Advanced Drainage Systems, Inc. (WMS)

WMS 
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WMS Industries, Inc(WMS)

F1Q09 Earnings Call

October 27, 2008 4:30 pm ET

Executives

William Pfund - Vice President, Investor Relations

Brian RGamache - Chairman of the Board, Chief Executive Officer

Orrin JEdidin - President

Scott DSchweinfurth - Chief Financial Officer, Executive Vice President, Treasurer

Analysts

Joseph Greff - J.PMorgan

Celeste Brown - Morgan Stanley

Ralph Schackart - William Blair & Company, LLC

William Lerner - Duetsche Bank Securities

David Katz - Oppenheimer & Co.

Steven Wieczynski - Stifel Nicolaus & Company, Inc.

Todd Eilers - Roth Capital Partners LLC

Marla Backer - Soleil - Research Associates

Steven Kent - Goldman Sachs

Steve Altebrando – Sidoti & Company

Edward Williams – BMO Capital Markets

Kent Green – Boston American Asset Management

Rachel Rothman – Merrill Lynch

Presentation

Operator

Welcome to the WMS Industries first quarter 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 Monday, October 27, 2008.

It is now my pleasure to turn the conference over to Bill Pfund, Vice President of Investor Relations.

William Pfund

Welcome to WMS Industries’ conference call to discuss our fiscal 2009 first quarter results With me are Brian Gamache, Chairman and Chief Executive Officer, Orrin Edidin, President, 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 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 Monday, October 27, 2008.

Now let me turn the call over to Brian.

Brian RGamache

Today WMS reported financial results demonstrating once again that by creating high earning products coupled with equal focus on operating excellence WMC is able to generate impressive financial performance even in tough economic times We continued to achieve greater market share, improved operating margins, increased profits and generated significantly higher cash flow despite the seasonal impact of lower product sales volume.

In light of the turmoil in our economy and capital markets and its impact on our customers, we believe our quarterly execution is clear evidence of the ongoing strength of our current market positioning which emphasizes the creation of player appealing high earning products To be very clear here at the top of this call, we have reiterated our annual revenue guidance this afternoon as our visibility and path for continued growth is clear.

Furthermore, the operating and financial success we’re achieving is resulting in an even stronger balance sheet that allows us to self-fund continuing investments that support further innovation, profitable growth and other actions to enhance shareholder value.

This afternoon we reported year-over-year revenue growth of 14% to $151 million and through fiscal discipline and operating leverage achieved a 41% increase in net income or $0.27 in diluted earnings per share This is truly a great start to fiscal 2009 We believe our operating results demonstrate that when presented with the right products that clearly meet the entertaining expectations of their players, casinos will spend capital.

For WMS this means that our high earning and differentiated products are providing the momentum for us to continue to penetrate international and domestic markets and grow our market share Likewise, our continued double-digit growth in gaming operation revenues reflects a strong player appeal and customer demand for our innovative and great performing participation products.

Without a doubt this is the toughest operating environment I can recall and I know investors are concerned about our revenue visibility for the balance of our fiscal year One important consideration is that our revenue base is diversified from an individual customer basis with no single or multisite customer accounting for more than 5% of our revenues and our revenues are also diversified on a geographic basis and from a mix of business perspective.

Like all gaming suppliers we have customers that are highly leveraged but the largest segment of our customer base is in reasonably good shape First, since our significant presence in Native American facilities which typically maintain a more limited use of debt provides a great balance for overall sales mix Our international customers are also not typically levered and as reported today this business continues to be a growing part of our overall revenue base I would also remind everyone that gaming suppliers have been facing a challenging environment in North America for several years now due to the low replacement rate for gaming machines.

This environment has raised the hurdle rates and squarely placed more emphasis on the earning performance of products than the bandwidth of product offering, the very areas that have been at the forefront of our focus and strategic direction By coupling innovation and intellectual property with new technologies we have consistently developed products with great content while significantly expanding our arsenal of unique differentiated gaming machines.

Investors should note the following data points relative to the visibility of our reiterated revenue guidance:

First, our open orders for new gaming machines totaled 12,600 units and coupled with the approximate 5,500 units that shipped in the first quarter represents nearly 60% of the high end of our annual new guidance only four months into the fiscal year This level of open orders is consistent with the level of the past nine quarters and highlights casino operators’ continued strong demand for WMS products With GGE coming up in three weeks we’ll be adding to our order book and getting further insight into our second half customer demand.

Next, our first quarter average selling price was strong even before we officially launched the premium priced Bluebird 2 gaming machine and our multigame transmissive wheels product in the December quarter Also our current open orders for participation installs and conversions totals 2,000 units also clearly within the range of the past nine quarters and is another data point demonstrating continued strength in demand for these high earning games At September 30 our installed footprint is already within the guidance range for the average installed base for the full year.

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