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WMS Industries Inc. (WMS)

F3Q09 Earnings Call

April 21, 2009; 4:30 pm ET


Brian Gamache - Chairman and Chief Executive Officer

Orrin Edidin - President

Scott Schweinfurth - Executive Vice President, Chief Financial Officer and Treasurer

Bill Pfund - Vice President of Investor Relations


Joe Greff - JP Morgan

David Katz - Oppenheimer & Company

Ralph Schackart - William Blair and Co

Steve Wieczynski - Stifel Nicolaus

Steve Altebrando - Sidoti & Co.

David Bain - Sterne Agee

Todd Eilers - Roth Capital Partners

Steve Kent - Goldman Sachs



Welcome to the WMS Industries third 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 Tuesday, April 21, 2009.

I would now like to turn the conference over to Mr. Bill Pfund, Vice President of Investor Relations for WMS Industries. Please go ahead, sir.

Bill Pfund

Thank you, operator. Good afternoon and welcome to WMS Industries conference call to discuss our fiscal 2009 third quarter financial results and operating trends. Thank you for being patient. We were having a bit of technical difficulty in getting some of these phone lines connected.

With me today are Brian Gamache, Chairman and Chief Executive Officer; Orrin Edidin, President of WMS; and Scott Schweinfurth, Executive Vice President, Chief Financial Officer, and Treasurer.

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 10-K for the year-ended June 30, 2008 and in our more recent filings 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 21, 2009.

Now, let me turn the call over to Brian.

Brian Gamache

Thank you, Bill. Good afternoon, everyone. This afternoon, WMS reported financial results for the March 2009 quarter, reflecting the achievement of record company performance in many of our most important revenue and margin metrics, including average selling price, participation revenue per day, total gaming operations revenue, product sales, gaming operations and total gross margin, operating income, net income and quarterly earnings per share.

The quality of these earnings is something we are all tremendously proud of. This performance is clear evidence of our ongoing success in creating products that deliver high entertainment value, resulting in superior time on device, coin in revenue per day and return on investment for our customers.

These factors combined with our ongoing achievement of incremental operating efficiencies in development, manufacturing, and selling and administrative processes, are recipe that will generate success in any market environment.

However, these were consistent with our guidance range and mark our 12th consecutive quarter of meeting or exceeding our revenue targets. On our last call, we indicated that we believe the March quarter would be the most challenging quarter of the year and the quarter certainly lived up to expectations.

Our team took this challenge to heart and executed once again at a high level on both the revenue and margin front, and our results clearly demonstrate the success of their efforts and the leverage inherent in our business model, even with more modest revenue growth. Our balanced operating execution resulted in our 17th consecutive quarter of double-digit earnings growth.

Our record third quarter revenues of a 181 million and substantial margin improvement led to a 30% increase in net income to an all-time quarterly record of 24 million or $0.43 per fully diluted share, achieving record revenue and profitability, despite the well headline economic and industry challenges illustrates once again that our customers will find ways to put high return, high earning WMS must have products on their gaining floors.

Our price sales margin improved to 53%, an increase of 520 basis points over the March 2008 quarter, and sequentially nearly 300 basis points above the December 2008 quarter. Couple this with the impressive growth of our higher margin and participation business and the result was an all-time record 65% total gross profit margin.

Combine this with disciplined spending on operating expenses and we exceeded our long stated operating margin target of 20%, as we achieved a 21% operating margin. We accomplished this while continuing to fully support R&D projects that are expected to lead to new innovative products in fiscal 2010 and beyond.

Exceeding 20% operating margin is another significant all be it interim milestone on our journey of continuous improvement. An important factor behind the operating margin improvement was the increase in our product sales gross margin, largely attributable to the solid sales and substantial efficiencies being achieved to our new premium Bluebird2 gaming platform.

Reflecting growing customer appreciation of the player appeal and high work return economics of this gaming machine, Bluebird2 volumes continued to ramp up stronger than anticipated, and during the quarter accounted for almost 50% of our total global unit shipments.

With volume momentum and the production efficiencies being achieved on Bluebird2, we have another real winner. Additionally, as a result of the exceptional customer demand for this premium featured network ready gaming machine, the average selling price for the March quarter rose 18% year-over-year to a record $14,854.

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