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.

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.

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?

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. In addition, we recorded $9.6 million for asset write-downs and other charges, of which $4.9 million was recorded in cost of product sales, which included the write-down of inventory related to winding down our Orion and the original Bluebird product line and other assets. $1.7 million was recorded in gaming -- cost of gaming operations related to other assets, and $3 million was recorded in research and development expenses for the write-down of certain intellectual property assets. We also recorded in [ph] interest income and other income net of $4 million for cash received in settlement of litigation. We expect to record a further $11 million to $14 million or $0.12 to $0.15 per diluted share of charges in the September 2011 quarter, mostly related to the reduction in force we are now implementing. In aggregate, we will reduce our global workforce by about 10%, which we expect should generate meaningful cost savings in future quarters. Additionally, due to our operating and financial performance in fiscal 2011, no discretionary cash bonuses were earned or will be paid…

Thanks, Scott. As Brian mentioned, in the June quarter, we directly addressed the operational challenges that surfaced in our March quarter and begin to see initial success from the process and organizational changes we implemented. We also spent the past few months critically reassessing our strategic direction and conducted a review of our product plans and organizational structure to ensure that we are evolving our capabilities to support both our customers' current needs and our goals for future growth. As a result, while we believe our vision and strategic direction are largely spot on, we're making certain adjustments to refocus development, marketing and sales efforts, and refine our focus to getting products to market on time and to take advantage of near-term revenue opportunities. In product development, we're simplifying our product plans and strengthening our efforts to commercialize products on a timely basis, and we are redirecting resources and internal R&D spending to support these priorities. We also took a critical look at our technology and intellectual property assets and made some tough decisions regarding the expected future value of certain of these assets, which resulted in impairment charges being recorded in the June quarter. In addition, with domestic and international customers having asserted their preference by migrating more quickly than expected to the Bluebird2 and Bluebird xD cabinets with the next-generation CPU operating system, it made no sense to continue our efforts behind our older Orion and original Bluebird cabinets. And as a result, we'll be winding down our support of these cabinets. This resulted in the revaluation and write-down in the June quarter of certain inventory and other assets and our decision to pursue the sale of our small noncore Systems in Progress, or SiP business, which was completed last week. We also implemented meaningful organizational change and…

Thanks, Orrin. I hope it's evident from today's report that we are proactively addressing the challenges we face this year while continuing to drive financial performance. Most importantly, our efforts are beginning to deliver results. We still have much work to do. However, the future offers significant opportunities for growth and improvement. The past several months were pivotal to our evolution as an organization. We took a critical look at who we are, what we do and how we do it. We undertook a thorough review of where we needed to revise our business strategy and product plans to enhance future success. Coming out of this introspective assessment, we have moved rapidly to put greater focus on core products and leverage our legacy content strength to maximize our near-term revenue opportunities while remaining committed in advancing our long-term vision. We made some difficult decisions on both product and staffing. And as a result, we narrowed our focus to prioritize core categories and postponed or deselected certain longer-term projects. These actions are aimed squarely at capturing near-term revenue opportunities and improving our predictability. We are now moving forward once again. And after a brief transition period, we expect to be back to full speed ahead in the second half of fiscal '12. It's important to emphasize that we are not wavering from our strategic priorities, just fine-tuning our plans to best adapt to our customers' current purchasing patterns. Long term, we have proven that investments in innovation and organic growth opportunities, balanced with an equal emphasis on fiscal discipline in expense management and capital deployment, positions WMS with the right product portfolio when the industry replacement cycle fixes up, and it will, to deliver revenue growth, enhanced margins and significantly improved cash flows. Our priority in developing innovative and differentiated gaming…

[Operator Instructions] And our first question comes from the line of Joel Simkins with Credit Suisse.

A couple of questions for you, Brian. I guess the first is even though you aren't offering fiscal '12 EPS guidance, do you think you can exceed fiscal '11 when you adjust for the charges? And secondly, this is probably more of a holistic bigger picture question. Obviously, you spent the last 5-plus, maybe 10 years really building a very strong culture. There's been very little attrition during that time. Clearly, layoffs are a painful process. We've seen what's happened to a few of your competitors when they've gotten through similar restructurings. How do you continue to keep sort of the forward momentum of the business going longer term?

Okay. Let me answer the first question. We're not giving guidance, but based on the actions we've taken today, Joel, and our expected revenue increases in the gaming operations business, we'd be very disappointed that we didn't show significant uptick in the earnings per share in fiscal '12. But again, we're not giving guidance. Hopefully, we'll be able to reinstate guidance when there is more visibility and transparency in our future. And hopefully, that would be later on in the year. As far as our culture, our cultural remains our secret sauce and is something that I pay an awful lot of attention to. Making the kinds of decisions we made on the recent announcements is never easy but it's necessary. Our employees understand that we're in this for the long haul, not a quarter or 2. And we also realize we have the best balance sheet in the industry that can withstand just about anything. When we really started looking at this strategy and this vision, we put a staffing structure in place to support a company that was 30% to 40% bigger than we are today. And as a result of the industry's growth rate, we had to go back and refine our staffing guidelines to match the current macrotrends that we're facing. It's not a pleasant thing, but it's something we had to due to remain a growth company.

And you obviously articulated a lot of the charges and sort of where you're positioning some of these opportunities going forward. But some of these other businesses, let's say jackpotparty.com, Class II, some other growth initiatives, how do you sort of evaluate whether you want to continue to invest in those opportunities sort of in the face of this challenging replacement cycle and, obviously, pretty intense competition in the business?

As we mentioned, we've gone through a thorough analysis over the last several months. And we believe we're betting on the right horses. We deselected some things and we've parked others. But at the end of the day, we're focusing on near-term opportunities that provide us the greatest opportunity for revenue enhancement. And other things will just have to wait until the cycle picks back up. We've been kind of waiting for the replacement cycle, Joel, over the last few years to pick back up. And now we're taking action and we're addressing it ourselves. And we're going to grow with or without the replacement cycle and we're going to do it through content and through expense management.

And one final question, if I may. Obviously, you see some of your peers, some more aggressive than others, buy back stock, balance sheet in great shape. You have a ton of recurring revenue. Why not go out and get a little more aggressive on the buyback activity in the interim?

We've bought back over $275 million of stock over the last few years, which is about 25% of the then outstanding shares. We bought $100 million back last year. We've got $200 million of powder here on the current plan. We will look at this thing opportunistically, and we'll work hard to deliver value to shareholders. That's something we've proven we can do, and we'll continue to look at this as an opportunity if the market does not improve.

And our next question comes from the line of Joe Greff with JPMorgan.

I have 2 questions. One is on ASPs and then one is on margins. On ASPs, it was nice to see that ASP was up year-over-year. When you look at it net of discounts, is the result differently? And maybe you can just talk about pricing in general. I mean, you obviously -- your premium products are priced at a premium relative to your competitor's premium products. Can you talk about elasticity right now, and whether or not that maybe you're actually pricing too high relative to your peers? And then I will follow up with a margin question.

Okay. First of all, our ASPs are net, Joe. Those prices that we quoted in our release today are net of discount. And the fact that we're able to get 20% of premium over our largest competitor is something that we're very proud of. And it goes to show you that people are willing to pay up for quality. And so there has been more noise over the last, call it, 3 to 4 quarters about price. We never used to hear price come up at all. Price is more of an issue today with our sales force, but we are seemingly working our way through it. I don't believe we're leaving money on the table. When you look at our ship share, I believe our ship share was probably in the mid-20s for the quarter. And the fact that we're within 90% of our biggest competitor says that we're not losing share. So I would expect that the pricing is going to continue to be a little bit challenging here for the next quarter or 2. But again, it all relies on our ability to provide a value proposition. If we provide a game that's doing 15% to 20% more than our competitors, price does not become an issue. So really, this is on us. This is a business where the return on that investment is so rapid, price shouldn't be an answer, it should not be a concern. It only is a concern when people are capital-constrained as they are today, or if you're products aren't performing. So we continue to believe that we have leverage in pricing as long as we produce a premium content opportunity for our customers.

Great. And then on the margin side, when you look at the current initiatives and the current restructuring, and obviously factoring in workforce reduction, how much in fixed expenses have you taken out? And then when you talk about in fiscal '12 achieving some level of margin improvement, are you adjusting in the June quarter and the September quarter for charges that impacted reported margins? Or are you adjusting those margins and looking at it on an adjusted year-over-year basis? If you can help us understand that, that would be helpful.

Okay. It would be an adjusted year-over-year basis. And again, we're going to continue to see growth in our margin enhancement programs from our supply chain fellas and gals, and that's particularly in the xD cabinet. And our Bluebird2 continues to show great progress. So I believe that the margins are going to continue to improve. The one variable, Joe, as we've talked about before, is the used game business. And the difference, as we said, the revenues were flat in used games this year, but our price that we can now sell them for has declined because Bluebird1 is 1 year older and is not as, call it, en vogue as it was last year when we were first coming out with used games of that type. So the used game thing is a necessary part of our business. It's kind of something we have to do to remain competitive. But it doesn't help your margins. But take that away, because it's creating a new revenue opportunity, we believe that our margin's got room for improvement. And to answer your last question, the savings are going to be north of $20 million annually. We're not going to get them all initially here because we're halfway through the quarter, but we think that going through the rest of the year, we should save north of $20 million.

And there is a cost of that restructuring that we're recording in the September quarter.

And our next question comes from the line of David Katz with Jefferies.

I wanted to just follow up on the $20 million first, if I may. I assume that, that's spread between the product level and the SG&A and R&D level, right? That's all of those pieces together? Can you just talk about where you're pulling that from, more or less, or is that too much detail?

The preponderance of the cost is headcount savings. And it is -- this was a global reduction in force across all functions throughout the company. So it will flow through in R&D and selling and admin, and there's a piece that will actually flow through the cost of the product sales business, too, for the people that are in the manufacturing world that were impacted by the reduction in force. There are some other nonpayroll-related costs that we're also saving as a part of it. And those 2 flow through sort of each of the same line items.

Okay, helpful. And the operating leases that you've put in place which are showing up in the other participation revenue, right, the other game ops revenue, can you just talk about...

Yes. By the way, in the future, that's where it will show up.

Right. And to that end, I was going to ask what -- when we look at $5.9 million for the June quarter, I guess I'd love some sense for whether that's a run rate going forward, whether that's a starting point that builds going forward, what's in there so far?

Well, there's a couple of different components in there. We have some royalties that we earn from licensing our content and intellectual property to third parties. We have what we call our casino-owned daily fee game revenue that's in that number. And we have operating lease revenue that's in that number. Those games that went out again to the Seminole's were at the end of the quarter. And so that $5.9 million does not reflect a full quarter's worth of the games being installed and us earning the daily fee that we will earn on them.

Okay, perfect. And one last one. And I just want to clarify another element of the guidance. Scott, I think you said that when we break down the year in terms of the percentage of revenue on a quarterly basis, I want to make sure I heard you correctly. Did you say that 1Q fiscal '12 as a percentage of the total is likely to be lower and that 2Q is likely to be higher than in fiscal '11?

No, I said that Q1 would be lower than fiscal '09 and '10, primarily because of the timing of the G2E show. And the Q4 would be higher than fiscal '09 and fiscal '10, because of anticipated new casino openings being greater in that quarter.

So fiscal quarter 1 is lower, fiscal quarter 4 is higher.

Got it. One last one, if I may. As you have gone through looking at all the pieces of your business and the thinking about wants and needs, and for so many years there seemed to be little that WMS had wanted for or needed, have you thought about any aspects of the business that would be good tuck-in acquisitions or would be additive to your portfolio of offerings that you might circle now on the board as something you'd want or need over time?

We always are looking at opportunities, David. We spent a lot of time on our business development talking about the pieces of the puzzle that makes sense. And yes, we have our eye on a few. But right now, given the fact that we've doubled our revenues in the last 5 years and we have these kind of growing pains that we're dealing with in the stagnant market, our focus is going to be on riding this ship and getting back to a double-digit growth rate in our revenues and earnings here. So while if something fall in our laps, we wouldn't be afraid to make the deal. We're not actively pursuing deals.

And our next question comes from the line of Steve Wieczynski with Stifel, Nicolaus.

Just one question here. I guess going back to the guidance, what -- you initially gave guidance, I guess, 3 months ago of essentially 3-or-some percent top line growth. What has changed here over the past 3 months that made you reduce that top line by 200 basis points?

Well, it's really the gaming operations business. If you recall, we said we had some regulatory issues. Typically, Steve, each year, we bring out 4 temple products in the gaming operations business, one each quarter. This past year, because of the regulatory issues and the fact that we kind of overburdened our network gaming across our entire product line, it hurt us getting the regulatory approval in a timely manner. So as a result of that, we only got one of the temples launched. So we have 3 of them that got rolled over to fiscal '12. So instead of adding 4 this year, we would hope to have 7. So it's really we're starting the year with a lower base of installed participation games, particularly the ones that we're most anxious to get out there. So it's really refining that footprint and allowing us to have some runway till we get those approvals.

And our next question comes from the line of Mark Strawn with Morgan Stanley.

Just a quick follow-up on the game upside. It does look like you really increased your cash investment into that business in fiscal '11 by about $30 million or so but yet the gross profit was down. Is it really the new games coming out? Is that the inflection point as we think about that business going forward? Is there anything else in the base as you bring out more expensive games and replace some of the Bluebird1s, should we expect that investment increase, or how should we think about that?

No, I think the run rate is pretty -- we replaced about 1/3 of our footprint out there over the last few years. And obviously, there's a dramatic increase in the profitability when we get those Bluebird2s out there. So we want to continue and invest in that business. There's a great return for us. But given the fact that we were able to stay within $10 million and $1 on a win per day over a year ago as results with very limited temple launches, we're very optimistic that this is going to be a return -- a rebound year to make up some of the lost ground at fiscal '12 that we didn't achieve in fiscal '11. So I'm very optimistic given that we have some pent-up demand for these products. And when I talk about the products, just to make sure everybody understands, it's PIRATE BATTLE, it's LEPRECHAUN'S GOLD, it's BATTLESHIP, CLUE, ALADDIN, a lot of games that got a lot of attention last year at G2E. And we've very excited to start rolling them out. Some of them are in our new CPU-NXT3 and some of them are at eBox technology. So we've got some really incredible products coming. We're just very anxious to get them out, first and foremost. In fact, I heard today that PIRATE BATTLE was approved in New Jersey, which is a very good thing, and we'll start to see some rollouts there, hopefully, in the next few weeks.

Just one quick follow-up maybe on the Portal app side. Have you guys started to price those applications with customers yet?

Yes, in fact, we've got 300 units in 14 casinos today. We expect that number will double by the end of this calendar year. And by the end of June next year, we'll have 100 casinos with our service and racks in there and a wider assortment of our Portal families and applications. So we're very excited about that business. Heretofore, it's showing us for the first year, it's 20% to 30% increase in our performance by having these Portal applications. So customers are very excited for us to roll this out. I believe it's going to be a huge opportunity for us to generate a lot of those 70,000 Bluebird1s that remain out there to come back, and new market share opportunities as well. So we could generate, once we get this thing rolled out effectively, our own replacement cycle, which is something that we've been striving for here for a period of time.

I would only add that from a pricing standpoint, now that we're past proof of concept, pricing will evolve from that early adopter model to a more robust, more normalized margin, more akin to our gaming operations margins.

[Operator Instructions] And our next question comes from the line of John Oh with CLSA. Jon Oh - Credit Agricole Securities (USA) Inc. I have a couple of questions, and I'll just start with a question on margins. Brian, you said earlier that you would expect margins to again pick up in the future. Probably to understand that, do you think that the 44% or 45% of product sales margin for this quarter, do you think that's bottomed out already? And if you think that's going to pick up, could you give us some sense of the trajectory over the quarters, and how soon do you think that's going to play out maybe over the next 4 to 6 quarters?

I would submit that when you add the things back and so forth, it's probably closer to the higher 40s, 48%, 49% for the quarter. And we would expect, as we've said before, our short-term goal is to get back to the mid-50s, which is probably a Q3, Q4 event, and ultimately get to that 60% margin over time. We're working through some of these used game issues and some of these supply chain issues, but we want to get -- we want to build up to that mid-50s range in the last half of this year. It will be ramp-up in Q1 and Q2. Jon Oh - Credit Agricole Securities (USA) Inc. And maybe just a follow-up on that. You also previously talked about the pricing strategy where you think that the premium that you're getting right now is still quite healthy over your peers. I just wondered, does it make sense for you to maybe get more aggressive in pricing going forward?

Yes, we look at pricing very strategically. We spend a lot of time and effort talking about our pricing model, and we're very comfortable with where we are today. When you are a premium provider, which we are, you have to focus on the quality and the value as opposed to trying to be all things to all people. And I don't I believe there's a lot of games out there that we're not getting today. And if they're -- if people are price-sensitive, we've got Bluebird1 used property -- used products, and we also have also opened this operating lease component now as well to be able to serve our customers during this challenging period. So we're not missing too many games. And we've got a lot of options out there for our customers to pursue with us. Jon Oh - Credit Agricole Securities (USA) Inc. Okay. And last question, if I may. Could I get some quick comments from you on what's going on in Italy. I think in the last quarter, you did say that you guys are going to start some field trials up in July, and just have of a quick comment? And maybe if I can also squeeze out a quick comment from Scott on guidance for CapEx in 2012?

Unfortunately, Italy is -- they've got some regulatory issues there as well. There's one regulator, and we are all in the queue. One of the early international providers kind of got ahead of everybody. And unfortunately, from my understanding that until that provider gets approved, we'll all have to be patient and wait in line. So there's not a whole lot we can do on the Italy front. The good news is the guidance we gave today does not include a significant amount of revenue for Italy or, for that matter, Illinois, as we have been burned in the past, it's 1% or 2% of our guidance that we have issued. So it's not going to be a meaningful impact in our performance year fiscal '12. We would now look for Italy to be a fiscal '13 event.

It's actually just less than 1%, the revenue. And then relative to CapEx, we haven't provided any dollar or numeric guidance relative to that. But as Brian said, we're going to be continuing to convert the installed base of our gaming operations business over this next year. So that's likely to be in, let's say, the same range as it was. The PP&E piece would likely be in the same range as it was. And the real question will be what intangible and other assets will our business development team come across that will want to make investments in. Because we did have a sizable increase in this year, and that, I think, was up almost $17 million year-over-year. And that one's a little bit harder to predict.

We'll take one more question, operator.

I'm showing no further questions from the phone lines at this time.

Okay. Well, thank you for joining us. We look forward to seeing most of you at G2E in early October, and updating you on our progress and results in our next call late October. Have a nice evening.