Thank you for standing by, and welcome to the WMS Industries Fiscal 2013 First Quarter Conference Call. [Operator Instructions] As a reminder, today's conference call, on November 1, 2012, is being recorded. I would now like to turn the call over to Paul Pfund, Vice President of Investor Relations for WMS Industries. Please go ahead.

Thank you, operator. Before beginning our review today, we'd first like to extend our sincere wishes for a quick recovery to our stockholders, investors, associates and friends in New Jersey, New York and other areas impacted by Hurricane Sandy. I'd also like to remind everyone 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. Reported results may not be indicative of future performance, and 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 1A Risk Factors in the company's annual report on Form 10-K for the year ended June 30, 2012, 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 made only as of this date, November 1, 2012. On the call today are Brian Gamache, Chairman and CEO; Orrin Edidin, President; and Scott Schweinfurth, CFO. Now let me turn the call over to Brian.

Thanks, Bill, and good afternoon, everyone. WMS's fiscal first quarter financial results reflect continued operating improvements on our gaming machine product lines as well as very encouraging revenue performance from our interactive products and services. In addition, we recently secured additional VLT contract for new units, which provides further unit shipment visibility for our fiscal year. For the September 12 quarter, WMS generated total revenues of $159 million, modestly exceeding our expectations and representing our first year-over-year gain of total revenue in the past 7 quarters. Among the highlights of the first quarter are: overall the $4 million increase in total revenue went to a $4 million increase in gross profit, providing a very healthy gross profit flow-through; gross margin on our product sales reached a new fiscal first quarter record of 53%; and the gross margin of the gaming operations increased to nearly 79%, up from 77% in the June 12 quarter. Combined, we generated 120 basis point year-over-year improvement in total gross margin to 64.5%, just short of our record level established 3 years ago. In gaming operations, our average installed footprint grew on a quarterly sequential basis rising 253 units over the June 12 quarter. Our installed base at quarter end increased for the third consecutive quarter, this time by 71 units on a quarterly sequential basis, which led to a year-over-year increase of 40 units, represent the first year-over-year increase in our installed base in the last 8 quarters. Next. WMS was selected by the Canadian Province of Manitoba to provide VLTs that will replace their existing footprint. Including Alberta, we expect to ship at least 1,000 additional VLTs to Canada during the remainder of our fiscal year, with more new units planned into fiscal '14. In addition, the VLT market in Illinois opened, and we…

Thanks, Brian, and good afternoon, everyone. In the September 12 quarter, we generated a 1% increase in product sales revenue, reflecting the sale of 3,791 new gaming machines and 1,660 used units. Notably, we shipped 693 new VLTs to Canada and the opening of the new Illinois VLT market. We continue to expect our ship share to new casino openings and the Illinois VLT market to average in the high teens. International units represented about 35% of our total global unit shipments, the same as the prior year. Average selling price declined $541 per unit year-over-year, but was up slightly on a quarterly sequential basis, and largely reflected a product mix that included more lower-priced VLTs, as well as the competitive marketplace. As previously discussed, we expect the average selling price during fiscal '13 to be more variable than in the past, and likely lower year-over-year due to the higher mix of lower-priced VLT units particularly if Illinois VLTs become a greater portion of the unit mix. Other product sales revenue increased on a year-over-year basis by 23%, reflecting higher revenues from used gaming machines as we begin to sell used Bluebird2 gaming machines that command a higher price and a onetime sale of a VLT software game set, partially offset by a strong but lower sale of game conversion kits than a record level established in the prior-year quarter. The improvement in our gaming content during the past year has resulted in higher-than-normal conversion kit sales over the last 5 quarters, and we expect this will continue at least through the launch of the Blade cabinet. In our participation business, for the first time in 9 quarters, we achieved both a year-over-year and quarterly sequential increase in total revenues, primarily due to the growth in revenues of our interactive…

Thanks, Scott, and good afternoon, everyone. On past calls and in a number of public disclosures, we've outlined our iGaming initiatives, and today, I want to go a little deeper and share with you additional details and metrics that will allow you to better understand our interactive products and services and track our progress going forward. We're committed to being as transparent as we can about our iGaming initiatives without comparing our competitive position. Our goal is to help make iGaming easily understandable and to assist you in seeing its potential. I'd like to start by briefly reviewing our key iGaming products and services and how we categorize them into 3 distinct product lines for generating revenues. First, our online gaming operation opportunities. These products include our U.K.-based real money platform jackpotparty.com, which is our original initiative, along with our B2B online real money casino managed services. In the U.S., this includes distributing the 888 online B2B poker platform, the U.S.-based gaming operators both on a play-for-fun basis, and where and when legalized on a real money gaming basis. Our jackpotparty.com site was fully launched in early calendar 2011, and we earned revenue just like a casino i.e., from the net wins generated by player wagers. Our first rollout of a fully managed B2B real money online casino site will be in collaboration with Groupe Partouche in Belgium, utilizing our jackpotparty.com platform and operating infrastructure. Partouche is Belgium's largest casino operator and one of the largest casino operators in Europe. We anticipate beginning with a soft launch later this quarter with full go live in January 2013. Our B2B managed services provide casino operators with a full suite of products, games and platform, and both front-end and back-office services such as marketing, operations, IT and payment services. We'll earn a…

Thanks, Orrin. At WMS, our priorities for fiscal '13 are clearly defined and understood throughout the organization. First, continue our intense focus on developing innovative player-appealing games and cabinets to grow our installed participation product base and improve our daily average revenue. In addition to the great new games we demonstrated at G2E such as Willy Wonka and the Chocolate Factory, Cheers, Spiderman, KISS and 3 new games from the Gamefield xD platform, we already have a pipeline of unique, novel, new products that will continue to drive our business in fiscal '14 and beyond. Second, continue to develop differentiated for-sale products and cabinets to garner increased ship share. We already began to see progress as our ship share in the first half of calendar '12 improved 400 basis points sequentially to 22% ship share amongst the top 5 companies. Our focus on serving customers by creating player-fueling games has not wavered. We expect this focus to be demonstrated in additional ship share increases in the coming quarters and years. As we launch our new Blade cabinet, which takes full advantage of our next-generation CPU-NXT3 operating system, our first new operating system since the CPU-NXT2 introduction in 2007. The Blade cabinet with its next-generation operating system is our first new wholly-designed upright cabinet to be deployed in nearly 5 years, a period of which our largest competitors have each introduced numerous new cabinets. With the launch of the Blade cabinet, we'll have 5 distinct cabinets supported by 2 operating system platforms. That provides casino operators with a lot of differentiated content and just as importantly, the knowledge that we are committed to support this content across multiple platforms. Third, invest, develop and support the expansion of our interactive products and services by leveraging our library of great gaming content into those new distribution channels, as Orrin just has reviewed. While we expect our focus during fiscal '13 to be organic development, should opportunities present themselves, we'll remain open to selective alliances, licensing opportunities and tuck-in acquisitions that will reinforce our best-of-breed approach. Fourth, continue to focus on margin enhancements through sourcing initiatives, value-added continuous improvement efforts and greater productivity throughout our global organization. We've undertaken each of these initiatives with a goal of enhancing shareholder value and returns on capital. And we believe our capital deployment policies, including the modest investments we have made to continue to make build potential industry-leading foundation of interactive products and services, are tangible examples of this focus. Based on the progress being achieved with our initiatives, we believe WMS is regaining operating leverage that will enable us to generate strong and improving cash flow on incremental revenues. Our ultimate goal is to build a world-class content organization that creates long-term sustainable shareholder value in this gaming industry of converging distribution mediums by offering premium value propositions across each and every platform, market and distribution channel in which we compete. We'll be happy to take questions. Operator?

[Operator Instructions] Our first question comes from the line of Steven Kent with Goldman Sachs.

Just a couple questions. First, regional casino budgets for 2013, can you give us a sense for how that's looking for the next year? And my concern is that their purchases will be even lighter than this year. And then, Brian, you said the your product line was the best at G2E since you've been going. What other products did you see out there that were more competitive with you? And I guess my concern is on the video front where we saw a lot of very competitive products and I just wanted to see if you could put that in perspective.

Sure. I think the regional operating budgets, Steve, are pretty much flat year-over-year. There might be some little bit of an uptick, maybe I would say 3% to 5%. My basis from those conversations we've at G2E and subsequent to that, with our sales folks. But I think over the next 12 months, it's going to be continued tough sledding. And that's why I think the guidance that we've given today is somewhat consistent with what we saw coming in August. The first half of our year is about what we thought it would be. And I think the second half, because of the the product launches that we're going to be undertaking, will make it a little bit easier for us. So we have probably the best visibility because of the VLTs and the new cabinets and the backlog on the Blade cabinet that we've had in quite some time. So I'm very optimistic about the second half of the year. To go back to the competition at G2E, I think it's very robust, particularly from some of the smaller players that we haven't seen in quite some time. I think that this is -- as well as our content is getting better but I think other people's content is getting better as well. But I do think the differentiation that people have seen in our Gamefield cabinet and some of the unique game features that you'll see coming out of our Blade CPU-NXT2 platform, give me great anticipation that we're going to see what happened in 2003 when we've launched Bluebird1, in 2008 when we've launched Bluebird2. It breathes a whole new life into the replacement cycle of WMS, because we have 120,000 Bluebird1s and 2s out there that need to be replaced. So I think that we've given people a reason to go replace our units and hopefully in the process, we'll gain some share as a result.

Our next question comes from the line of Casey Newell with Deutsche Bank.

You've had a little over $9 million in the interactive revenue on the quarter. And you guys kind of targeted another $30 million to $40 million for the year. Is there any reason to think that, that would be kind of smooth throughout the year? Is there any kind of lumpiness that we would expect in that?

This -- we've had one quarter's viewpoint. So we really are being very conservative because this is a new business for us and we're trying to understand where the future is, but I do think it's -- the reason we're investing here in this -- so heavily in this business, is we believe that leveraging our content on various platforms is a necessity for us to gain momentum and additional revenue streams. Orrin, do you want to comment any further?

I would agree with what Brian said. We're in ramp-up mode. We're looking for the best way to leverage the content across the 3 opportunities that we mentioned. And they're not all going to ramp up at the same rate and pace. We're really in investment mode for our managed services business as those markets begin to open up. Social is moving perhaps quicker than we anticipated given the nature of that media. So it will run at different rates but generally speaking, we are in ramp-up mode.

And to clarify what I said on the 30 to -- $35 million to $40 million, that's total revenues for fiscal '13. So it would include half from the Q1.

Got you. Good. And then just in regards to the install base, maybe you guys could kind of give some color around what you guys have been seeing since you've been out to the install base. And just with the launch plans for the remainder part of the year, kind of how are you guys are thinking about the rollout of the new products throughout the rest of the year?

Well, I think that we've always thought that the first half of the year we'd see incremental growth, which we're seeing. And the second half of the year think would be I think more robust. We've got several very unique themes coming out in the second half of the year, new platforms. And we believe these new launches are going to be accretive to our existing footprint, as again, we've been given aggressively trying to replace the footprint from a physical machine standpoint and also to keep the product fresh. We've touched, I think, 2/3 of our products in the last few months in one way, shape or form and we're continuing to pay a lot of attention. The one challenge we have right now and the headwind is the coin in on the regional basis is not as aggressive as we'd like to see it in the casinos. And I think hopefully after election gets over with we'll see some improved consumer sentiment out there, and hopefully people feel better about getting back to their normal entertainment opportunities. So I think that we are -- we're probably at the best position we've been in the gaming ops business, going into the second half of our year, and I think we're locked and loaded here.

Great. Great. And then, Scott, just one last question for you. I think you said that you anticipate yield growth in maybe the fiscal third and fiscal fourth quarter, is that right? Did I hear that correctly?

Yes. So we're -- what we're achieving in the first and second quarter of this year.

And a lot of that has to do with the mix of business. We're going to be putting more rack [ph] product out there, and that, as you know, drives a higher yield.

[Operator Instructions] Our next question comes from the line of Todd Eilers with Roth Capital Partners.

I wanted to ask, I'm not sure if you guys gave it or not, but in terms of new shipments for U.S. and Canada, can you tell us how much of that was new versus replacement? And then also had a question on the other product sales, I believe you guys mentioned that onetime Illinois game set sale. Can you maybe elaborate on that a little bit, just kind of what was that and should we expect more of that to continue going forward?

I'll answer the second question first while Scott researches on the first one, Todd. That was not Illinois. It was another VLT jurisdiction that we've had a game software set that was delivered during the quarter. We've been working on it for quite some time. We have those from time to time. We have another one coming up later this year, I believe. That's not been disclosed. So that's part of the VLT business, is you have a software model and a hardware model. So it's -- and you could look at it as a onetime event, but there is another one coming.

And then Todd, new unit shipments were 727 for the quarter.

Okay. That's helpful. And then just a second question unrelated to product sales but on the interactive business, the guidance for revenue, I guess, for fiscal '13, $35 million to $40 million, did you guys also give a expected operating cost as well? I thought you provided some range but I might be mistaken.

No. We have not given the operating breakout. And again, we just -- today's op exports [ph] give you a feeling as to where we see the business today and where we see it growing. It's going to be a significant part of our revenue and profit stream going forward. It's not making money today, and that's baked into the guidance that we gave back in August. And it will take a period of time before this business matures and ramps up, but we know that it's going to be the future of this industry. The industry is in transition. And we believe because of the investments we're making, we're going to be at the front of that transition.

Okay. And then just one last question on interactive. You mentioned 3 buckets in that business. Can you maybe give us a sense for how much of that revenue is recurring at this point? And maybe how much you expect to be recurring, I guess, longer term going forward?

Well, I think the closest to recurring that I would analogize is on the game server integration basis because that's a content license. Once the games are posted, it's very similar to our gaming operations business where we earn a share of the the play on the game. So I would probably characterize that as closest to recurring. The other ones, obviously, are B2C and B2B are based on actual play as if you were operating a casino, whether directly to customers or in behalf of a land-based operator. So we're going to be subject to the vagaries of actual player levels day-to-day, week-to-week, quarter-to-quarter. So I would probably say game server integration is the closest to analogy I can make to a game -- our gaming operation's recurring revenue business.

[Operator Instructions]

Okay, operator, we're hearing no more questions. We thank you for joining us this afternoon. We look forward to updating you on our further financial operating progress at the end of the December quarter. Have a great day.

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.