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WMS Industries Inc. Reports Operating Results (10-Q)

May 05, 2010 | About:

WMS Industries Inc. (NYSE:WMS) filed Quarterly Report for the period ended 2010-03-31.

Wms Industries Inc. has a market cap of $2.91 billion; its shares were traded at around $49.73 with a P/E ratio of 27.9 and P/S ratio of 4.2. Wms Industries Inc. had an annual average earning growth of 20.5% over the past 10 years.WMS is in the portfolios of Chuck Akre of Akre Capital Management, LLC, RS Investment Management, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Quarter Ended March 2010 Result: During the three months ended March 31, 2010, our average installed base of participation gaming machines increased 4.6% over the prior year and, at March 31, 2010, our total installed participation footprint stood at 10,287 units compared to 9,901 units at March 31, 2009. Growth in the installed base was primarily led by our WAP gaming machines, which at March 31, 2010 comprised 31.6% of the footprint compared to 21.6% at March 31, 2009. The WAP footprint increased to 3,246 units at March 31, 2010 and was up 1,109 units or 52% compared to March 31, 2009, largely reflecting the successful launch of new WAP games. The increase in WAP games was partially offset by lower units of our stand-alone and LAP gaming machines at March 31, 2010. A shift in strategy in fiscal 2007 to focus on return on investment of our gaming operations assets coupled with a higher percentage of installed base being higher earning WAP gaming machines helped result in revenue per day for the quarter ended March 31, 2010 increasing by 8.5% to $76.37 per day from $70.37 per day for the March 2009 quarter. This strategy includes limiting the number of gaming machines for specific new themes at each casino and re-deploying gaming machines from casinos generating lower revenue per day to casinos generating higher revenue per day. By controlling the initial placement of new participation products, we continued to reduce the capital invested in gaming operations. An 8.5% improvement in the average daily revenue, coupled with the 4.6% improvement in the average installed base, produced a 13.5% year-over-year increase in participation revenue in our gaming operations business to $70.4 million for the quarter ended March 31, 2010, which attests to the continued strong play levels and player appeal of our participation products.

Quarter Ended March 2010 Result: The United States and Canadian replacement cycle has been abnormally low and the challenges facing our industry and the overall economy have continued, thus overall industry demand has been reduced. Even in this challenging environment our year-over-year new unit shipment volume was up 10.6% from the prior year quarter reflecting an increase in U.S. and Canadian shipments. To further diversify our revenue streams, we announced late in fiscal 2009 that we would directly enter the Class II, electronic bingo and central determinant market following expiration of our previous licensing agreements for those markets. Through an alliance with Bluberi Gaming Technologies Inc. (Bluberi), a Canadian-based technology firm, over time we will combine our existing library of over 200 for-sale games with Bluberis proven system capabilities for the Class II, electronic bingo and central determinant markets. We shipped our first gaming machines to a Class II market in the September 2009 quarter, and shipments grew in the December 2009 and March 2010 quarters, and we expect to increase shipments into these markets in the June 2010 quarter. We expect to launch our new Bluebird xD gaming cabinet in the June 2010 quarter and, given the initial customer response at recent industry trade shows, we expect strong demand for this new product. We are dependent, in part, on innovative new products, casinos expansions and new market opportunities to generate growth. We have continued to invest in research and development activities to be able to offer creative and high earning products to our customers and for the quarter ended March 31, 2010, such expenses were $26.7 million, up $1.9 million, or 7.7%, compared to the prior year. Expansion and new market opportunities may come from political action as governments look to gaming to provide tax revenues in support of public programs and view gaming as a key driver for tourism.

Quarter Ended March 2010 Result: For the quarter ended March 31, 2010 we had cash provided by operations of $41.2 million compared to $30.1 million of cash provided by operations in the prior year, for a change of $11.1 million. The net cash provided by operations for the quarter ended March 31, 2010 reflects higher net income and improve changes in operating assets and liabilities, partially offset by lower depreciation, deferred income taxes and non-cash items.

In addition, our cash flows used in investing activities were $10.6 million lower for the quarter end March 31, 2010 compared to the prior year quarter, primarily driven by lower property, plant and equipment purchases. The installed footprint of participation gaming machines at March 31, 2010 increased 386 units or 3.9% over March 31, 2009. During the March 2010 quarter our investment in gaming operations equipment totaled $10.4 million, compared to the $8.5 million invested in the prior year quarter. Our total cash, cash equivalents and restricted cash as of March 31, 2010, rose 4.3% to $161.4 million from $154.7 million as of June 30, 2009 and increased slightly from December 31, 2009. We paid approximately $22.0 million for repurchases of our common stock in the quarter ended March 31, 2010 compared to $10.0 million in the prior year quarter.

The priorities for the utilization of our cash flow are to: continue to enhance stockholder value by emphasizing internal and external investments to create and license advanced technologies and intellectual property; seek acquisitions that can extend our international presence, increase our intellectual property portfolio and expand our earnings potential; and, when appropriate, repurchase shares in the open market or in privately negotiated transactions. For the quarter ended March 31, 2010, our research and development spending was $26.7 million, which was 7.7% higher compared to the prior year. In the March 2010 quarter, we spent $12.3 million on additions to property, plant and equipment, $10.4 million on additions to gaming operations equipment and $0.6 million to acquire or license intangible and other assets. During the quarter ended March 31, 2010, we paid approximately $22.0 million to repurchase 579,020 shares of our common stock in the open market at an average cost of $38.06. At March 31, 2010 we recorded a liability for $3.0 million for an additional 71,200 shares repurchased which traded prior to March 31, 2010 but were settled in early April 2010.

On August 3, 2009, our Board of Directors authorized the repurchase of an additional $75 million of our common stock over the following twenty-four months increasing our remaining repurchase authorization to approximately $150 million. This authorization increases the existing program, previously authorized on August 4, 2008, from $150 million to $225 million and extended the expiration date to August 3, 2011. During the nine months ended March 31, 2010, we purchased 1.0 million shares for approximately $40.0 million at an average cost of $39.32, while during the nine months ended March 31, 2009 we purchased 1.6 million shares for approximately $35.5 million at an average cost of $22.15 per share. As of March 31, 2010, we had approximately $109 million remaining of our repurchase authorization. Pursuant to the authorization, purchases may be made from time to time in the open market, through block purchases or in privately negotiated transactions. The timing and actual number of shares repurchased will depend on market conditions. At March 31, 2010, we had purchased approximately $3.0 million of our common stock which was settled and paid for in April 2010. At June 30, 2008, we had purchased approximately $5.0 million of our common stock which, was settled and paid in fiscal 2009.

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