Union Gaming Research publishes company research and analysis on the global gaming industry.  Our research analysts continually identify and analyze financial information and trends that affect the industry.

WMS Industries (WMS): F1Q13 Earnings Recap; Top line trends ok, but higher costs lead to miss

November 02 2012

WMS reported F1Q13 results that beat our estimates and the Street consensus on the top-line, but missed on EPS. On the top-line, the participation and lease segment was above expectations. The interactive segment, which runs through this line item contributed $9.2mm in revenue. On product sales, new units sold was slightly below consensus. Pricing was down 3% from the prior year on game mix. Going forward, WMS expects its ship share into new casino openings to be in the high teens. Higher costs weighed on EPS, as R&D as a percentage of revenue was up 170bps to $27.6mm. The higher cost structure will be in place for the next several quarters as WMS builds out its new platform and its interactive business. In the quarter, WMS repurchased $5mm of its common stock and there is roughly $143mm remaining to its share repurchase authorization.

Overall, the quarter was mixed with top-line trends ok, but WMS missing EPS on higher costs. The bad news is that that the higher costs are here for some time and estimates will need to come down from current levels. On a positive note, WMS had strong new game content at G2E and the company’s interactive business is becoming a larger contributor. The bad news is that estimates need to come down and the next quarter could be similarly challenging. On the macro front, we don’t expect slot budgets for casino operators to be up much if at all in 2013. We have great confidence in management to make the turn and suspect there is a bit of runway left, ahead of which we will want to own the WMS shares. At this point, we maintain our Hold rating and wait for a better entry point. Our price target goes to $15 from $19 after revising our estimates.

Request more information

WMS Industries (WMS): Recap of F4Q12 results; mixed quarter, lowering estimates

August 06 2012

WMS reported F4Q12 that beat our estimates and the Street consensus on the top-line, but missed on EPS. The strong top-line results were a mixed bag, with product sales showing relative strength while the gaming operations segment was weaker. On the EPS line, WMS missed the Street by a nickel as D&A, R&D, and SG&A all came in higher than expectations. WMS estimated its floor share remains around 20% (high-teens for new casinos) and expects to make share gains based on content going forward. On the gaming operations front, play levels are down domestically and we don’t expect to see a pickup until we see improvements in the employment rate or a broad uptick in the economy.

Overall, the 4Q12 showed contrasting trends within WMS’s two business segments. There were a couple of one-time items that impacted EPS. However, the bad news is next year the challenging trends in the equipment industry aren’t likely to materially abate. The macro pricing front will remain challenging. In addition, there are few new properties or markets opening next year. In November, there are several likely gaming referenda (AK, MI, OR) on state ballots though all face obstacles and passage of none of them are assured. This morning, we actually saw a property in Maryland look to pull machines off the floor due to lackluster play levels. We continue to believe that the success of WMS will be driven by making share gains based on must-have content and reclaiming market share, which won’t be easy. We continue to prefer Bally Technologies (BYI) in the equipment space, based on the stability of its systems business, ASP story (becoming more video oriented), and relative gaming operations strength. We believe WMS will invariably experience earnings inflection but needs some more time; we have near-term concerns about Shuffle Master earnings; and are structurally negative on IGT.

Request more information

WMS Industries (WMS): Recap of F3Q12 results; lowering estimates

April 30 2012

WMS reported F3Q12 that were below our estimates and consensus expectations. The top-line missed expectations most notably weakness due to average selling prices. The ASPs were down over $1,250 from the prior year. WMS management attributed the weakness to product mix, with a higher number of lower priced VLT units in the quarter. That said, management expected the recent trend of ASPs for the year to continue into the F4Q12. On a positive note, margins held up well despite the backdrop of declining revenues. At first blush, the market didn’t like the number as the stock was trading down $2 after the print and given the results, we expect consensus numbers to adjust downward. All in, the quarter was relatively weak driven by low ASPs. The pricing environment isn’t likely to inflect immediately as the overall competitive environment remains challenging. The good news is that WMS has been weathering the storm on the revenue front, by being laser focused on cost controls and is managing margins effectively. The WMS story is predicated on rolling out strong game content and reclaiming lost ship share. We think WMS has improved product in its pipeline and may get some share back. Currently, we would rather own shares of Bally Technologies (BYI), as we like the diversification its systems business provides, its increasing ship share, ASP momentum, and gaming operations strength.

Request more information

WMS Industries (WMS): Difficult F4Q11, restructuring of organization and product plans

August 05 2011

WMS posted a difficult F4Q11 following similar difficulty in F3Q11. While there are some adjustments and extraordinary items that exacerbated the downside, underlying issues are being addressed. Ultimately we believe WMS will capitalize on its strong balance sheet to bolster product sales, while quicker approvals should help game ops placements and yields. Cost cutting should also enable a recovery in margins. We believe WMS will regain its footing, as these issues, while problematic, appear transitory.

F4Q11 recap - WMS reported adjusted F4Q11 diluted EPS of $0.18 (adjusted EPS of$0.44), below our estimate of $0.54 and Street consensus of $0.53. F4Q11 EPS number included $0.26 per diluted share of net charges for impairment, restructuring and asset write-downs. Net revenues of $203.2mm declined 4.8% and compared to guidance of $210 to $220mm and our estimate of $213.2mm. Adjusted EBITDA of $65.2mm represented a 19.7% decline y/y and compared to our forecast of $77.6mm. Detailed below in Figure 1, unit sales and ASP were mixed while gaming ops installed base and average daily yield were lower. Total product sales revenues fell 3.3% to $130.6mm (vs. our estimate of $135.4mm), while gaming operations revenues decreased 7.3% to $72.6mm (vs. our estimate of $77.8mm). For product sales, an 8.9% increase in ASP’s was offset by a lower number of new units sold during the quarter (6,510 vs. 7,076 in F4Q10), reflecting a lower demand for new units for new casino openings and expansions. The performance in game ops was negatively affected by the flooding along the Mississippi, Ohio and Missouri rivers in May, which impacted WMS by approximately 8,000 lost revenue unit days, stemming from idling of participation gaming machines and translated to a $0.01 per share impact in F4Q11.

Request more information

WMS Industries (WMS): F4Q11 Preview

August 03 2011

We are forecasting total net revenues and EBITDA of $213mm and $78mm for F4Q11. This compares to consensus net revenues and EBITDA of $211mm and $71mm for F4Q11. We are forecasting an EPS of $0.54 (versus $0.53 for consensus). While the North American casino capital expenditure environment remains challenging, our higher than consensus estimates take into account higher sales expectations (relative to Street). Game approval delays, due to the complexity of certain WMS products, were the primary cause of lower than anticipated results last quarter. Despite the risk of a lagging effect we believe WMS has been able to maintain North American ship share during F4Q11. We are also encouraged about the company's success in various international markets, which should enable WMS to meet or slightly exceed expectations during the period.

Request more information

WMS Industries (WMS): Brutal casino capex environment finally catches up with WMS, lowering estimate

April 12 2011

WMS announced preliminary results for F3Q11 below guidance/expectations and lowered guidance for FY11. Management also introduced FY12 guidance below expectations. Management cited lower than anticipated new unit demand, execution challenges (shipment of units in April versus March 2011) and continued challenges in commercialization of products as primary causes for lower than anticipated results. WMS has had relative success in recent quarters despite an overwhelmingly difficult North American casino capital expenditure environment. In our view this was a function of North American market share gains, higher ASPs (mix of games), new sales into Australia, Helios in atypical WMS markets, Game Operations growth, and margin improvement. While these dynamics helped for a time we believe the tough environment, which has been more evident in its competitors' businesses, has finally caught up with WMS. It is our view however that management has taken a draconian approach to F12 guidance, perhaps enabling it to be in a position to beat/raise instead of revising numbers lower more than once.

Request more information

WMS Industries (WMS): F2Q11’s high class problem; lowering estimates

January 26 2011

In the context of a difficult capex environment WMS’ F2Q11 was okay. Taking into account mixed results across its metrics the company still grew revenues, earnings and most notably free cash flow. However, given its premium valuation and hard earned track record for meeting/beating and more substantial growth even in the trough, the street will be tough on WMS – essentially a high class problem. The company’s revenue growth was disproportionately a function of ASP’s, used games, and international units while new North American unit growth, Game Operations placements, and game yields were lower. The combination of release timing and game approvals impacted Game Operations this quarter while mix weighed on otherwise solid margins. Management via maintained F11 revenue guidance has put particular pressure on FQ4 in order to meet its forecast while a reduction in F11 operating margin guidance will result in somewhat notable negative EPS revisions. The result will be slower estimated earnings growth (albeit growth) in F11 of 4% (from 10% via consensus), versus 21% in F10 and 31% in F09. We anticipate multiple contraction to capture the adjustment in growth profile for the time being.

Request more information