Youbet.com's First Quarter Net Income Increases 31% to $1.3 Million on Revenue of $27.8 Million
biz.yahoo.com
Thursday May 4, 7:00 am ET
First Quarter Diluted Earnings Per Share Increase to $0.04
Operating Results Reflect Continued Strength in Online Wagering and Contributions from Recent Acquisitions
WOODLAND HILLS, Calif.--(BUSINESS WIRE)--May 4, 2006--Youbet.com, Inc. (NASDAQ: UBET ), today reported net income of $1.3 million, or $0.04 per diluted share, inclusive of a $0.2 million charge attributable to share-based compensatory expense, for Youbet's first quarter ended March 31, 2006, compared to net income of $1.0 million, or $0.03 per diluted share, in the first quarter of 2005.
In addition to year-over-year improvements in Youbet's online Advanced Deposit Wagering (ADW) operations, the 2006 first quarter includes operating results from International Racing Group (IRG), which was acquired in June 2005, and from United Tote Company (United Tote), which was acquired on February 10, 2006. Reflecting these contributions, Youbet's total revenue for the quarter ended March 31, 2006 rose approximately 50% to $27.8 million from $18.5 million in the year ago period. The 2006 first quarter revenue increase was partially offset by higher year-over-year expenses related to the acquisitions of IRG and United Tote, including depreciation and amortization that in the aggregate totaled $0.9 million.
Summary of First Quarter Results
(in thousands, except per share
figures) For the three months ended March 31,
----------------------------------------------------------------------
2006 2005
---------------------------------- ---------------- -----------------
Total revenue $ 27,756 $ 18,515
---------------------------------- ---------------- -----------------
Adjusted EBITDA(1)(2) $ 2,513 $ 1,105
---------------------------------- ---------------- -----------------
Net income(2) $ 1,349 $ 1,030
---------------------------------- ---------------- -----------------
Diluted EPS(2) $ 0.04 $ 0.03
---------------------------------- ---------------- -----------------
(1) Adjusted EBITDA is defined as earnings before interest, taxes,
depreciation and amortization, as adjusted for other income. A
reconciliation of Adjusted EBITDA to net income, the most
comparable GAAP financial measure, can be found at the end of this
release.
(2) For the three months ended March 31, 2006, Adjusted EBITDA,
Net income and Diluted EPS as reported above includes an expense
of approximately $201,000 related to Youbet's adoption, on
January 1, 2006, of Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment."
The following table summarizes the key components of revenue in the three-month periods ended March 31, 2006 and 2005:
Three Months Ended
March 31,
----------------------
2006 2005
--------- ----------
(in thousands, except for Yield)
Youbet
------
Total wagers (handle) $ 103,347 $ 88,251
--------- ----------
Commissions from handle $ 20,502 $ 17,763
Other revenue 847 752
--------- ----------
Total revenue $ 21,349 $ 18,515
--------- ----------
Net revenue (revenues from commissions less
track and licensing fees) $ 8,047 $ 6,126
Yield (1) 7.8% 6.9%
International Racing Group (2)
------------------------------
Total wagers (handle) $ 43,483 --
Commissions from handle 3,420 --
Net Revenue (revenues from commissions less
track and licensing fees) 1,193 --
Yield (1) 2.7% --
--
United Tote (3) --
---------------
Contract revenue (4) $ 2,939 --
Equipment sales 136 --
--------- ----------
Total revenue $ 3,075 --
--------- ----------
(1) Yield is defined as net revenue (commission revenue less track
and licensing fees, each as calculated in accordance with GAAP and
presented in the Consolidated Statements of Operations Information
attached to this release) as a percentage of handle. The increase
in Youbet yield for the three-month period ended March 31, 2006
compared to the prior year period is due to contract terms, a
change in track mix and reduced win bonus payments. Youbet's
management believes that yield provides useful data to evaluate
Youbet's operating results and profitability. Yield should not be
considered an alternative to operating income or net income as
indicators of Youbet's financial performance, and may not be
comparable to similarly titled measures used by other companies.
(2) International Racing Group was acquired by Youbet on June 2,
2005 and included in our consolidated results as of that date.
Accordingly, no IRG results were included in our results for the
three months ended March 31, 2005.
(3) United Tote was acquired by Youbet on February 10, 2006 and
included in our consolidated results as of that date. Accordingly,
United Tote's revenue presented above is for the period of
February 10, 2006 - March 31, 2006.
(4) Approximately $87,000 of United Tote's contract revenue in the
first quarter of 2006 was tote fees paid by Youbet and IRG.
Commenting on the results, Youbet's Chairman, President and Chief Executive Officer, Charles F. Champion, said, "The 31% rise in first quarter net income reflects continued strong momentum in our online ADW offerings. This momentum is evidenced by Youbet's year-over-year 'same track' handle growth of approximately 26%. In addition, operating results are beginning to benefit from our revenue diversification efforts and both IRG's and United Tote's operating performance in the first quarter exceeded our expectations.
"Youbet's handle improvements continue to be driven by our ability to attract and engage new customers, particularly in the age 21-40 segment, as we continue to focus on marketing programs that introduce the sport of horse racing and our wagering platforms to a broader, younger, tech-savvy audience. Along these lines, Youbet recently went live with two innovative programs focused on increasing wagering volumes through incentives and new customer acquisition. We are pleased with the initial response to both Youbet.net, our learn-to-play, play-for-points website, and Youbet Advantage, our player rewards program, and expect that these programs will help drive further improvements in our operating results throughout fiscal 2006 and beyond.
"The recent acquisition of United Tote has broadened our revenue base while also creating opportunities for Youbet to leverage its existing technology with United Tote's to offer the pari-mutuel industry end-to-end solutions. Throughout the balance of 2006, we expect United Tote's operations to realize the benefit of pari-mutuel tote market share gains achieved over the last year. In addition, United Tote has prospects for additional new contracts over the next several quarters as it demonstrates to more customers the advantages of its industry leading pari-mutuel totalizator technology. Also, later this year, we expect to introduce the first of United Tote's innovative racing and sports contest offerings on our online platform, which will represent another new revenue opportunity for Youbet."
Second Quarter 2006 Outlook
Though Youbet does not provide financial guidance, management believes investors should consider the following factors as they evaluate Youbet's prospects for continued net income and earnings per share growth in the second quarter of 2006:
Consistent with prior expectations, year-over-year Youbet handle is expected to increase approximately 15 - 20%. Yield from Youbet derived handle is expected to decline from first quarter of 2006 levels due to a change in track mix for the second quarter of 2006, as the second quarter period includes more TVG-exclusive tracks that carry a lower yield.
IRG's second quarter of 2006 yield is expected to be in line with first quarter of 2006 levels. While regaining access to certain content remains a priority, management does not believe the current quarter will reflect any benefit from these ongoing efforts.
Youbet will benefit from a full quarter's contribution from United Tote, as well as new contract revenue related to the recent implementation of its tote system at Penn National Gaming's two racetracks and six off-track wagering facilities.
United Tote will record a one-time revenue benefit of approximately $0.4 million related to the early termination of a tote agreement for Lone Star Park.
Sales and marketing expenses are expected to increase from second quarter of 2005 levels due to the recent implementation of new marketing initiatives, including the Youbet Advantage player rewards program and our Youbet.net "play for points" website.
As in the first quarter of 2006, Youbet's operating expenses for the second quarter will increase from the prior year period primarily due to expenses from IRG and United Tote, which were acquired in June 2005 and February 2006, respectively.
Reflecting the approximate 2.2 million shares of Youbet common stock paid to United Tote's former owners as partial consideration for the acquisition of United Tote, Youbet's weighted average diluted shares outstanding for the three-month period ending June 30, 2006 will be approximately 37.5 million, compared with 34.6 million for the three-month period ended June 30, 2005.
Mr. Champion added, "With ongoing improvements in our core online product, the recent acquisitions of United Tote and IRG and plans to develop additional revenue channels, Youbet has greater scale and revenue diversification than at any time in its history. We expect that as we continue to execute on the growth initiatives being pursued by each of our operating units, we will generate further year-over-year improvements in our operating results throughout the balance of fiscal 2006. We also continue to explore targeted acquisitions that can leverage our current infrastructure and further diversify our product offerings, revenues and geographic distribution while enhancing long-term shareholder value."
Operating expenses (excluding track fees, licensing fees, contract costs, equipment costs and depreciation and amortization) increased approximately 48% to $8.6 million for the quarter ended March 31, 2006 from $5.8 million in the quarter ended March 31, 2005. Operating expenses as a percentage of commission revenue increased to 36% in the March 2006 quarter from 33% in the prior year period. The year-over-year operating expense increase was primarily driven by higher expenses associated with the operations of IRG and United Tote (as detailed below) that Youbet did not incur last year, as these entities were acquired subsequent to the end of the first quarter of 2005.
For the three-month period ended March 31, 2006, Youbet recorded $1.9 million in contract costs associated with United Tote's contract revenues that Youbet did not incur last year.
The approximate $0.3 million year-over-year increase in network operations expense to $1.3 million was primarily due to $0.2 million in data center expenses and other network operation expenses for IRG that Youbet did not incur last year as well as an increase in tote fees associated with the higher wager volume compared to the prior year period.
Research and development expenses were approximately $0.8 million in the first quarter of 2006, compared to approximately $0.3 million in the first quarter of 2005. The increase was primarily due to $0.4 million in aggregate research and development expense for IRG and United Tote that Youbet did not incur last year.
Sales and marketing expenses in the first quarter of 2006 were approximately $2.1 million and 7.5% of revenue, compared to $1.3 million and 6.9% of revenue in the comparable prior year period. The increase was primarily due to $0.4 million of IRG player services expenses and $0.2 million of United Tote expenses that Youbet did not incur last year. In addition, the higher sales and marketing expenses reflect costs associated with previously described new marketing programs.
General and administrative expenses increased approximately $1.2 million to $4.4 million in the first quarter of 2006 from $3.2 million in the first quarter of 2005. The increase was primarily due to such expenses associated with IRG and United Tote that Youbet did not have last year as well as higher transaction processing fees related to the increase in wagering volume, higher Sarbanes-Oxley compliance costs and legal expenses and an increase in salaries compared to the prior year period. General and administrative expenses in the first quarter of 2006 were 15.9% of total revenue compared to 17.2% in the first quarter of 2005.
Depreciation and amortization increased to $1.1 million in the first quarter of 2006 from $0.2 million in the first quarter of 2005. The year-over-year increase includes $0.2 million of non-cash amortization expense related to the intangible assets acquired from IRG and approximately $0.6 million of non-cash depreciation and amortization expense for United Tote that Youbet did not incur last year.
Youbet also incurred interest expense of $188,218 in the first quarter of 2006, compared to interest expense of $18,827 in the year ago period. The increase is due to an aggregate of $10.2 million in unsecured promissory notes issued by Youbet in connection with the acquisition of United Tote in February 2006 and United Tote's secured debt (primarily related to the financing of equipment that is placed with United Tote's track customers).
As of March 31, 2006, Youbet had cash and cash equivalents of $8.5 million and total current assets of $30.3 million. The decline in cash and cash equivalents from December 31, 2005, reflects $9.7 million of cash payments as part of the consideration paid for the United Tote acquisition. Reflecting the acquisition of United Tote in February, Youbet's stockholders' equity at March 31, 2006 was $34.3 million, compared to stockholders' equity of $22.9 million at December 31, 2005. |
