Youbet.com's Second Quarter Net Income Increases 64% to $2.2 Million on Record Revenue of $39.6 Million
biz.yahoo.com
Thursday August 3, 7:00 am ET
WOODLAND HILLS, Calif.--(BUSINESS WIRE)--Aug. 3, 2006--Youbet.com, Inc. (NASDAQ: UBET):
Record Second Quarter Diluted Earnings Per Share of $0.06 Inclusive of Higher Share-Based Compensation and Legal Fees and Financing Costs
Operating Results Reflect Revenue Growth at All Three Business Segments
Youbet.com, Inc. (NASDAQ: UBET), today reported record second quarter net income of $2.2 million, or $0.06 per diluted share, for the period ended June 30, 2006, compared to net income of $1.3 million, or $0.04 per diluted share, in the second quarter of 2005. Financial results for the 2006 second quarter include a $0.2 million charge attributable to share-based compensation expense.
Youbet's total revenue for the quarter ended June 30, 2006 rose approximately 69% to $39.6 million from $23.5 million in the year ago period. In addition to year-over-year improvements in Youbet's online Advanced Deposit Wagering (ADW) operations, the 2006 second quarter included operating results and revenue growth from International Racing Group (IRG), which Youbet acquired in June 2005, and from United Tote Company (United Tote) which Youbet acquired in February 2006.
The 2006 second quarter results reflect aggregate expenses of approximately $0.7 million, or approximately $0.02 per diluted share, for legal fees related to the company's defense of the legal proceeding initiated by TVG, and costs associated with the maintenance, extension and re-financing of the United Tote credit facility that Youbet guaranteed at the time it acquired United Tote.
Summary of Three Month and Six Month Results
(in thousands, except per share figures)
For the three months ended For the six months ended
June 30, June 30,
----------------------------------------------------------------------
2006 2005 2006 2005
----------------------------------------------------------------------
Total revenue $39,590 $23,482 $67,346 $41,998
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Adjusted
EBITDA(1)(2) $3,848 $1,487 $6,361 $2,592
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Net income(2) $2,195 $1,337 $3,545 $2,367
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Diluted EPS(2) $0.06 $0.04 $0.09 $0.07
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(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 and six months ended June 30, 2006, Adjusted EBITDA,
Net income and Diluted EPS include an expense of approximately
$204,000 and $405,000, respectively, 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 June 30, 2006 and 2005:
Three Months Ended
June 30
2006 2005
--------- ---------
(in thousands,
except for Yield)
Youbet
------
Total wagers (handle) $125,280 $108,742
--------- ---------
Commissions from handle $24,114 $21,637
Other revenue 1,035 895
--------- ---------
Total revenue $25,149 $22,532
--------- ---------
Net revenue (revenues from commissions less
track and licensing fees) $7,832 $6,867
Yield (1) 6.3% 6.3%
International Racing Group (2)
------------------------------
Total wagers (handle) $91,946 $11,518
Commissions from handle $6,778 $950
Net Revenue (revenues from commissions less
track and licensing fees) $2,101 $355
Yield (1) 2.3% 3.1%
United Tote (3)
---------------
Contract revenue (4) $7,183 --
Equipment sales 800 --
--------- ---------
Total revenue $7,983 --
--------- ---------
(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 June 30, 2006
compared to the prior year period is due to more favorable
contract terms, a change in track mix and reduced win bonus
payments partially offset by new Player Rewards incentive
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, only the results for the 29-day period of June 2,
2005 - June 30, 2005 were included in our results for the three
months ended June 30, 2005.
(3) United Tote was acquired by Youbet on February 10, 2006 and
included in our consolidated results as of that date. Accordingly,
no United Tote results were included in our results for the three
months ended June 30, 2005.
(4) Approximately $320,000 of United Tote's contract revenue in the
second 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, "Youbet achieved record levels of combined handle, total revenue and net income in the second quarter of 2006. Our operating results reflect the benefit of our acquisitions of IRG and United Tote and our innovative product offerings across all three operating segments. To put our year-to-date growth into perspective, our net income for the first six months of 2006 already approximates the level achieved from operations for all of 2005 despite higher share-based compensation expense and the legal and financing-related fees and expenses we did not incur last year.
"An important factor in Youbet's year-over-year handle growth is our ability to leverage high profile racing events like the Triple Crown Series into opportunities to attract significant new customer sign-ups, with an emphasis on the tech-savvy 21-40 age group. In addition, Youbet's new marketing programs -- Youbet.net and Youbet Advantage -- were successfully launched in April and contributed to increased awareness of our platform, new customer sign-ups and handle growth in the second quarter of 2006.
"IRG's 2006 second quarter handle and revenue reflect the benefit of our ongoing computer robotic wagering (CRW) test program. We expect to add several additional customers to this program this quarter. Based in part on the recommendations of our internal compliance committee, we limit the IRG content available for CRW wagering to those tracks that consent to such pari-mutuel pool access. This allows more than 25 consenting host tracks the ability to capture a meaningful source of pari-mutuel handle generated by computer-based wagering that is currently being conducted under regulatory supervision.
"We continue to make progress on the integration of United Tote, and the benefits of this acquisition are beginning to be realized as we anticipated. As expected, the reliability and robustness of United Tote's tote technology was proven as it seamlessly processed this year's Kentucky Derby Day - the highest single day of handle in the history of U.S. horse racing. Technology leadership has positioned United Tote to grow its pari-mutuel market share over the last several years, and with the combined efforts of United Tote's and Youbet's engineering and product development teams, we will be in an even better position to achieve further gains as several large tote contracts become available over the next several years. We have realized initial cost synergies at United Tote and continue to review additional steps that can reduce expenses in this segment, which will benefit EBITDA margins going forward. In addition, Youbet expects to benefit from another new revenue source late this year, as United Tote remains on schedule to launch the first of its proprietary racing and sports contest fantasy offerings on our online platform."
Second Half 2006 Outlook
Though Youbet does not provide financial guidance, management believes investors should consider the following factors as they evaluate Youbet's prospects for year-over-year net income and earnings per share growth in 2006:
Consistent with prior expectations, year-over-year Youbet handle is expected to increase approximately 15% - 20%. The third quarter of 2006 will have modestly less content than the third quarter of 2005. For example, two tracks recently licensed their content to TVG on an exclusive basis.
While Youbet handle is expected to grow on a year-over-year basis, the company has recently experienced a decline in wagering volume from several of its highest wagering class customers. Youbet believes that a significant portion of this decline is attributable to an industry-wide trend whereby high-volume track, off-track and ADW customers are being aggressively recruited by illegal off-shore bookmaking entities that do not pay host track fees and, therefore, offer higher rebates and a broader number of gaming opportunities than domestically-licensed ADW providers. Youbet continues to work with the industry and its partners on a response to this issue.
Second half 2006 sales and marketing expenses are expected to increase year-over-year due in part to the implementation several months ago of new marketing initiatives, including the Youbet Advantage player rewards program and the Youbet.net "play for points" website.
General and administrative expenses for the second half of fiscal 2006 are expected to increase from the prior year period reflects:
-- Expenses for United Tote operations, which were acquired
in February 2006;
-- Up to $0.4 million in costs associated with the
re-financing of United Tote's credit facility in the third
quarter;
-- Ongoing legal costs that will be higher than experienced
in the 2006 second quarter; and,
-- The retention of a consulting firm to evaluate cost
synergies and expense reduction opportunities for United
Tote which we expect to ultimately benefit United Tote's
revenue and operating margins.
Interest expense in the third quarter of 2006 of approximately $0.5 million reflecting the company's $10.2 million in unsecured promissory notes issued by Youbet in connection with the acquisition of United Tote in February 2006 and secured debt, which the company refinanced last week at more favorable terms and conditions compared to the prior credit facility.
The company expects third quarter of 2006 share-based compensation expenses under SFAS 123R to remain consistent with the first two quarters of 2006.
Mr. Champion concluded, "Youbet is prudently advancing growth initiatives at each of our operating units that will benefit operating results in the balance of 2006 and beyond. The revenue, earnings and diversification from the IRG and United Tote acquisitions underscore our ability to identify, negotiate, close and integrate complementary acquisitions that are building long-term value for Youbet, and we expect to apply this approach to other acquisitions we are analyzing. We are confident that Youbet can generate additional long-term shareholder value by further expanding its scope of operations, fostering existing and new industry relationships, continuing to adapt its technology platforms to remain at the forefront of innovation, and diversifying its revenue and geographic base."
Operating expenses (excluding track fees, licensing fees, contract costs, equipment costs and depreciation and amortization) increased approximately 58% to $10.5 million for the quarter ended June 30, 2006 from $6.6 million in the quarter ended June 30, 2005. 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
Youbet owned IRG for only 29 days of the second quarter of 2005 and United Tote was acquired in 2006.
For the three-month period ended June 30, 2006, Youbet recorded $3.9 million in contract costs associated with United Tote's contract revenues that Youbet did not incur last year.
Network operations expense increased approximately $0.4 million year-over-year, to $1.5 million, primarily due to $0.2 million in data center costs, tote fees 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 $0.9 million in the second quarter of 2006, compared to approximately $0.4 million in the second quarter of 2005. The increase was primarily due to $0.5 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 second quarter of 2006 were approximately $2.5 million, or 6.3% of revenue, compared to $1.8 million, or 7.7% of revenue, in the comparable prior year period. The increase was primarily due to $0.3 million of IRG player services expenses and $0.3 million of United Tote expenses that Youbet did not incur last year. In addition, higher sales and marketing expenses reflect costs associated with increased advertising as well as the new marketing programs described above.
General and administrative expenses increased approximately $2.3 million to $5.6 million in the second quarter of 2006 from $3.3 million in the second quarter of 2005. The increase was due to several factors including share-based compensation expenses, legal and refinancing related fees and expenses, expenses associated with IRG and United Tote that Youbet did not incur last year, higher transaction processing fees related to the increase in wagering volume, higher Sarbanes-Oxley compliance costs, audit fees and an increase in salaries. General and administrative expenses in the second quarter of 2006 were 14.1% of total revenue, compared to 14.2% in the second quarter of 2005.
Depreciation and amortization increased to $1.7 million in the second quarter of 2006 from $0.3 million in the second quarter of 2005. The increase primarily reflects $1.2 million in United Tote depreciation and amortization expense, the majority of which was depreciation of United Tote's fixed assets.
Youbet also incurred interest expense of $0.5 million in the second quarter of 2006. This expense was primarily due to $0.4 million of interest expense related to United Tote's secured debt (primarily related to the financing of equipment that is placed with United Tote's track customers) and $0.1 million of interest expense related to the unsecured promissory notes issued in connection with our acquisition of United Tote.
As of June 30, 2006, Youbet had cash and cash equivalents of $14.2 million and total current assets of $42.1 million. |
