the US Federal Research and Development tax credit.

“Reflecting the quarterly sequential improvements in unit shipments, revenues, diluted EPS and cash flow from operations, and the ongoing improvements in the pace of jurisdictional approvals for our newest products, we believe the inflection point in our operating and financial performance is now behind us,” said Brian R. Gamache, Chairman and CEO.

“Since the second half of fiscal 2011, we have acted decisively to realign our product plans to address near-term customer needs and revenue opportunities, redirect resources to support the commercialization of new products and right-size the organization to match current operating conditions to position WMS for a return to growth. As a result, we are now capturing revenue opportunities and attaining operating margin benefits from our realignment, restructuring and cost containment actions.”

“We expect quarterly sequential improvements in revenues and operating margin to accelerate in the second half of fiscal 2012, as the return to a more ratable schedule for the development and ongoing commercialization of innovative new products continues, as we realize the benefit of increased demand from new casino openings, and as we maintain our disciplined focus on improving operational execution and cost containment,” Gamache continued. “These improvements are expected to drive year-over-year growth in both total revenue and operating margin in the second half of fiscal 2012. We believe the continued improvements and operational progress will lead to an even stronger year in fiscal 2013 for WMS.”

“We are encouraged by recent customer acceptance of our new, innovative products, as evidenced by the company’s new large contract with a major multi-site customer that increases our share of their casino slot floors in the United States, while creating a refresh cycle that will ensure their gaming floor remains appealing and highly productive,” Gamache added. “Additionally, momentum for the commercialization of our forward-thinking network gaming system continues to gain traction with more than 50 casinos around the world now running our networked gaming solutions on their slot floors.

“We believe that our talented workforce, Culture of Innovation and portfolio of intellectual properties strongly position WMS to capture a meaningful share of the long-term growth opportunities in our industry in the coming years,” concluded Gamache.

Total product sales revenues for the December 2011 quarter were us$ 97.5 million compared to us$ 127.2 million in the year-ago period and increased us$ 10.4 million, or 12%, on a quarterly sequential basis. Global new unit shipments totaled 5,803 new gaming machines in the December quarter, of which WMS recognized revenue on 4,846 units, including 2,759 units in the U.S. and Canada. New replacement units totaled approximately 2,200 units in the U.S. and Canada, a 600-unit quarterly sequential increase, but were below a year ago. Gaming machine sales for new casino openings and expansions in the U.S. and Canada were approximately 600 units, not including 957 additional new units for new casino openings and expansions that were shipped at the customers’ request, but not recognized as revenue in the December 2011 quarter.

WMS shipped 2,087 units to international customers, or 43% of total global unit shipments, compared with 2,389 units, or 38% of total global unit shipments, in the year-ago period, primarily reflecting a decline in shipments to customers in Mexico and Australia. The average sales price for new units of $16,325 was lower than the year-ago period, reflecting the competitive marketplace and a lower mix of premium games. WMS’ Bluebird xD units represented 34% of total global new unit shipments and mechanical reel products were 13% of new unit sales in the December 2011 quarter.

Other product sales revenue declined us$ 3.9 million year over year to us$ 18.4 million, reflecting lower revenue from sales of used gaming machines, partially offset by higher conversion kit revenue. Approximately 1,600 used gaming machines were sold in the December 2011 quarter, at lower average selling prices, compared with approximately 3,100 used units in the prior-year quarter. Revenue was recognized on approximately 5,000 conversion kits in the December 2011 quarter compared to approximately 2,000 conversion kits a year ago.

Gaming operations revenues were us$ 64.7 million in the December 2011 quarter compared to us$ 72.7 million in the year-ago period. The average installed participation base for the December 2011 quarter was 9,376 units compared to an average installed base of 10,147 units in the year-ago period. The ending installed base of 9,282 gaming machines at December 31, 2011, compares with 9,592 units at September 30, 2011, and 10,174 units at December 31, 2010. Average revenue per day was us$ 67.62 compared to us$ 74.39 in the year-ago period. The year-over-year declines in the average and period-end installed base and average revenue per day primarily reflect the previously noted impact from delays in approvals of new participation products that have recently eased. The 6% quarterly sequential decline in average daily revenue from us$ 71.70 in the September 2011 quarter mostly reflects normal seasonal influences during the December quarter.

Following initial jurisdictional approvals for new participation games near the end of the September 2011 quarter and additional approvals subsequently received in other jurisdictions, coupled with recent initial approvals for several new participation games, as expected, the company began to replace and refresh its participation footprint in the December 2011 quarter. With the expected commercialization of additional new participation products in the second half of the fiscal 2012, WMS expects to achieve sequential growth in its installed participation base and average revenue per day in both the March and June 2012 quarters.

Other gaming operations revenue increased us$ 3 million over the year-ago period, primarily reflecting continued growth in the online gaming business in the United Kingdom and incremental revenue from networked gaming solutions.

Total gross profit, excluding depreciation, amortization and distribution expense as used herein, was us$ 99.1 million for the December 2011 quarter compared to $121.2 million in the year-ago period. Total gross margin was 61.1% compared to 60.6% in the year-ago period. Product sales gross margin was 50.1% in the December 2011 quarter, just below the 50.4% in the December 2010 quarter, reflecting a lower average selling price partially offset by ongoing improvements to reduce costs. The gross margin benefit from increased revenues of higher-margin conversion kit and parts sales was partially offset by the lower margin on used gaming machine sales. Gaming operations gross margin was 77.7% in the December 2011 quarter compared with 78.5% in the year-ago quarter, reflecting unfavorable jackpot expense experience and increased costs from the networked gaming and online gaming businesses that were launched within the last twelve months.