Welcome to the WMS Industries fiscal 2012 second quarter conference call. (Operator Instructions) I would now like to turn the call over to Mr. Bill Pfund, Vice President of Investor Relations for WMS Industries.

Before getting into the review of our operating progress and financial results, I'd like to remind everybody that 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 and Item IA risk factors in the company's annual report on Form 10-K for the year ended June 30, 2011, and in our more recent press releases 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, January 26, 2012. This afternoon, Brian Gamache, Chairman and Chief Executive Officer, will provide an overview with the second quarter results and the recent key milestones the company has achieved; followed by Scott Schweinfurth, our CFO, with further insight on our financial results. Orrin Edidin, WMS' President, joined us today from the ICE trade show in London and will discuss our progress on product and operational initiatives. We’ll conclude with final comments from Brian and then open the call up for questions. Now, let me turn the call over to Brian.

Thanks, Bill, and good afternoon, everyone. WMS' fiscal second quarter results demonstrate ongoing progress and our improvement initiatives, as we are successfully achieving the milestones we set out for this transitional period. Consistent with our expectations, we believe the inflection point in terms of our operating and financial performance is now behind us. For the December 2011 quarter, WMS achieved total revenue of $162 million, a 4% or $7 million quarterly sequential improvement. On an operating profit of 13%, our diluted earnings per share were $0.29, inclusive of a $0.02 per diluted share benefit from litigation settlement. Since announcing our revised plans in August, we've maintained steady improvement. First and most importantly, our organizational realignment and revised product plan are rebuilding an improved flow in the development and commercialization of innovative new products, contributing to more than 55 new for-sale game themes in the first half of fiscal '12. Second, these recently launched games and corporate innovative new gaming features and a greater diversity of Mac models, resulting in improved earnings performance that we believe led to an increase in our product sales ship share in the U.S. and Canada on a quarterly sequential basis. Third, we've created more efficient cost structure based on our restructuring initiatives and reduction for us, leading to $16 million in expense reductions and R&D, and SG&A for the first six months of fiscal '12 compare with a year ago. And fourth, we delivered a quarterly sequential improvement in the December 2011 quarter, both total revenues and operating margin. Additionally, cash flow from operations in the December quarter increased to $53 million or about double that level a year ago, which is up 48% or $21 million for the first six months of fiscal '12 compared to the year ago period. And we accomplished these…

Thanks Brian and good afternoon everyone. Let me briefly review our financial performance and trends. For the December 2011 quarter, our global new unit shipments increased on a quarterly sequential basis to a total of 5,803 new gaming machines. Of these, we recognized revenue on 4,846 gaming machines of which 2,759 units were shift in the U.S. and Canada. Newer placements units were approximately 2,200 hundreds units in the U.S. and Canada, a 600 unit quarterly sequential improvement but below a year ago. Gaming machine sales for new casino openings and expansions in the U.S. and Canada totaled approximately 600 units not including an additional 957 units that were shift for new casino openings and expansions at customers request but not recognized as revenue as we have not met all of the criteria for revenue recognition. Internationally we sold 2,087 new units comprising 43% of total global unit shipments compared with 2,389 units or 38% of total units a year ago, principally reflecting lower shipments in the Mexican and Australian markets. Our average selling price was $16,325 compared with $16,620 last year, reflecting a unit mix that includes fewer premium gaming machines and the impact from economic realities in our industry. Other product sales revenues declined about $4 million primarily reflecting lower used gaming machines sales revenue attributable to lower prices and fewer units compared with the year ago, partially offset by higher revenue recorded from the sale of approximately 5,000 conversion kits compared to 2,000 conversion kits in the prior year period. There is no better indication of the high earnings performance of our new games than the fact that in the first six months of fiscal 2012 we recognized revenue on about 10,500 conversion kits, up 169% compared to 3,900 hundred conversion kits in fiscal 2011. This steady…

Thanks, Scott. Our focus in the December quarter was to build on the initial progress we made in the September quarter by further improving the flow and the development commercialization of new products to meet customers near term needs and we succeeded. Initial jurisdictional approvals were received in the December quarter on more than 20 new for-sale products. These new themes were in addition to the 35 new products that obtained initial approvals in the September quarter. For the first six months of fiscal 2012 that brings our total to more than 55 new game themes approved. We believe this improving flow of new products contributed to the quarterly sequential increased achieved in new unit shipments. Although total industry-wide quarterly new unit shipments are not yet available, based on initial competitive disclosures we believe that our quarterly ship share in the U.S. and Canada improved from the September quarter. Our development organization is fully dedicated to achieving further progress in coming quarters. By focusing on our legacy, leveraging our strength of creating innovative great content in games, we expect to realize additional improvement in ship share in the second half of our fiscal 2012, as we continue to introduce new products with differentiated gaming experiences and new math models. For example, we expect to commercialize products featuring more new math models in fiscal 2012 we had an aggregate for the last three years. Importantly, these new products such as our new Colossal Reels and G+ 5x4 Series are already beginning to demonstrate superior player deal and high earning performance in our initial placements on customers' casino floors. It's of course still early in the rollout, so we need to get more of these new innovative games installed in our customer slot floors, but as we continue to move forward with…

Thanks, Orrin. We took decisive action to address head-on the challenges we've faced in fiscal '11. And as a result of successfully executing these initiatives in the first half of fiscal '12, we are on track to achieve further progress and growth in the second half of fiscal '12. We are poise to end this fiscal year with strong momentum. And we are deeply embedded culture of innovation the breadth and strength of our talented WMS team. And our strategic vision coupled with our sound financial foundation, I believe we are well-positioned for further improvements in fiscal '13. Before opening the call for your questions, I want to reiterate that our highest priority remains the ongoing development and commercialization of new innovated, differentiated products that will drive further improvements in our installed participation footprint in our quarterly product sales ship share. We've placed an extraordinary emphasis on creating value for our customers. And I believe the performance we reported today and our other milestones clearly indicate that customers continue to value the innovation and strength of our product pipeline. I continue to believe, WMS is strongly positioned to serve customers with innovative high-performing gaming products enabled by advanced technologies that will continue to redefine our industry. And as we also discussed today, there was significant opportunity in the quarters and years ahead for overall industry growth, both domestically and internationally. Due to the previously mentioned orders and other significant opportunities we are presently pursuing, I believe our visibility will improve over the coming months. Looking beyond the topline, WMS is realizing meaningful cost savings from our restructuring and realignment actions, and through regimented cost containment discipline. We are prudently reallocating some of these benefits to support sustainable future growth and new revenue and margin sources. And with each passing quarter, we grow our position and success in the online gaming world with our WAGE-NET remote configuration and download capabilities, and our portal applications, and our unique Player's Life Web Services. As we continue to expand these exciting businesses and monetize their future potential, I believe we will have the capability to reshape our longer-term revenue and margin results and deliver increased shareholder returns. Now, we'll be pleased to take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Joe Greff with JPMorgan.

I have a few questions here. One, the installed base was down sequentially more than we had forecasted and unit sales were actually a bit better, nicely than we were forecasting. Should we deduce from that that you're selling some of those participation boxes and if so why? My second question relates to, I guess, some of your ASP commentary. You mentioned ASP was down year-over-year and also went down sequentially reflecting mix and a competitive marketplace. And I think, Scott, you mentioned the realities of the economy. Can you explain that, is this WMS proactively pulling back cutting ASP, or is it reacting to competitors pricing, or reacting to performance of product? And then the agreement with this major multi-site casino operator replaced 1,500 Bluebirds, I guess how aggressive did you have to be on the ASP side? If you can help us understand those items that would be helpful.

First of all, no, we're not selling participation games. Joe, that's not the reason. I think this past quarter and we kind of gave this guidance on the last call that we thought, typically when we put for every two participation games we install, we take one out, so it's 50% accretive. This past quarter, because of the delay in getting these products out for the past year, it was eventually a one-for-one, which is not usual and not typical. The good news going forward, we've got about 1,900 games in our queue right now on our backlog, which is about a quarter-and-a-half. We installed about 85 to a 100 a week. So when you look at the backlog we have, it's really a quarter-and-a-half of backlog. One would hope that we would get back to that two-for-one trade going forward in the second half. As Orrin said in his commentary, the lineup that we have has never been this strong. The beta sites that we're seeing, the interest from our customers, regarding some of these participation products, particularly CLUE and Aladdin, and Super Team are amongst the highest level of interest we've seen. So we're very excited about the participation business. It's kind of where we thought it would be right now. And we believe that we've reached the low water marking going forward, because we see a nice uptick in the second half. ASP, I think when you look at our ASPs, we were down I think 2% for the quarter year-over-year and 1% year-to-date. Since 2008 we have run compound annual growth rate of about 7% increase in our ASPs. I think what you saw this first six months of this year is we sold about 15% of our product mix was premium price for-sale product, as opposed to 23% a year ago. So that had a little bit of an effect and also of the competitive pressures. We have been more competitive in our pricing. We've not been known to reduce our prices significantly, but we have been more competitive in our pricing schedules. And I am proud to say that we've gotten some business as a result of our pricing consideration. So we don't believe that this is the long-term approach. We believe we had to do this to be competitive with some of the things that were going on in the marketplace and we responded accordingly. So I thin the fact that we are within 1% a year ago, given the difficulty of this climate that's not such a bad thing. And as far as our muti-site customer, the terms and conditions to that were no more unusual within our sales order. Now there are some things and considerations regarding the overall business proposition and we don't make it disclose publicly. But it was a multi-prolonged deal with participation and conversions and so forth. So it was a great economic deal for us and we're very excited about this transaction with our customer.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank.

I just want to talk quickly about the calendar fourth quarter if you look across regional gaming and even Las Vegas. We did see a decent uptick in slight revenues across most markets. And when I look at, obviously, the year-over-year decline in the participation side, it's a little bit alarming from the standpoint that while the markets were growing, you guys seem to have slipped a little bit more meaningfully in that segment. Could you talk a little bit about how much of that is being mix- driven or if there is any other factors that are coming into play there with respect to your average revenue per day?

Our average revenue per day, I believe is a combination of the economic climate as well as some of the performance issues. We had some competitors. We had some good games out there that perhaps took away from some of our performance issues. But at the end of the day, as I said, this was not to be unexpected given our performance in the first half of the year. This is about how we thought it would go. You'll see an uptick in the second half given the product portfolio that we're going to be launching. So as I said it's not too far off from what we thought. It's a little softer than we'd like to see. But hopefully this Q3 and Q4 will show an uptick.

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

Two questions. First on the games backlog that you mentioned in those 1900 units, is that driven by new titles or refresh of existing titles. And more specifically are you expecting to see growth in your core titles WIZARD Of OZ and MONOPOLY? And just one clarification on your expectation of growth in yields in the back half for the year. Are you talking about sequentially or year-over-year?

Sequentially, and I think we would like to end the year kind of flattish, where we were at the end of the last year and that way that would be a good thing heading into '13 with momentum in product again coming out in the first part of '13. The backlog is about 70% new themes and about 30% refreshes. This is far as a rough estimate goes.

And are you expecting those core titles, for say, WIZARD Of OZ, MONOPOLY to grow as the year goes on given that 30% number?

Yes. We would expect the JOURNEY TO OZ in particular to have a great success and epic MONOPOLY and some others that are going to continue to be accretive.

Our next question comes from the line of Dennis Forst with KeyBanc.

I have question about product margins in the second half. I think you said that there was going to be continued progress. Is that progress against a year ago or will we get somewhere north of 51% with the product margins in the second half of this fiscal year? The first half was about 50.5%.

We would expect that you would see growth in the product sales margin in both the third quarter and the fourth quarter.

And then also with the sales, you said there were 960 units that were shipped, but not recognized. So will all those fall in the third quarter?

We're not positive exactly, but it will fall in the second half, we're highly confident.

What was the number in the first quarter that was shipped not recognized and may have been recognized in the second quarter?

It was zero.

Just a simple question and I may have even missed it. The litigation benefit of $0.02 a share, what was that from exactly?

We had a litigation that we settled with a competitor. We don't disclose the terms of that settlement. But you could probably figure it out.

And where was that benefit? Where was the credit in what line item?

It's in other income. It's below operating margin.

Our next question comes from the line of Harry Curtis with Nomura.

First of all on your Internet strategy, it sounds me like it was starting out on the B2B side. But do you have any plans for B2C?

I think he means that the other way around. We're really starting in the B2C side in U.K. here. Harry, it's always been our original intent part of the longer-term roadmap and strategy to migrate from B2C once the product has proven and we gain that experience to move that into the B2B space. And we would expect to see something in the coming months.

The second question is you've been pretty actively replacing the installed base of your participation games. Where are you in that process? How much do you expect to spend this year and next year?

So this year we're likely to spend about the same that we did last year, because we really started the process of change out the Bluebird 1s to Bluebird 2s and Bluebird xDs and earnest in our fiscal '11, so that number is going to be somewhere in the $65 million to $70 million range. Next year that number should go down a bit, because we'll have changed out the brunt of it in fiscal '11 and fiscal '12.

And last question was related to SG&A. Brian, notwithstanding the variable elements to SG&A like commissions. Do you think in this quarter that SG&A is essentially where you wanted or do you have more to go? And if you do, where is it going to come from?

We are always on a continuous journey to have cost reductions and efficiencies in the company. And I'm not satisfied. We've done a good job. I'm not satisfied that we have reached our full abilities here and continue to look for additional cost reduction Harry, as we go forward.

Any sense of, that can you provide any color on where it might come from, where the best opportunities are?

I think it's premature to do that. But I do think that we're going to continue to see some benefits from this restructuring. We haven't really seen a lot of the benefits yet because it's still too early. But you'll see particularly in the supply chain area and other areas, engineering and product development in particular some efficiency start to hit the P&L in the very near future.

And Harry, I doubt that we saw it on the call, on the prepared remarks, that we had achieved $16 million of savings between selling and admin and R&D on a year-over-year basis in the first half of our fiscal year. That number will likely go down in the second half or the comparison will go down in the second half, because we had started implementing some cost savings in the March 2011 and June 2011 quarter. So the difference between the two periods will be not as great as it was in the first half.

I also want to point out, Scott, that although we've reduced our R&D expenses, as a percentage of revenue it's really flat from a year ago. We're still in that 14 percentage standpoint, which is still a bit upper-end of our competitive set.

Our next question comes from the line of Cameron McKnight with Wells Fargo.

One question then I have a follow-up. The approval of the 20 new titles this quarter, how does that compare to the number of titles that you had approved in the prior two or three quarters?

We had 35 approved in the September quarter year-over-year. And I don't have in front of me the numbers year-over-year. That's dramatically a different number.

Also, I'm more interested in the sequential trends through calendar '11?

I don't have in front of me the March and June numbers but I would suggest that you follow-up with Bill on that because we have it but I just don't have it in front of me here. But I can assure it would be a substantially higher number because as you recall substantially all in fiscal '11, we were having challenges with getting approvals through the regulators and as a result of realigning the product plan and taking some technologies out of games starting in the spring and last year. We're now getting to a more normalized flow of new products. So having 55 approved in the first half of our fiscal '12 is a great achievement.

And Scott, the 957 units that were deferred in the quarter, what are the criteria for those units to be recognized?

You can read our revenue recognition policy in our 10-Qs and 10-Ks and there was one aspect of the revenue recognition policy that we did not meet. And so we had to defer the revenue and as we said earlier that that revenue will likely be recognized in the March and the June quarter.

Our next question comes from the line of Clifford Kurz with CLSA.

Thanks for taking my question. I just had two quick questions, one is you talked a lot about the games CLUE, Aladdin. Which do you would you say is pinning your hopes on in terms of a next major hit? What in terms of now in the pipeline would you say is some of the games you're very optimistic about?

The key thing that we have going on here, Clifford, is we're launching our CPU-NXT3 as Orrin mentioned in Q4. That the first game that we're bringing it out with is Aladdin. In CPU-NXT3 is six times the horsepower CPU-NXT2 and its 20-times the great graphics capabilities of CPU-NXT2. So if you recall about three years ago, when we brought CPU-NXT2 out, we kind of leapfrogged from our competitors by giving them a quality experience that here before hadn't existed. We believe the same thing is going to happen. Aladdin is the first game that we're bringing out in Q4 and a whole plethora of games coming out in fiscal '13 are going to be on that CPU-NXT3 platform, which we're just giddy about. So that's a very important milestone for this company to get that platform. And then we have new platforms coming out next year, form factors that we're very exited about as well. So I think you're seeing our innovation streak hit it straight again. We've been kind of silent on that front for a few quarters. And I think when you see the Colossal Reels and G+ Deluxe 5x4s and kind of quality work we're producing today. And one think I am proud of, as Scott mentioned, hopefully it was picked up upon, is we sold 5,000 conversion kits during the quarter, up from 2,000 a year before. That's a very good sign that people are seeing a difference in our product. They wouldn't be buying our conversions if they didn't see a demonstrable difference in our content. So things are starting to click here. We're not declaring victory. Certainly we've got a lot to be proud of and progress is certainly there.

And then the other question is you're guiding for sequential improvements in the second half. Can you just talk or go through in terms of your assumptions of where you're going to see most of the improvements are coming from? You're talking about new pipelines. Is that going to come mostly in game ops or product sales or both?

It's going to come from both. Typically, Q3 and Q4 are the busiest two quarters of the year on a historical basis. So you'll see an increase in both product sales and gaming operations revenues both in footprint and yield hopefully and you'll see continued improvement in the margins as a result of the additional volume. So this is historical trend. And we've think we have good headwind going into the last half of the year, which is again a very important part of the year for us.

Our next question comes from the line of Ryan Worst with Brean Murray.

Just a couple of questions. First, in Australia, you guys mentioned that a market that declined in unit sales. And I know that's been a area of focus for you. So could you just kind of provide some color on what's going on in that market? And then I have a follow-up.

There is a legislator in Australia that has proposed nationalizing gaming laws, because right now each of the states have their own rules per se. So the operators there have cut back a bit on their purchasing. They need to see whether they are going to be these proposed nationalized rules, because they obviously want to make sure that they don't spend capital on something that will not be compliant some time in the future. So that's just having an impact on the demand there.

Okay. So that's kind of a market-wide phenomenon. And then just a follow-up on that 1,500 replacement deal. You mentioned that there are some operating leases and conversions. Could you provide the number of games that will be recognized as sales when they actually occur? Is that mostly the 1,500 or just part of it, or how is our revenue recognition going to work for those games?

The 1,500 will be a recognized in the quarter that they shift to the customer. It's all in calendar '12. The customer has its multiple casinos and so they have to get things staged. And so as we shift them, we will be able to recognize revenue on them.

We should expect regular unit sales for those 1,500?

Correct.

Our next question comes from the line of Chad Beynon with Macquarie.

Strong quarter internationally back north of the 2,000 level. Could you talked about any specific markets where you had successes and also if there was any FX benefit that may have affected ASPs for the quarter?

We are selling our product in U.S. dollars internationally. And so there is no FX impact that we have as a result of that. And then relative to markets internationally, we did ship product in the Macau for the new Las Vegas Sands property. So that was a benefit there. Argentina and I'd say the southern corner of Latin America has been particularly active as of recent. Europe remains, I'll say, very slow, although Orrin tells us from the show that that was the most active that we have seen in several years and customers came to buy rather than just to look. So we'll see hopefully that will translate in the future and make things a bit better in the European side.

And then regarding the recently expanded credit line, you used a little bit for buybacks in the quarter. Could you touch on your near-term plans with this and if you were actively looking at any new deals during the quarter to put this to use?

We used a little bit of credit line in the quarter before. This past quarter we paid cash. But credit line is really to allow us to grow our business over the next several years. We believe that between our cash position, our credit line are good enough to drive product. That's really leverage our company and really grow the opportunities that we see out there particularly in the online and social areas that we've been investigating and actively involved in. So there is a lot of opportunities for organic growth, inorganic growth, licensing, strategically aligning out there that we're very excited about. And you'll be hearing more about that as time goes on.

Our next question comes from the line of Bill Lerner with Union Gaming.

Couple of questions, one probably for, Orrin, and then, Brian, just a general one for you. The first one, obviously we saw participation or games ops yields declined year-over-year, I think 9%. I suspect it's probably a good proxy to understand what refreshed game ops titles. How they performed yield-wise year-over-year relative to non-refreshed. I guess, can you may be that's for, Orrin, can you talk about that. I think that probably tells good story and as you get proxy going forward and then a follow-up for Brain?

We're almost without exception the refreshed products are going to perform better than the games they have replaced because obviously they are newer. The refreshed MONOPOLY, putting in BATTLESHIP, Pirate Battle, Leprechaun's Gold, they have all come out with very good performance and clearly an improvement over the games that they had replaced. So that's pretty much with across the board. And that's something you should always be expected.

Orrin, I guess what I am getting at then is, if you had refreshed, this is a year ago, two years ago. And you were refreshing at the pace that you normally were every six months or what have you, the yield decline would have been lesser?

No doubt. As we said over the last few quarters, not getting into the normal flow in cadence of approvals that we had in the past really did impact performance. Because it's stretched that period of time between refreshes. There is no doubt that had an impact. But we think we're returning to a normalized level of approvals. So we can get those refreshes out on a more predictable schedule. And you would expect to see performance improved over a shorter period of time than we had over that prior period because of the lack of approvals.

Bill, as I said this was not to be unexpected for us because of the launches that we have, that we're depending on to uplift that rising tide coming are coming in Q3 and Q4. So this is not to be unexpected, although we would have liked to have seen not necessary a one-for-one swap out, that's not something we wanted to get in the habit to do it.

And then, Brian, just a follow-up. I know you talked about sort of inflection happening or I think you to put your way behind you. I know this isn't what you have in mind, obviously. Could you just a talk a little bit about your view on business. What happened? Obviously, a lot of it has to do with timing of approvals.

When you look back to last 18 months when we were hitting our stride in getting 30% ship share, I think that we created products that were ahead of their time. The regulators had trouble getting them through and digesting them. The customers had a tough time buying them because of the capital. And I think we just got a little bit on aggressive on our product development schedule. And now we've kind of toned that back. We've put a lot of the projects we're working on kind of to the side. And we're going to bring them out of the way to the date when the customer is willing to pay for them. And they can absorb them. But I think when you look at the core strength of our company Bill, it's about content. And it's about what put WMS on the map a few years ago was that try innovation series. We had The Transmissive Reels. We had Community Gaming. We had Sensory Immersion. You're going to see us a year from now being back in that mode of cutting edge products that people are standing in line to play. So if we were sitting here a year from now and worked back in the mid-20s to high-20 ship share, I would be very disappointed. Based on the products, the sidelines that I see, based on the beta sites, based on the CPU-NXT3, this is going to be delivering an extraordinary experience for the players. I'd be very, very concerned if weren't back to where we were 18 months ago. So I think the last 18 months, as painful as they have been, we're a better company for having gone through it. I think we've got better organization, better talent, better processes, and I think that we're going to come out of the other end as a much stronger and more energized company.

And there no further questions at this time. Let's turn the call back to you gentlemen for closing remarks.

Well, thank you for joining us this afternoon. As you can tell from our comments, we're very encouraged by the success we're achieving and addressing near-term revenue opportunities with the realized savings generator for reorganization and realignment actions. We also look forward to updating you in the next call in late April regarding our ongoing progress and opportunities. Have a great afternoon.

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