Advanced Drainage Systems, Inc. (WMS)

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WMS Industries Inc. (WMS)

F2Q09 (Qtr End 12/31/08) Earnings Call Transcript

January 29, 2009 4:30 pm ET

Executives

Bill Pfund – VP, IR

Brian Gamache – Chairman and CEO

Scott Schweinfurth – EVP, CFO, and Treasurer

Orrin Edidin – President

Analysts

Joe Greff – J.P. Morgan

David Katz – Oppenheimer

Steve Wieczynski – Stifel Nicolaus

Celeste Brown – Morgan Stanley

Bill Lerner – Deutsche Bank

Steven Kent – Goldman Sachs

Ralph Schackart – William Blair

Todd Eilers – Roth Capital Partners

Presentation

Operator

Welcome to the WMS Industries second quarter results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator instructions) As a reminder, this conference is being recorded Thursday, January 29, 2009. It is now my pleasure to introduce Bill Pfund, Vice President Investor Relations. Please go-ahead sir.

Bill Pfund

Thank you operator. Good afternoon and welcome to WMS Industries’ conference call to discuss our fiscal 2009 second quarter results With me are Brian Gamache, Chairman and Chief Executive Officer and Scott Schweinfurth, Executive Vice President, Chief Financial Officer, and Treasurer. Orrin Edidin, our President has been in London this week heading our presence at the International Gaming Expo trade show or IGE, or perhaps better known under its former acronym of ICE. Although it has already been a long day for him, he is joining us to answer questions following our prepared remarks. Before we start let me review our Safe Harbor language. 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 Risk Factors in the company’s annual report on Form 10K for the year ended June 30, 2008 and in our more recent reports filed with the SEC. The forward-looking statements made on this call and webcast, the archived version of the webcast and any transcripts of this call are only made as of this date January 29, 2009. Now let me turn the call over to Brian.

Brian Gamache

Thank you Bill, good afternoon everyone. This afternoon we reported year-over-year quarterly revenue growth of 12% to $178 million, net income growth of 48% to $24 million, inclusive of a $5 million pre-tax benefit from the cash settlement of a trade mark litigation and 70% growth in quarterly cash flow from operating activities to $53 million. These results achieved in the face of the overall economic challenges that we have all been aware of highlight our continuing ability to deliver steady growth in revenues earnings and cash flow. There are clear signs that WMS has the right Blueprint in place and the ability to execute on our strategies that develop products that casino customers and their players’ desire. They are also demonstrating the powerful impact of our success in executing on our operating improvement in capital efficiency initiatives.

The 70% increase in quarterly cash flow from operations and the significant progress in improving operating asset and liability efficiency boasted our already strong balance sheet further strengthening our foundation to support ongoing product development in other growth initiatives. This consistent progress in achieving improvement in operating excellence is creating additional value for our shareholders. In particular, I would like to note our gaming operations revenues increased 16% and growth profit rose 20% year-over-year driven by 8% growth in our average installed base and 10% growth in our average daily revenue, reflecting the continued strong play levels for our unique products. Our great content and innovative products also lead to continued new product units sales growth worldwide.

North American shipments increased a healthy 8% and our international shipments grew 4% year-over-year. As expected our average selling price rose 8% to $13,686 reflecting demand for premium priced products, particularly our new network ready Bluebird2 gaming machines, which accounted for approximately 17% of the new unit mix. WMS’ consistent growth in this difficult market is directly attributable through our expanding library of great products that out run our industry averages, which has lead to further market penetration. We achieved solid revenue growth of 13% in the first half of fiscal 2009 by staying focused on our key priorities. While we expect continued growth in the second half of fiscal 2009, as anticipated will be a lower growth rate than the first half of 2009.

In today’s difficult economic environment, we are maintaining our commitment towards market share and financial growth, while remaining careful not to over extend or over reach, with the positive response by customers to our products at both G2E and this week at ICE and with the continuing operating improvements, we are reiterating our revenue and margin targets for fiscal 2009. With the solid results of our first six months under our belt let me show you some of the factors that support our expectations for the remainder of 2009. First, the continued strength in play levels achieved in our participation business. Our installed base of our participation products increased by over 400 units since June 30, 2008 and with an installed base of 9,741 units at December 31, we enter the back half of fiscal 2009 with an installed foot print that is at the high end of the guidance we provided for the average installed base for fiscal 2009. With the launch of exciting new products such as POWERBALL power seat on our Community Gaming platform two new wizard of hours games on our transit of real gaming platform and time machine on our sensory emergent platform along with the real men compete to win that utilizes the capabilities of our wide area network to provide unique gaming experience for our players.

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