Welcome to the WMS Industries second quarter fiscal 2010 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, January 26, 2010. I would now like to turn the conference over to Bill Pfund, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Benjamin. Good afternoon and welcome to WMS Industries conference call to discuss our fiscal 2010 second quarter results. With me are Brian Gamache, Chairman and Chief Executive Officer; and Scott Schweinfurth, Executive Vice President, Chief Financial Officer, and Treasurer. Orrin Edidin, our President is in London this week heading our presence at the International Gaming Expo trade show or IGE perhaps better known under its former acronym of ICE. Although it is already been a long day for him, he is joining us to share his perspective on the show and answer questions following our prepared remarks. First, 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, 2009 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, January 26, 2010. Now, let me turn the call over to Brian.

Thank you, Bill. Good afternoon, everyone. Today we reported our best ever financial results for a December quarter. This represents the sixth consecutive December quarter that we’ve delivered significantly stronger year-over-year operating and financial performance which started in the December 2003 with the launch of our original Bluebird gaming machine. We also have achieved meaningful higher year-over-year company performance in each quarter during the challenging calendar 2009. The only one amongst our competitors set to do so and we accomplished it despite our customers’ constrained capital budgets and the impact of the economy on consumer discretionary spending. These record results are due to the collective and unselfish contribution, passion and talent of our entire organization. Our people and our culture of innovation are the very foundation of our abilities to consistently grow the company and to overcome difficult challenges. It is this strength and consistency that bode well for our continued near and long-term success. In the December 2009 quarter, our total revenue was at the high end of our guidance and increased 6% over the prior year. Our operating income reflecting the benefit of ongoing continuous improvement initiatives grew a robust 30%. As a result, our diluted earnings per share increased to $0.44 from $0.41 last year. Recall the last year’s results included two unusual items, a $0.05 per share benefit from the settlement of a trademark litigation and an additional $0.02 benefit from a retroactive reinstatement of the Federal R&D tax credit. We achieved excellent operating leverage on our increase in revenues, as improved gross margins and relatively flat operating expenses resulted in the 9.2 million increase in operating income on $10.5 million increase in revenues, pretty good flowthrough. Importantly, our strong operating execution favorably positions the company for future sustainable growth. We continue to focus on investments…

Thanks, Brian and let me add my best wishes from here in London. Today, was the first day of the International Gaming Expo and I'm pleased to report that activity at our booth was quite brisk to borrow a local phrase. Customer response to our product portfolio is very favorable and in fact very similar to the terrific response we generated at G2 in November for our new products. In particular the Lord of the Rings, THE PRICE IS RIGHT, MONOPOLY Advance to Boardwalk, Goldfish 2 and our portal applications from our Ultra Hit Progressive family to the Metascreen family of applications in our new Bluebird xD platform look to be sure winners. And speaking of the new Bluebird xD platform, the customer response has exceeded our expectations. When this gaming machine receives regulatory approval with a commercial launch expected in the June quarter, we believe it should prove instrumental in keeping our momentum strong for increasing our market share based upon the high play of preference and earnings performance being achieved at our beta test side. Here in London this still is much more targeted to our global non-North American customers and one of the highlights this week is the introduction of our Helios platform with an array of great game content. This platform is a value-price compliment to our premium Bluebird platform and provides the product at a price point that will open select new markets for WMS. I'm pleased to note positive customer response to our value pack Helios platform as well as to our premium feature Bluebird 2 platform even in more traditional price-sensitive international markets. In addition, another favorable factor arising from our recent discussions with casino operators here is that the improved economic environment in Europe seems to be translating in to an increased…

Thanks, Orrin and good afternoon everyone. Our record financial results are again attributable to our steady focus and continued successful execution against the five key operating priorities we have previously reviewed. I will focus my comments today on a few of our key performance metrics for the December 2009 quarter and record results for the first six months of fiscal 2010. First, gaming operations revenues increased 20%, reflecting a 13% year-over-year increase in the average daily revenue per unit to $75.23 and a 9% increase in the average installed participation footprint to a record 10,357 units. We've achieved a constructive balance of remaining highly disciplined in our deployment of capital and the rollout of new products during the last three years, while increasing our total footprint by 40% from December 31 2006. Importantly and reflecting our company-wide focus on delivering new dynamic players entertainment experiences, our average daily revenue has increased 35% during the same three-year period. The most important factor in this daily revenue growth has been the expansion of our install base of high-performing WAP units, which is up 50% from a year ago and now comprises 30% of our installed base mix, compared with 21% a year ago. With the upcoming rollout in the March and June quarters of THE PRICE IS RIGHT and The Wizard of Oz, Ruby Slippers, we expect continued momentum in growing our total footprint and the WAP installed base. As a result, we are on track to achieve our guidance range for the average installed participation footprint for fiscal 2010. With average daily revenue of $76.23 for the first 6 months of fiscal 2010 are 13% higher than the comparable year ago period, we're pacing well ahead of the high end of our expectations for annual average revenue per day. Supported by…

Thanks, Scott. From our first six months results in our commentary today it should be clear that fiscal 2010 is off to a solid start. And that we have the appropriate strategies, products and personal to extend our growth. The fiscal year is turning out largely as projected in our August conference call, with a slower start to our first half being followed by an uptick in the back half of our fiscal year which is consistent with the trends over the last several years. Simply put, we are optimistic about our opportunities for further growth and operating improvements. With record six months results in hand and a solid outlook for the remainder of the fiscal year, we have increased the bottom and top end of our revenue guidance to a new range of 765 to 785. We also increased our expectations for improving operating margin to be at the top end of the slightly above guidance range of 20.5% to 21%. Even as we now expect higher R&D spending to further support our innovation driven growth model. Additionally, we initiated revenue guidance for the March quarter of 195 million to 205 million which represents year-over-year revenue growth of 8% to 13% and of course expected acceleration of what we've achieved thus far in fiscal 2010. Our third quarter revenue guidance also implies the fourth quarter revenue range of 216 million to 226 million, representing year-over-year growth of 10% to 15%, which is a further acceleration revenue growth based upon the timing of the commercial launch to ramp up of Australia, Class II and Helios unit sales. And a very strong customer response to the Bluebird xD cabinet. Our revenue guidance reflects our realistic assessment based on the visibility we have for existing organic growth trends as well as our…

Thank you ladies and gentlemen. [Operator Instruction]. Our first question comes from the line of Steven Kent with Goldman Sachs. Please go ahead.

Okay just a couple of question. First, could you just comment a little bit about your home state of Illinois and sort of your opportunity there? Also your strategy for online gaming in UK if you could expand a little bit more on that? And then may be most importantly on wide area progressive opportunities, it sounds like you are making significant traction there do you think that this is in industry wide phenomena with the operators maybe a more receptive to participation games? Or is it something that is also combined with just some winning product that you seem to have right now?

Okay let me go to the Illinois question first, we have a very strong presence here in Illinois, we have a very strong brand recognition here Steve. And the customers know us from our Williams pinball days. And have had a strong rich relationship with the company in years past. And we think we are one of the premium distributors in the country at (inaudible) we have previous gaming experience in the Pennsylvania and have proven to be a great partner of ours and we look forward to working with them to come in here and [blanket] the market, and we would be very disappointed if we didn't do even better than we done in North American market share total. So, we are very excited about that, we think its going to be a great opportunity for the company and we look for that to start kicking in around Q2 of next year, sometime in the fall of horizon god willing. Online, we've been planning for our online strategies now for quite sometime we took network enabled products to market back in '06 with our first Monopoly Big Event game you recall and then in '09 we talked about the Casino Evolved and all along we've been talking about the third step of that is to really transcend the four walls of a casino. And we have an online gaming strategy which is our jackpotparty.com that we've talked about in the last few days. And then we have an online game [issued] that which is basically players like the web services that we've talked about at G2E and that's really our online gaming brand here its not our gambling mechanism, but its really a brand to build a [fanity] for WMS brands and deepens the casino and player relationship here…

Scott, your comment about balance sheet improving broadly for casinos, it sounds they are just as likely to purchase and they [won’t need] participation games or wide-area progressive in order to sort of backward fund getting more machines out onto the floor. It’s just simply the quality of the machines that seems to be doing it rather than a financial decision.

I think it’s the quality of the coin in and if the games can drive coin in, Steve, the customers don’t mind putting them on the floor. It’s really two different issues. To Scott’s point I think we have seen a decrease in the financing recently because they have to give up a discount and they have to pay interest and if they can do it more efficiently with their sources of capital it’s probably a better situation that they buy the games outright and not finance them. So it is really two different issues, I think we have a hot hand in the participation business and we have customers that are healthier today and therefore don’t mind paying for the games outright.

Our next question comes from the line of David Katz with Oppenheimer Capital. Please go ahead.

Scott gave some commentary about the international markets, but one of the challenges we always face is evaluating how pricing and profitability are going to evolve in places like Australia and Europe and South America and other areas around. And so, we look at our model and trying and decide how we feel about our numbers and it’s obviously a little harder. So is there anything else that you can share to that and with particularly what’s embedded in your guidance for the remainder of this year. And I just have one other quick follow-up.

Well we don’t have the same models that some of our competitors do, David and the fact that we don’t have the Pachislo-Pachinko business and we don’t have the AWP business, the majority of our units will be sold internationally at a similar price point margin to what we get here in North America. That being said, there are going to be opportunities down the road for us to enter markets that offer that opportunity.

Well, we have a couple of things that are let’s say happening, in the second half of the year, we have the launch of the Helios platform which we’ve said is a value price platform, so relative to ASC, it will have a downward impact on that. And then secondly, on a gross margin percentage basis, the target is launching that at something that’s pretty similar to what we’ve achieved for our other products. The other thing that will be occurring is our entrance into the Australian market as we are doing that through a distributor. And with the distributor, they too are in the business for profit. So because of the volumes, I will be purchasing, they will get a little bit lower ASPs that will have an impact on ASP and the margin will be a little bit pinched on that. None of that is going to have an overall impact on the guidance number that we provide and that’s what I was talking.

This is all baked into the guidance that we gave, David and the fact that 82% of our games shipped in Q2 were Bluebird 2, I think bodes well for the second half of the year that’s only going to grow from there.

You made some commentary about Italy and I guess (inaudible) what to expect if that’s going to be part of the game op segment. And can you talk about what reasonable expectation is as to what that would do to the yield on your installed base, is that something that would create some downward pressure on it and we don’t have that much of a sense to what a good win for day in Italy really is.

Right so David we've kept our participation installed base pure to only have participation games in it. The games that will be going into Italy would be games that we would otherwise sell outright to customers, so they are for sale product. So it’s likely that those games are going to appear and those revenues will appear in the other gaming operations line item, rather then be included in the participation installed base and then in the average rate because they are participation games, they are just straight leases.

Perfect and assuming I did hear some of Orrin's comments and it was in and out a bit, assuming and assessing those well, when would that unit opportunity be falling out on the calendar?

Yes, I think the regulator in Italy has a fairly aggressive schedule to try and get some of these units in during the June 2010 quarter, but the concessionaires and the suppliers have to go through a bit of testing before, then so I would think hopefully by summer this year, you would start to see some movement forward, but we will keep you appraised of where we are getting to with that particular testing and remember because these are going to be leased units. Even if we are placing the units, we are going to be getting a daily rate and so it’s not going to have some sort of huge immediate impact as a result of that.

And it will be a mix of new and used products over there too, I would imagine, Scott.

And David, I think you can look forward to Australia coming online before Italy. So we will have those approvals in hand sooner.

Our next question comes from the line of Steve Altebrando with Sidoti & Co. Please go ahead.

The market share in the quarter, it looks like you are nearing basically 30% and it looks like a lot of it is coming from replacements, is that a level that you guys think is sustainable?

Yes, we would hope so. We have said previously that we would be disappointed if we couldn’t get above that 30% replacement share. We think we did very well for the quarter, but until we review reports, we are not going to know. I believe that if we did compare favorably to our biggest competitor who announced last week, but until the others report, we won’t know exactly what our share is, but we are guessing it’s in the low 30s

Then the margins and the game ops, I assume most of the sequential shift is due to mix, but it wasn’t that significant of a mix, was there any jackpot issues in the quarter?

Yes, it was a mix with the increase in the WAP units and the installed base coupled with a little bit unfavorable jackpot experience just based upon what hit during the quarter.

I think there was also an impact of a little bit lower higher margin royalty revenue in the quarter.

Our next question comes from the line of Carlo Santarelli with JPMorgan. Please go ahead.

Obviously with the growth in your average sales price in the period of 13%, from looking at your margins in product sales, I would have expected maybe a little bit more on that line, just on the margin. Is there any color you guys can give around that and maybe where we should be thinking about the back half of the year on a product sales margin basis.

Again I think that we talked about higher number of used games for the quarter and a lower amount of convergence in part sales which are typically a higher margin. So it’s a combinations, it’s really a mix of business issue, Carl and for the second half for the year, you should look at additional volume would creep up to the mid 50s range, it would be our goal.

Our next question comes from the line of David Bain with Sterne Agee. Please go ahead.

Last quarter you guys commented on Wizard of Oz, specifically as it related to guidance and I was just wondering adjusted for seasonality in your view of, when per day from that game was in your view stable in December, retracing a little bit ahead of any refresher title or any of thoughts specifically related to Wizard of Oz.

Wizard of Oz continues to hold up very well, again Q2 was our sequential slowest quarter of the year for our gaming ops, Q1 is our slowest quarter of the year for unit sales. So I think, all-in-all when you look at the overall 13% increase in our daily yield, it did hold up well. We have seen a slight degradation in the past quarter, but nothing that alarms us. The game has been out there for quite a while now and is still holding up and is amongst the top performing games still on the floor today. So, we believe that the game has plenty of legs, we think that Ruby Slippers is going to be a great addition to that family of product. It should be accretive according to our gaming operations team, so that would be a wonderful thing and so, yes we think it’s got lots of legs still.

(Operators Instructions). Our next question comes from the line of Todd Eilers with ROTH Capital Partners. Please go ahead.

I was just wondering if you guys could maybe give us an update on how your Class II expansion is going, maybe what markets are you guys now selling units into, maybe how many units were reflected in your overall shipments for the quarter and then maybe any lessons learned since you’ve entered those markets.

Yes, we shipped, recalled a few hundred games upto Waukegan state thus far. We’ve sent some down to the tribal gaming in Alabama, but nothing else. We've got something in Oklahoma, it’s going slower than we'd hope at this point and it’s going to ramp up sequentially in the Q3-Q4 timeframe where we’ve got some very nice orders on line here. So yes it’s going well, a little bit slower than we'd like, but we should see an uptick here in the second half along with the other initiatives.

Are you guys predominantly selling units, still for the Class IIs, are you also doing some rev share?

We will consider a rev share, but right now, that predominantly is a sales model.

Our next question comes from the line of Joe Greff with JPMorgan. Please go ahead.

You may have mentioned it, before but Brian I heard you mention or speak optimistically about Lord of the Rings, can you talk about when that is going to be released and is the strategy there really to replace Wizard of Oz or how do you think that plays out. Then a question for you Scott, I don’t know if you talked about it, but I am looking on my Blackberry, the cash flows from operating activities, I see for the 6-months period that the change in operating efforts and liabilities is such a big measured number, can you just talk about what that really is.

First of all, Lord of the Rings, Joe is coming out in June-July timeframe. It probably will get out in Q4, but not enough to make an impact on our Q4. We have a lot of customers that are anxious to write those orders and so we have great expectations that this could be another hit on our hands. So the focus group testing, the G2E response and the ICE response has been very encouraging and we think this is going to be along the lines of a Wizard of Oz potentially. So we think it’s the best game we have ever done, but time will certainly tell. Scott, you want to handle that?

Yes and then on the change in operating assets and liabilities, that big negative number show almost all of that occurred during the September quarter and for the December quarter, I think it was $5 million to $7 million, that was the negative and most of the increase comes from our receivables, total receivables continuing to increase. Payables and accrued liabilities have actually decreased since June 30, it’s typically the trend. Inventories have increased by about $14 million since the end of the year, mostly because of this advanced purchase of computer chip that we did and then we also had some other assets, mostly royalty agreements that we entered into that were greater in cost, some drag. So I think the thing that we were trying to point out in the prepared remarks is that for the second quarter, the cash flow from operating activities was a positive $47 million, just down $6 million from the prior year comparable period. So, we are hopeful most of the drag is behind us.

(Operator Instructions). And our last question comes from the line of Dennis Forst with KeyBanc. Please go ahead.

I had two questions. First, I am trying to get my arms around the guidance for the third quarter revenues, 195 to 205, yes which would be somewhere $10 million plus more revenue than the sequential second quarter and I'm wondering if that's going to come from more product sales or it doesn't look like the installed base of participation games is going to change dramatically, there should be a pick up I guess in the win per day on a seasonal basis but is it going to be a combination of both of those factors or we would focus more on one than the other?

I believe it'll be a combination of the two it might be 60-40 in terms of product sales versus gaming ops, but it's going to be a combination of the two and this is if you go back and look at our history this is not an unusual event to happen in Q3 and Q4.

Okay, and am I right to assume that the number of participation games is probably going to stay relatively static and for a while it's been somewhere around 10,300 for three quarters in a row now.

Yeah that’s true and the guidance we actually had provided for the year was that the average for the year would be in the range of 10,000 to 10,500 and in the prepared remarks we said we're comfortable that we are going to achieve that range.

Okay that’s pretty wide range and is it possible to go down by the end of the year, isn’t that highly unlikely that it would be closer to 10,000 than 10,500.

It would be highly unlikely given the fact that we have such a strong product launch schedule in the second half of the year

Yeah and you are all ready almost 10,400.

And again but I just want to make sure you understand in order to get these are all planned sequences right you have launched themes you have games that are coming off the game has a lifecycle and we kind of try to mix them and match them so we don't have the ups and downs and the variations so this is all as Scott said very predictable for us and we work very hard to keep that footprint some what consistent.

And then my last question had to do with the depreciation in the games up division it looks like depreciation continues to come down sequentially quarter-over-quarter for now almost 10 quarters in a row, yet the number of units installed-base continues to go up and a lot of those games coming off depreciation and that's why the dollars of depreciation come down?

That's exactly right and then you couple that with the game staying out longer and staying on the floor longer and having to be refreshed less frequently and that's where you get the savings.

That would be the capital spend over that same period and you will see that cash I think in fiscal '09 and fiscal '08 we spent about 50 million in capital and gaming ops and the two years prior to that we were closer to 75 million, so that's obviously has an impact on it too.

Can you remind us of the depreciation terms on those participation games?

What we call the base unit gets depreciated to a residual value over a three year period and the top box gets depreciated to zero over a one year period.

One year to zero. And what's the residual number typically?

I don’t think we have disclosed that but it's a relatively low mount.

There are no further questions at this time. I'll now turn the call back over to you, please continue with your presentation or closing remarks.

Thank you for joining us today. We look forward to updating you our additional progress on our call we discussed on March 2010 quarter results have a nice evening.

Ladies and gentlemen that does conclude the conference call for today. We thank you for you participation and ask that you please disconnect your lines.