Advanced Drainage Systems, Inc. (WMS)

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WMS Industries (WMS)

Q4 2011 Earnings Call

August 04, 2011 4:30 pm ET

Executives

William Pfund - Vice President of Investor Relations

Brian Gamache - Chairman and Chief Executive Officer

Orrin Edidin - President

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

Analysts

Jon Oh - Credit Agricole Securities (USA) Inc.

Joel Simkins - Crédit Suisse AG

David Katz - Jefferies & Company, Inc.

Mark Strawn - Morgan Stanley

Joseph Greff - JP Morgan Chase & Co

Steven Wieczynski - Stifel, Nicolaus & Co., Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the conference call for WMS Industries Fiscal 2011 Fourth Quarter and Year-End Results. [Operator Instructions] As a reminder, today's conference call on August 4, 2011, 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.

William Pfund

Thank you, Demetra. Welcome to WMS Industries Fiscal 2011 Fourth Quarter Conference Call. 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, 2010, and in our more recent press release 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, August 4, 2011.

This afternoon, Brian Gamache, our Chairman and CEO, will provide his overview; followed by Scott Schweinfurth, our CFO, providing further insight on our financial results and revenue guidance; and then Orrin Edidin, our President, will discuss product and operational initiatives, including further detail on our recent product plan and business strategy review; and we'll conclude with summary comments from Brian.

Now let me turn the call over to Brian.

Brian Gamache

Thanks, Bill. And good afternoon, everyone. WMS today reported total revenue of $203 million and diluted earnings per share of $0.18, which includes net charges of $0.26 per diluted share, consisting of $0.17 per diluted share of impairment charges, $0.03 per diluted share of restructuring charges and $0.10 per diluted share for asset write-downs and other charges, partially offset by the favorable benefit of $0.04 per diluted share from a cash settlement of litigation.

Revenues and profits for the quarter were also impacted by the operating lease agreement for 600 new units with the Seminole Tribe of Florida in lieu of an expected sales order of nearly similar size and an unfavorable impact of $0.01 per share from idle participation units in certain temporarily flooded, affected casinos.

While there's a lot of noise in the quarterly results, normal operating results were structurally sound. Importantly, when you look at the improvement in new unit shipments and average selling price in the June quarter, WMS has demonstrated operating progress on a quarterly sequential basis. Our average selling price reached a record 16,951, and our new unit shipments in the U.S. and Canada grew back to about 90% of the units shipped by our largest competitor.

Implementing the actions we've discussed with you on the April call to address the operational challenges faced at the March quarter, helped reduce our quarter-end compression and produce a steadier flow of new products throughout the June quarter. We have more work to do in these initiatives, but we got off to a very good start and still have significant opportunity for further improvement.

Additionally, given our near-term outlook for flat industry and placement demand, coupled with the industry's present pace of new technology adoption, we recently conducted a comprehensive review of our product plan and business strategies. As a result, we have reprioritized our product development efforts and are simplifying certain of our products to leverage our core content and product development strengths to provide a better balance between current marketplace realities and longer-term growth initiatives. This led us to implement changes to further streamline our organizational structure.

Even while refining our development plans toward our core products in the near term, we will continue to invest in select products and applications that our customers want for their floors, including many elements of our WAGE-NET network gaming system, our Portal applications and our Player's Life web services. Most importantly, we remain confident in our overall vision and strategic direction for the longer term.

Let me now turn the call over to Scott to provide you with some more detail behind our financial results and our outlook for fiscal '12. Scott?

Scott Schweinfurth

Thanks, Brian. And good afternoon, everyone. Based on the decision stemming from our recent product and strategy review that Brian mentioned, we recorded net charges of $0.26 per fully diluted share in the June 2011 quarter. We included in our press release today a schedule showing the elements of the impairment and restructuring charges, asset write-downs and other charges and the benefit from settlement of litigation.

But in summary, we incurred noncash pretax impairment charges of $16 million as follows: $11 million related to technology licenses; $3.4 million related to the Orion brand; and $1.6 million related to receivables in property plant and equipment. We also incurred $2.4 million of pretax cash restructuring charges in the June quarter, primarily related to separation charges.

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