Youbet.com, Inc. (NASDAQ:UBET) announced second quarter 2007 results of a loss of $0.01 per share. Total handle for the three months ended June 30, 2007, declined 13% to $188.5 million. Total revenues for the quarter, however, only declined $2.3 million, or 6%, from the second quarter 2006 as a result of an improved handle at Youbet Express, our online ADW platform. Handle for the three-month period ended June 30, 2007 at Youbet Express increased 4% with yield on this handle improving to 6.7% from 6.3% in the comparable prior-year period. For the three months ended June 30, 2007, handle at IRG declined 37% with yield improving to 2.4% from 2.3% in the comparable prior-year period. The decline in total handle was a result of the loss of race track content from TrackNet Media LLC, including the loss of the Kentucky Derby content to Youbet Express and loss of the first two legs of the Triple Crown content to IRG, which resulted in no wagering at IRG on the Triple Crown in 2007.
For the second quarter 2007, totalizator service revenues at United Tote declined by $0.7 million to $7.0 million from $7.7 million in the comparable prior-year period, with contract revenues declining $0.3 million to $7.1 million and equipment sales declining to $0.4 million from $0.8 million in the prior-year period.
For the three months ended June 30, 2007, the cost of revenues declined in line with the decrease in revenues, or 6%, as compared to the prior-year period. Total cost of revenues declined to $25.2 million from $26.8 million. For the three months ended June 30, 2007, track fees, licensing fees and network operations declined 8%, 9% and 9%, respectively, versus the prior-year period. The decline in these expense items is due to the lower handle and sales volume. For the three months ended June 30, 2007, contract costs increased to $4.4 million from $3.9 million in the comparable prior-year period due to increased data communication and supply costs. Gross profit for the three months ended June 30, 2007 declined 5% to $12.1 million versus $12.8 million in the comparable prior-year period.
(in thousands, except per share figures) | For the three months ended June 30, | Â | For the six months ended June 30, | ||||||||
 | 2007 | 2006 |  | 2007 | 2006 | ||||||
Total Revenue | $ | 37,301 | Â | $ | 39,590 | Â | $ | 72,284 | Â | $ | 67,346 |
Gross Profit | $ | 12,114 | Â | $ | 12,814 | Â | $ | 24,422 | Â | $ | 22,581 |
Net Income (Loss) | Â | ($357) | Â | $ | 2,195 | Â | $ | 1,229 | Â | $ | 3,545 |
Diluted EPS | Â | ($0.01) | Â | $ | 0.06 | Â | $ | 0.03 | Â | $ | 0.09 |
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Gross profit is total revenues less track fees, licensing fees, contract costs, equipment costs and network operations, as presented on Youbet's condensed consolidated statements of operations appearing at the end of this release. |
Youbet CEO Chuck Champion commented: "The second quarter was very challenging for our company, and the industry in general, but our strategy remains in place. We are steadfast in our commitment to providing our customers with the broadest offering of content under commercially reasonable terms on the most advanced and feature-rich platform. We continue to grow our online account base, contain costs and manage our yields despite the disruptive nature of the TrackNet strategy. Our cost reductions, which were underway when the TrackNet content issue unexpectedly erupted, are designed to create greater efficiency in our account acquisition and retention, providing greater leverage for our growth."
Operating expenses for the three months ended June 30, 2007 increased to $12.1 million from $10.7 million in the prior-year period. Most of the increase in the quarter came from a $1.4 million increase in sales and marketing and business development programs, including expanded print and television advertising and race track promotional expenses, primarily an effort to reduce the impact of the loss of the TrackNet content. Depreciation and amortization increased $0.7 million, or 40%, in the second quarter of 2007 due primarily to higher depreciation expense and intangible amortization expense at IRG and United Tote, subsequent to the final purchase price allocation adjustments for United Tote. General and administrative expense decreased $0.7 million in the second quarter of 2007 compared to the second quarter of 2006 primarily due to lower legal costs. Total general and administrative expenses as a percentage of total revenues declined to 13.1% in the second quarter 2007, as compared to 14.1% in the second quarter of 2006.
Cost Containment Programs and Outlook
As stated in our July 20 release, management has implemented cost cutting and revenue enhancement initiatives with an expected benefit of approximately $5 million for the second half of 2007, to offset lower revenue expectations. The benefit from these cost initiatives is approximately $4.5 million, as the company plans to reduce overall general and administrative, sales and marketing, network operations and R&D expenses by approximately $2.8 million. Reductions in cost of goods sold at United Tote is expected to lower expenses by approximately $0.8 million; and lower sales and marketing expense at KingContest.com should save approximately $0.9 million. An additional $0.5 million in anticipated savings is associated with lower player promotions expected for the second half of 2007. Full year 2007 EPS guidance, which was revised to $0.13 to $0.16 per share in the company's July 20, 2007 press release, remains unchanged.
Six Month Operating Results
Total revenues for the six months ended June 30, 2007 improved 7% to $72.3 million from $67.3 million in the year ago period. Total handle for the six months ended June 30, 2007 increased 7% to $390.1 million. Handle for the six-month period ended June 30, 2007 at Youbet Express increased 7%, with yield on this handle improving to 7.3% from 6.9% in the prior-year period. For the six months ended June 30, 2007, the handle at IRG improved 8%, with yield remaining flat at 2.4% as compared to the prior-year period.
For the six months ended June 30, 2007, totalizator service revenues increased by $1.3 million at United Tote from the comparable prior-year period, largely due to including results for a full six months, as United Tote was acquired in mid-February 2006.
For the six months ended June 30, 2007, the cost of revenues increased by 7% compared to the prior-year period. For the six months ended June 30, 2007, track fees, licensing fees and network operations recorded year-over-year percentage changes of 7%, (9%) and (4%), respectively, versus the prior-year period. For the six months ended June 30, 2007, contract costs increased to $8.2 million from $5.8 million in the year ago period, with most of the increase due to a full six months' results for United Tote (acquired in mid February 2006) in 2007. Gross profit for the six months ended June 30, 2007 increased 8% to $24.4 million versus $22.6 million in the year ago period.
The Company will host a conference call and webcast at 5:00 p.m. EDT on August 7, 2007. Both the call and webcast are open to the general public.
The conference call number is (866) 293-8970. Please call five minutes in advance to ensure that you are connected prior to the presentation. Interested parties may also access the live call on the Internet at http://www.youbet.com (select About Youbet.com). Please log-on fifteen minutes in advance to ensure that you are connected prior to the call's initiation. Questions and answers will be reserved for call-in analysts and investors. Following its completion, a replay of the call can be accessed for thirty days on the Internet at the above link.
The following table summarizes the key ADW components of revenue in the three-month and six-month periods ended June 30, 2007 and 2006.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||
(in thousands, except yield) | (in thousands, except yield) | |||||||||||||
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Youbet Express | ||||||||||||||
Total Wagers (Handle) | $ | 130,240 | Â | $ | 125,244 | Â | $ | 244,432 | Â | $ | 228,591 | Â | ||
Commissions from Handle | $ | 25,303 | $ | 24,114 | $ | 47,675 | $ | 44,616 | ||||||
Other Revenue | Â | 971 | Â | Â | 1,035 | Â | Â | 1,886 | Â | Â | 1,882 | Â | ||
Total Revenue | $ | 26,274 | Â | $ | 25,149 | Â | $ | 49,561 | Â | $ | 46,498 | Â | ||
Net Track Revenue (1) | $ | 8,669 | $ | 7,832 | $ | 17,957 | $ | 15,879 | ||||||
Yield (2) | 6.7 | % | 6.3 | % | 7.3 | % | 6.9 | % | ||||||
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International Racing Group | ||||||||||||||
Total Wagers (Handle) | $ | 58,300 | $ | 91,945 | $ | 145,684 | $ | 135,428 | ||||||
Commissions from Handle | $ | 4,062 | $ | 6,777 | $ | 10,536 | $ | 10,197 | ||||||
Net Track Revenue (1) | $ | 1,415 | $ | 2,101 | $ | 3,525 | $ | 3,294 | ||||||
Yield (2) | 2.4 | % | 2.3 | % | 2.4 | % | 2.4 | % | ||||||
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(1) Â | Net track revenues is calculated from commission revenue less track and licensing fees, each as calculated in accordance with GAAP and presented in the condensed consolidated statements of operations information appearing at the end of this release. Net track revenue represents revenue after fees associated with securing handle to generate commission revenue. | |||||||||||||
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(2) | Yield is defined as net track revenue as a percentage of handle. The increases in Youbet yield for the three- and six- month period ended June 30, 2007 compared to the prior year are due to contract terms, a change in track mix, and adjustments to player incentive programs. Youbet's management believes that yield is useful to evaluate Youbet's 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. |
YOUBET.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) | ||||||||
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June 30, 2007 | December 31, 2006 | |||||||
(unaudited) | ||||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 18,247 | $ | 21,051 | ||||
Current restricted cash | 5,600 | 4,862 | ||||||
Accounts receivable, net | 11,047 | 13,287 | ||||||
Inventory, net | 2,421 | 2,587 | ||||||
Prepaids and other current assets | 1,551 | 1,072 | ||||||
Current deferred tax assets | Â | 1,153 | Â | Â | 2,367 | Â | ||
40,019 | $ | 45,226 | ||||||
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Property and equipment, net | 29,277 | 30,110 | ||||||
Intangible assets other than goodwill, net | 14,403 | 13,369 | ||||||
Goodwill | 15,243 | 15,243 | ||||||
Deferred tax assets, net of current | 1,117 | - | ||||||
Other assets | Â | 1,385 | Â | Â | 1,657 | Â | ||
$ | 101,444 | Â | $ | 105,605 | Â | |||
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LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||
Current liabilities: | ||||||||
Trade payables | $ | 12,788 | 13,759 | |||||
Current portion of long term debt | 7,000 | 8,311 | ||||||
Accrued expenses | 9,017 | 9,489 | ||||||
Customer deposits | 8,683 | 8,441 | ||||||
Deferred revenues | Â | 570 | Â | Â | 207 | Â | ||
38,058 | 40,207 | |||||||
Long term debt, net of current portion | 13,235 | 12,054 | ||||||
Deferred tax liability | Â | - | Â | Â | 570 | Â | ||
 | 51,293 |  |  | 52,831 |  | |||
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Stockholder's equity | ||||||||
Preferred Stock $0.001 par value, 1,000,000 shares authorized, none issued | ||||||||
- | - | |||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 42,531,430 and 42,118,446 shares issued | ||||||||
42 | 42 | |||||||
Additional paid-in capital | 133,739 | 137,597 | ||||||
Accumulated deficit | (82,326 | ) | (83,555 | ) | ||||
Accumulated other comprehensive loss | (4 | ) | (10 | ) | ||||
Treasury stock, 443,062 common shares at cost | Â | (1,300 | ) | Â | (1,300 | ) | ||
 | 50,151 |  |  | 52,774 |  | |||
$ | 101,444 | Â | $ | 105,605 | Â | |||
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Disclosures necessary to conform to GAAP and SEC Regulation S-X have been omitted |
Youbet.com, Inc. and Subsidiaries | ||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenue | ||||||||||||||||
Commissions | $ | 29,365 | $ | 30,892 | $ | 58,211 | $ | 54,813 | ||||||||
Contract revenues | 6,571 | 6,863 | 11,673 | 9,715 | ||||||||||||
Equipment sales | 394 | 816 | 514 | 951 | ||||||||||||
Other revenues | Â | 971 | Â | Â | 1,019 | Â | Â | 1,886 | Â | Â | 1,867 | Â | ||||
 | 37,301 |  |  | 39,590 |  |  | 72,284 |  |  | 67,346 |  | |||||
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Operating costs and expenses | ||||||||||||||||
Track fees | 13,664 | 14,782 | 28,289 | 26,360 | ||||||||||||
Licensing, TVG | 5,617 | 6,176 | 8,440 | 9,280 | ||||||||||||
Network operations | 1,384 | 1,516 | 2,682 | 2,800 | ||||||||||||
Contract costs | 4,401 | 3,858 | 8,242 | 5,792 | ||||||||||||
Cost of Equipment costs | Â | 121 | Â | Â | 444 | Â | Â | 209 | Â | Â | 533 | Â | ||||
 | 25,187 |  |  | 26,776 |  |  | 47,862 |  |  | 44,765 |  | |||||
Gross Profit | Â | 12,114 | Â | Â | 12,814 | Â | Â | 24,422 | Â | Â | 22,581 | Â | ||||
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Operating Expenses | ||||||||||||||||
General and administrative | 4,868 | 5,575 | 10,347 | 9,992 | ||||||||||||
Sales and marketing | 3,905 | 2,482 | 6,326 | 4,553 | ||||||||||||
Research and development | 919 | 909 | 1,846 | 1,675 | ||||||||||||
Depreciation and amortization | Â | 2,429 | Â | Â | 1,730 | Â | Â | 4,307 | Â | Â | 2,870 | Â | ||||
 | 12,121 |  |  | 10,696 |  |  | 22,826 |  |  | 19,090 |  | |||||
Income (loss) from operations | Â | (7 | ) | Â | 2,118 | Â | Â | 1,596 | Â | Â | 3,491 | Â | ||||
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Interest income | 185 | 129 | 384 | 286 | ||||||||||||
Interest expense | (562 | ) | (533 | ) | (1,018 | ) | (721 | ) | ||||||||
Other income | Â | 9 | Â | Â | 493 | Â | Â | 19 | Â | Â | 595 | Â | ||||
Income (loss) before income taxes (benefit) | (375 | ) | 2,207 | 981 | 3,651 | |||||||||||
Income taxes (benefit) | Â | (18 | ) | Â | 12 | Â | Â | (248 | ) | Â | 106 | Â | ||||
Net income (loss) | $ | (357 | ) | $ | 2,195 | Â | $ | 1,229 | Â | $ | 3,545 | Â | ||||
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Earnings (loss) per share - basic | $ | (0.01 | ) | $ | 0.06 | Â | $ | 0.03 | Â | $ | 0.10 | Â | ||||
Earnings (loss) per share - diluted | $ | (0.01 | ) | $ | 0.06 | Â | $ | 0.03 | Â | $ | 0.09 | Â | ||||
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Disclosures necessary to conform to GAAP and SEC Regulation S-X have been omitted |
YOUBET.COM, INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(UNAUDITED) | |||||||
(in thousands) | |||||||
 | |||||||
Six Months Ended | |||||||
June 30, | |||||||
2007 | 2006 | ||||||
Operating activities | |||||||
Net income | $ | 1,229 | $ | 3,545 | |||
Adjustments to reconcile net income to | |||||||
net cash provided by operating activities: | |||||||
Depreciation and amortization of property | 3,427 | 1,962 | |||||
Amortization of intangibles | 880 | 908 | |||||
Stock-based compensation | 369 | 405 | |||||
Bad debts | 443 | - | |||||
Increase in operating (assets) liabilities | Â | (2,441 | ) | Â | 3,581 | Â | |
Net cash provided by operating activities | Â | 3,907 | Â | Â | 10,401 | Â | |
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Investing activities | |||||||
Cash paid in connection with acquisition of United Tote | |||||||
Company, net of $160 cash acquired in 2006 | (4,473 | ) | (10,094 | ) | |||
 | |||||||
Purchases of property and equipment | (2,128 | ) | (2,156 | ) | |||
Decrease in restricted cash | 106 | 1,013 | |||||
Increase in restricted cash | - | (250 | ) | ||||
Other | Â | - | Â | Â | 97 | Â | |
Net cash used in investing activities | Â | (6,495 | ) | Â | (11,390 | ) | |
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Financing activities | |||||||
Proceeds from long-term debt | 2,259 | - | |||||
Repayment of long-term debt | (3,792 | ) | (1,760 | ) | |||
Proceeds from sale-leaseback transaction | 1,065 | - | |||||
Proceeds from exercise of stock options | 334 | 259 | |||||
Other | Â | (88 | ) | Â | - | Â | |
Net cash used in financing activities | Â | (222 | ) | Â | (1,501 | ) | |
Foreign currency translation adjustment | Â | 6 | Â | Â | (36 | ) | |
Decrease in cash and cash equivalents | (2,804 | ) | (2,526 | ) | |||
Cash and cash equivalents, beginning of period | Â | 21,051 | Â | Â | 16,686 | Â | |
Cash and cash equivalents, end of period | $ | 18,247 | Â | $ | 14,160 | Â | |
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Disclosures necessary to conform to GAAP and SEC Regulation S-X have been omitted |
About Youbet.com, Inc.
Youbet.com is a diversified provider of technology and pari-mutuel horse racing content for consumers through Internet and telephone platforms and is a leading supplier of totalizator systems, terminals and other pari-mutuel wagering services and systems to the pari-mutuel industry through its United Tote subsidiary. Youbet.com's International Racing Group subsidiary is the only pari-mutuel rebate provider to be licensed by a U.S. racing regulatory jurisdiction.
Youbet.com's website offers members the ability to watch and, in most states, wager on the widest variety of horse racing content available worldwide. Through this platform, Youbet offers members commingled track pools, live audio/video, up-to-the-minute track information, real-time wagering information, phone wagering, race replays, simultaneous multi-race viewing and value-added handicapping products. Youbet.com's Players Trust(SM) revolutionized advanced deposit wagering by placing player deposits in the custody of a major U.S. financial institution.
The Youbet Advantage(TM) Player Rewards Program is the only player incentive program of its kind in the U.S. pari-mutuel market; and Youbet's play-for-points racing education website - www.Youbet.net - is helping to attract new fans to racing. Youbet.com is the exclusive provider of horse racing content for CBS SportsLine.com. More information on Youbet.com can be found at www.youbet.com.
Forward-Looking Statements
This press release contains certain forward-looking statements. Statements containing expressions such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "potential," "continue," or "pursue," or the negative or other variations thereof or comparable terminology used in Youbet's press releases and in its reports filed with the Securities and Exchange Commission are intended to identify forward-looking statements. These forward-looking statements, which are included in accordance with the Section 21E of the Securities Exchange Act of 1934, as amended, may involve known and unknown risks, uncertainties and other factors that may cause Youbet's actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this press release. Although Youbet believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that actual results will not differ materially from these expectations. These risks, uncertainties and other factors include our ability to successfully manage expenses and execute on revenue enhancements and others are discussed in Youbet's Form 10-K for the year ended December 31, 2006, and in Youbet's other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this press release. Youbet does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.