WOODLAND HILLS, California -- (PRESS RELEASE) -- Youbet.com, Inc. (NASDAQ: UBET) today announced results for the three-month and six-month periods ended June 30, 2008. For the three-month period ended June 30, 2008, income from continuing operations before income taxes was $2.3 million, versus a loss of $0.4 million in the prior-year period. Adjusted income from continuing operations before income taxes – which excludes a one-time severance payment – for the three-month period was $3.0 million, compared to an adjusted loss before income taxes of $0.4 million for the prior-year period.
The company is finalizing its evaluation of the impact, if any, of the provisions of the Tax Reform Act of 1986 on the utilization of the company's net operating loss and tax credit carryforwards for federal tax purposes that may be limited in the three months ended June 30, 2008 and in future periods in the event of changes in ownership, as defined under the relevant federal tax rules. While we expect the evaluation will be completed prior to the filing of the Form 10-Q for the three and six month periods ended June 30, 2008, we are unable to reasonably determine and report net income and earnings per share at this time.
Youbet Chief Executive Officer Michael Brodsky commented: "We are pleased with our second quarter results. Improved operating efficiencies and a back-to-basics approach has provided us with our second consecutive quarter of profitability. We remain focused on growing our handle and net track revenue at Youbet Express as well as maximizing United Tote profitability."
Total revenue at Youbet Express for the three-month period ended June 30, 2008 fell 14% year-over-year to $22.6 million. Despite the decline in revenue, gross profit increased 10% from the same period in 2007 as a result of the company's efforts to shift handle to higher-yielding content as well as a reduction in network costs. The improvement in gross profit, along with reduced operating expenses, resulted in income from operations before other income (expense) and income taxes of $2.6 million.
For the second quarter of 2008, total revenue at United Tote declined 5%, primarily as a result of a track closing, contract losses and lower handle on existing contracts. As a result of the decrease in revenues and a year-over-year increase in operating expenses, United Tote income from operations before other income (expense) and income taxes for the second quarter of 2008 was essentially breakeven compared to $0.2 million of income from operations in 2007.
Second Quarter 2008 Operating Results
Total revenue from continuing operations was $29.2 million, a decrease of 12% from the prior-year period.
Youbet Express revenue was $22.6 million, down 14% from second quarter 2007 based on handle of $113.8 million, a decrease of 13% from the prior-year period. Youbet Express yield in the second quarter of 2008 was 8.1%, an improvement of 140 basis points from the prior-year period primarily as a result of the shift in handle from lower-yielding TrackNet and TVG-exclusive content to higher-yielding tracks.
The decline in handle and revenue at Youbet Express was primarily attributable to the previously announced loss of TrackNet content in May 2007, as well as the previously announced decision to cease accepting wagers from customers in Arizona and Washington D.C. in September 2007 and Kansas in January 2008. Total handle from these sources and on other tracks in the Youbet platform in the second quarter of 2007, but not available in the second quarter of 2008, was $20.4 million.
Youbet Express same-track and same-state handle increased $0.8 million, or 0.8%, from the second quarter of 2007. Youbet Express handle attributable to new content was $3.1 million.
For the second quarter of 2008, totalizator contract revenue at United Tote of $6.3 million was down 5% from the prior-year period, while equipment sales were down slightly compared with 2007. Contract costs decreased 10% compared to the prior-year period to $3.9 million. This decrease was attributable to lower costs as a result of restructuring initiated during the second half of 2007. Gross profit for the first quarter of 2008 decreased 3% over the prior-year period to $2.9 million. The gross profit margin, however, increased to 44.5% from 43.3% as a result of the expense reductions initiated in late 2007.
Total operating expenses associated with continuing operations for the three months ended June 30, 2008 were $9.0 million, a decrease of $2.0 million from the prior-year period. Excluding one-time severance costs of approximately $0.8 million, total operating expenses decreased $2.8 million year-over-year to $8.2 million. Research and development costs of $0.9 million were up $0.1 million from the same period in 2007, primarily due to lower capitalization of internal software costs at United Tote. Sales and marketing costs of $1.2 million were down $2.4 million, or 68%, from 2007 levels due to management's implementation of a more targeted marketing strategy. Total general and administrative expense, which includes payroll-related costs, transaction processing fees and professional consulting fees, was $5.0 million, an increase of $0.6 million, or 12.5%, in the second quarter of 2008 compared to the second quarter of 2007. The increase is attributable to an approximate $0.8 million severance charge related to the departure of the company's former interim CEO and a $0.2 million increase in non-cash compensation expense – partially due to the one-time grant of performance-based stock options to the company's new CEO and to the CEO and the current Chairman for special advisory committee service – that more than offset reduced payroll costs and lower accounting related expenses due to the company's improved internal control environment. Total non-cash compensation expense in the second quarter of 2008 was $0.4 million compared to $0.2 million in the prior-year period. Excluding the one-time severance expense of approximately $0.8 million, general and administrative expense was $4.2 million, a decrease of 5% from the prior-year period. Depreciation and amortization was $2.0 million, a decrease of $0.2 million, or 10%, compared to the second quarter of 2007, primarily a result of lower depreciation at both Youbet Express and United Tote.
For the second quarter of 2008, the company's income from continuing operations before income taxes, which includes Youbet Express and United Tote, was $2.3 million, compared to a loss from continuing operations before income taxes of $0.4 million, in the prior-year quarter. For the three-month period ended June 30, 2008, adjusted income from continuing operations before income taxes – which excludes the one-time severance payment – was $3.0 million, compared to a loss from continuing operations before income taxes of $0.4 million for the prior-year period.
Six Months 2008 Operating Results
Total revenue for the six months ended June 30, 2008 declined 13% to $53.8 million from $61.9 million in the prior-year period.
Youbet Express revenue for the first six months ended June 30, 2008 decreased 16% from the prior-year period to $41.8 million, based on handle of $209.2 million – a 14% drop from the comparable period in 2007. Youbet Express yield for the six months ended June 30, 2008 was 8.2%, an improvement of 90 basis points from the prior-year period.
The decline in handle at Youbet Express was primarily attributable to the previously announced loss of TrackNet content as well as the previously announced decisions to cease accepting wagers from customers in Arizona, Kansas and Washington D.C. Total handle from these sources for the six months ended June 30, 2007 was $44.2 million.
Totalizator service revenue for the six months ended June 30, 2008 declined by 2% to $12.0 million from $12.3 million in the prior year, largely due to the year-over-year revenue decline in the second quarter of 2008, as described above under "Segment Results."
For the six months ended June 30, 2008, total cost of revenue was $32.5 million, a decrease of 20% compared to the prior-year period. Track fees, licensing fees and network costs experienced favorable year-over-year percentage change reductions of 13%, 47% and 22%, respectively. Contract costs for the six months ended June 30, 2008 decreased to $7.4 million from $8.1 million in the comparable prior-year period. Gross profit for the six months ended June 30, 2008 declined slightly to $21.3 million compared to $21.4 million in the prior year.
Total operating expenses associated with continuing operations for the six months ended June 30, 2008 decreased $3.5 million to $17.2 million, a 17% decline from the prior-year period. This includes a sales and marketing cost decrease of $3.3 million, or 58%, from 2007 levels due to management's implementation of a more targeted marketing strategy. Total general and administrative expense for the six months ended June 30, 2008, which includes payroll-related costs, transaction processing fees and professional consulting fees, was $9.2 million, a decrease of $0.3 million, or 3%, compared to the prior-year period. The decrease is attributable to a reduction in payroll costs and lower accounting-related expenses due to the company's improved internal control environment more than offsetting a $0.2 million increase in non-cash compensation expense and $0.8 million severance charge for the company's former interim CEO taken in the second quarter of 2008. Total non-cash compensation expense for the six months ended June 30, 2008 was $0.6 million compared to $0.4 million in the prior-year period. Excluding the one-time severance cost of approximately $0.8 million, general and administrative costs were $8.4 million in the first half of 2008, representing an 11% year-over-year decline.
For the six months ended June 30, 2008, the company's income from continuing operations before income taxes, which includes Youbet Express and United Tote, was $3.5 million, compared to $0.2 million in the prior-year period. Adjusted income from continuing operations before income taxes – which excludes the one-time severance payment – for the first six months of 2008 was $4.2 million, versus adjusted income from continuing operations of $0.2 million in the same period in 2007.
Capital Resources
During the second quarter, the company did not repurchase any shares; as of June 30, 2008, the company had repurchased a total of 586,766 shares for approximately $1 million. Youbet's $10 million repurchase program allows the company to repurchase up to two million common shares in total by March 2009.
Subsequent Event
On July 10, the company announced that it would restate its financial statements as of and for the year ended December 31, 2007 and its balance sheet at March 31, 2008. On July 31, 2008, the company filed a Form 10-K/A for the year ended December 31, 2007 and a Form 10-Q/A for the quarter ended March 31, 2008. For more information regarding the restatement, see Note 2 to the consolidated financial statements in each of the Form 10-K/A and Form 10-Q/A.
