Add
UBET to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| UBET > SEC Filings for UBET > Form 10-Q on 13-Aug-2009 | All Recent SEC Filings |
13-Aug-2009
Quarterly Report
Forward-looking statements
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements included in Item 1 of this report. This discussion and
other sections of this report contain forward-looking statements that are based
on the current beliefs and expectations of management, as well as assumptions
made by, and information currently available to, management. Such statements
include those regarding general economic and e-gaming industry trends. Such
statements involve risks and uncertainties including, without limitation: the
timely development and market acceptance of new products and technologies; our
ability to achieve further cost reductions; our assessment of strategic
alternatives for United Tote, including a possible sale, as to which there can
be no assurance of success; increased competition in the advance deposit
wagering business; a decline in the public acceptance of wagering; wagering
ceasing to be legal in jurisdictions where we currently operate; the limitation,
conditioning, or suspension of any of our licenses; increases in or new taxes
imposed on wagering revenues; the adoption of future industry standards; the
loss or retirement of key executives; our ability to meet our liquidity
requirements and maintain our financing arrangements; and general economic and
market conditions; and other factors described in our annual report on Form 10-K
for the year ended December 31, 2008 and from time to time in our other filings
with the Securities and Exchange Commission. Actual actions and strategies and
the timing and expected results may differ materially from those expressed or
implied by such forward-looking statements, and our future results, performance
or achievements could differ materially from those expressed in, or implied by,
any such forward-looking statements. Readers are cautioned not to place undue
reliance on forward-looking statements, which are based only upon information
available as of the date of this report. We undertake no obligation to revise or
update publicly any forward-looking statements for any reason.
Overview
We are a diversified provider of technology and pari-mutuel horse racing content
for consumers through the Internet and a leading supplier of totalizator
systems, terminals and other pari-mutuel wagering services and systems to the
pari-mutuel industry. Youbet Express is a leading online advance deposit
wagering (ADW) company focused on horse racing primarily in the United States.
Our website, www.youbet.com, enables our customers to securely wager on horse
races at over 150 racetracks worldwide from the convenience of their homes or
other locations. Our customers receive the same odds and expected payouts they
would receive if they were wagering directly at the host track and their wagers
are commingled with the host track betting pools.
We appeal to both new and experienced handicappers by providing a user-friendly
"one-stop-shop" experience. To place a wager, customers open an account and
deposit funds with us via several convenient options, including our ExpressCash
system, which links our customers' wagering accounts directly to their personal
checking accounts. To enable our customers to make informed wagers, we provide
24-hour access to up-to-the minute track information, real-time odds and
value-added handicapping products, such as Turf day Super Stats, a comprehensive
database of racing statistics and a grading system to assess trainers, jockeys
and horses. Our customers can view high-quality, live audio/video broadcasts of
races as well as replays of a horse's past races. Our convenient automated
services are complemented by our player service agents, who are available 15
hours a day, seven days a week to provide technical support and address any
wagering or funding questions.
Our content partners provide us the same live satellite feeds that they normally
broadcast at the track and to off-track betting facilities (OTBs). As a result,
our partners have the opportunity to increase the total handle wagered on their
racing signal, which we believe leads to higher revenues for the host track and
a higher quality of racing through larger purses for the horse owners. In
return, we receive a commission, or a percentage, of wagers processed by Youbet
Express.
We acquired United Tote Company in February 2006. United Tote is a leading
supplier of totalizator systems (equipment and technology that processes wagers
and payouts) and supplies pari-mutuel tote services to approximately 100 racing
facilities in North America and additional facilities in a number of foreign
markets. As result of this acquisition, we operate two business segments for
financial accounting purposes: ADW and totalizator systems.
As previously disclosed, we shutdown our IRG business effective February 15,
2008. As a result, IRG is treated as discontinued operations, and the revenues
and expenses associated with IRG have been excluded from the particular revenue
and expense line items on our condensed consolidated financial statements and
are reported as a net amount in discontinued operations. For more information
about our discontinued operations, see Note 9 to our condensed consolidated
financial statements in Item 1 of this report.
Critical accounting estimates and policies
Critical accounting policies are those that are important to the portrayal of
our financial condition and results, and which require management to make
difficult, subjective or complex estimates and judgments. Critical accounting
policies cover accounting matters that are inherently uncertain because the
future resolution of such matters is unknown. Our critical accounting estimates
and policies are set forth in management's discussion and analysis of financial
condition and results of operations in annual report on Form 10-K for the year
ended December 31, 2008. There have been no material changes to our critical
accounting policies or estimates.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements or changes in accounting
pronouncements issued, but not yet effective or early adopted, that are of
significance, or potential significance to the Company.
Results of continuing operations for the three months ended June 30, 2009
compared to the three months ended June 30, 2008
Revenues
Total revenues increased $0.9 million, or 3%, for the second quarter of 2009
when compared with the second quarter of 2008. ADW segment revenue, which
consists primarily of commissions on wagers placed by our customers, increased
approximately $2.0 million, or 9%, compared to 2008 resulting primarily from a
13% improvement in handle, as discussed below. The increase in commissions was
partially offset by higher customer incentives of $0.9 million, a 57% increase
in such incentives compared with the second quarter of 2008. Totalizator segment
revenues decreased $1.2 million, or 17%, when compared to the second quarter of
2008.
Total handle for the three months ended June 30, 2009 was $128.4 million, an
increase of $14.7 million, or 13%, compared to the second quarter of 2008
primarily due to the return of TrackNet Media Group content.
Youbet Express yield, defined as commission revenue less track and licensing
fees (each calculated in accordance with generally accepted accounting
principles), decreased 1.2% to 6.9% in the second quarter of 2009 versus 8.1% in
the second quarter of 2008. The yield decline reflects the impact of changes in
track mix resulting from the return of lower yielding TrackNet content and an
increase in player incentives. We believe that yield is a useful measure to
evaluate our operating results and profitability. Yield, however, 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.
Revenue generated by our United Tote operations in the second quarter of 2009
included contract revenue associated with the service of totalizator systems of
$5.7 million and equipment sales of $0.1 million, representing decreases of
$0.9 million and $0.2 million, respectively, compared to the second quarter of
2008. Service revenue declined primarily as a result of track closures and
reduced racing days.
Costs and Expenses
Track fees: Track fees, which primarily consist of host and market access fees
paid and payable to various tracks increased $3.6 million or 35% in the second
quarter of 2009 compared to the second quarter of 2008. The quarter-over-quarter
increase is attributable to increased handle and host fee rate increases.
Licensing fees: Licensing fees, which represent amounts paid and payable under
our licensing agreement with TVG, decreased $1.0 million, or 44%, in the second
quarter of 2009 compared to second quarter 2008, primarily due to decreased
wagering on horse races at TVG exclusive tracks.
Network operations: Network operations expense, which consists of costs for
salaries, data center management, telecommunications and various totalizator
fees in 2009 remained flat when compared to second quarter of 2008.
Contract costs: Contract costs, which represent costs of United Tote associated
with providing totalizator services at racetracks, remained flat, in the second
quarter of 2009 when compared to the second quarter of 2008, as decreases in
communication, ticket paper and travel related costs were largely offset by
increases in equipment rental and repairs and maintenance costs.
Equipment Costs: Equipment costs, which represent costs of United Tote
associated with earning equipment sales revenue, declined 72% in the second
quarter of 2009, when compared with 2008, due to a significant decrease in
equipment sales.
Operating Expenses
Research and development: Research and development expense of $0.8 million
decreased $0.1 million or 14% in the second quarter of 2009 when compared with
the second quarter of 2008 primarily due to labor cost savings and an increase
in the capitalization of internally developed software. We continue to invest in
the development of our network infrastructure and to support continued
technology upgrades as necessary, which may increase our research and
development expenses in the future.
Sales and marketing: Sales and marketing expense of $1.5 million in the second
quarter of 2009 increased $0.3 million, or 28%, compared to the second quarter
of 2008. This increase was primarily in the Youbet Express business and resulted
from an increase in sales and marketing personnel and management's priority to
more appropriately develop and target marketing efforts to specific initiatives
including online customer acquisition, conversion and retention.
General and administrative: General and administrative expense of $4.3 million
in the second quarter of 2009 decreased $0.7 when compared to the second quarter
of 2008 and represented 14% of total revenue for the first quarter of 2009
versus 17% of total revenue in the second quarter of 2008. The decrease is
primarily due to the incurrence of a $0.8 million severance payment to our
former interim chief executive officer in the second quarter of 2008. Expense
increases in the second quarter of 2009 relating to non-cash compensation,
legal, utility and travel expenses were partially offset by reductions in
salaries/benefits and bad debt.
Depreciation and amortization: Depreciation and amortization in the second
quarter of 2009 decreased $0.2 million when compared to the second quarter of
2008 due to capital spending requirements.
Interest expense (income): Interest expense of $0.2 million in the second
quarter of 2009, decreased $0.1 million compared to $0.3 million in the second
quarter of 2008. This decrease is primarily due to lower interest rates.
Interest income decreased slightly when compared to the three months ended
June 30, 2008.
Other income: Other income increased $0.2 million when compared to the three
months ended June 30, 2008, due to the recovery by United Tote of
pre-acquisition receivables previously written off to expense.
Income Taxes: The combined estimated annual effective income tax rate used in
the quarter ended June 30, 2009, was higher than in the comparable prior year
period due to several permanent book/tax differences such as amortization of
intangibles, asset impairments and stock-based compensation. In the third
quarter of 2008, the State of California suspended the use of net operating loss
carry forwards, resulting in additional tax of $0.1 million being recognized in
the second quarter of 2009 versus the first quarter of 2008. Additionally, in
the second quarter of 2009, the Canadian Revenue Agency completed its audit of
United Tote's Canadian subsidiary's operations for the tax years 2002, 2003 and
2004, which resulted in an assessment of additional taxes of $0.2 million in the
second quarter of 2009.
Discontinued Operations: Effective February 15, 2008, we ceased operations at
IRG and, accordingly, have accounted for such operations retroactively as
discontinued operations.
Results of continuing operations for the six months ended June 30, 2009 compared
to the six months ended June 30, 2008
Revenues
Total revenues increased $4.9 million, or 9%, for the six months ended June 30,
2009 when compared with the first six months of 2008. ADW segment revenue, which
consists primarily of commissions on wagers placed by our customers, increased
approximately $6.9 million, or 16%, compared to 2008 resulting primarily from a
21% improvement in handle, as discussed below. The increase in commissions was
partially offset by higher customer incentives, which amounted to $1.8 million,
a 57% increase in such incentives compared with the first half of 2008.
Totalizator segment revenues decreased $2.1 million, or 17%, when compared to
the first half of 2008.
Total handle for the six months ended June 30, 2009 was $252.4 million, an
increase of $43.2 million, or 21%, compared to the first half of 2008 primarily
due to the return of TrackNet content.
Youbet Express yield, defined as commission revenue less track and licensing
fees (each calculated in accordance with generally accepted accounting
principles), decreased 1.1% to 7.1% in the first half of 2009 versus 8.2% in the
first half of 2008. The yield decline reflects the impact of changes in track
mix resulting from the return of lower yielding TrackNet content and an increase
in player incentives. We believe that yield is a useful measure to evaluate our
operating results and profitability. Yield, however, 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.
Revenue generated by our United Tote operations in the first half of 2009
included contract revenue associated with the service of totalizator systems of
$10.2 million and equipment sales of $0.2 million, representing a decrease of
$1.8 million and $0.3 million, respectively, compared to the first half of 2008.
Service revenue declined primarily as a result of track closures and reduced
racing days.
Costs and Expenses
Track fees: Track fees, which primarily consist of host and market access fees
paid and payable to various tracks increased $8.4 million or 45% in the first
half of 2009 compared to the first half of 2008. The increase is attributable to
increased handle and host fee rate increases.
Licensing fees: Licensing fees, which represent amounts paid and payable under
our licensing agreement with TVG, decreased $1.8 million, or 41%, in the first
half of 2009 compared to first half 2008, primarily due to decreased wagering on
horse races at TVG tracks.
Network operations: Network operations expense, which consists of costs for
salaries, data center management, telecommunications and various totalizator
fees, increased $0.1 million or 4% in the first half of 2009 compared to first
half of 2008. This increase was primarily attributable to higher data
communication, AV fees and totalizator fees associated with increased handle
volume.
Contract costs: Contract costs, which represent costs of United Tote associated
with providing totalizator services at racetracks, decreased $0.3 million, or
4%, in the first half of 2009 compared to the first half of 2008, largely due to
further hub consolidation and decreases in communication, ticket paper and
travel related costs. These decreases were partially offset by increases in
equipment rental and repairs and maintenance costs.
Equipment Costs: Equipment costs, which represent costs of United Tote
associated with earning equipment sales revenue, decreased $0.1 million in the
first half of 2009, when compared with 2008, due to a decrease in equipment
sales.
Operating Expenses
Research and development: Research and development expense of $1.7 million
decreased slightly in the first half of 2009 when compared with the first half
of 2008 primarily due to labor cost savings and a reduction in the
capitalization of internally developed software. We continue to invest in the
development of our network infrastructure and to support continued technology
upgrades as necessary, which may increase our research and development expenses
in the future.
Sales and marketing: Sales and marketing expense of $2.9 million in the first
half of 2009 increased $0.5 million, or 20%, compared to the first half of 2008.
This increase was primarily in the Youbet Express business and resulted from an
increase in sales and marketing personnel and management's priority to more
appropriately develop and target marketing efforts to specific initiatives
including online customer acquisition, conversion and retention.
General and administrative: General and administrative expense of $8.4 million
in the first half of 2009 decreased $0.7 million when compared to the first half
of 2008 and represented 14% of total revenue for the first half of 2009 versus
17% of total revenue in the first half of 2008. The decrease is primarily due to
the incurrence of $0.6 million in legal fees in the first quarter of 2008 in
connection with litigation preceding the settlement finalized in May 2008
involving the Company, Colonial Downs, L.P., the Virginia Horsemen's Benevolent
and Protective Association the Virginia Racing Commission (VRC), and the
Commonwealth of Virginia and the incurrence of a $0.8 million severance payment
to our former interim chief executive officer in the second quarter of 2008,
Expense increases in the first half of 2009 relating to a severance payment to
our former chief financial officer, non-cash compensation, bad debt, utility and
accounting expenses were partially offset by reductions in salaries/benefits,
bank charges and taxes.
Depreciation and amortization: Depreciation and amortization in the first half
of 2009 decreased $0.2 million when compared to the first half of 2008 due to
capital spending requirements.
Interest expense (income): Interest expense of $0.4 million in the first half of
2009, decreased $0.3 million compared to $0.7 million in the first half of 2008.
This decrease is primarily due to lower interest rates. Interest income
decreased slightly when compared to the six months ended June 30, 2008.
Other income: Other income increased $0.2 million when compared to the six
months ended June 30, 2008, due to the recovery by United Tote of
pre-acquisition receivables previously written off to expense.
Income Taxes: The combined estimated annual effective income tax rate used in
the six months ended June 30, 2009, was higher than in the comparable prior year
period due to several permanent book/tax differences such as amortization of
intangibles, asset impairments and stock-based compensation. In the third
quarter of 2008, the State of California suspended the use of net operating loss
carry forwards, resulting in additional tax of $0.2 million being recognized in
the first half of 2009 versus the first half of 2008. Additionally, in the
second quarter of 2009, the Canadian Revenue Agency completed its audit United
Tote's Canadian subsidiary's operations for the tax years 2002, 2003 and 2004,
which resulted in an assessment of additional taxes of $0.2 million in the
second quarter of 2009.
Discontinued Operations: Effective February 15, 2008, we ceased operations at
IRG and, accordingly, have accounted for such operations retroactively as
discontinued operations. For the six months ended June 30, 2009, IRG sustained a
loss of $18 thousand compared to a loss of $0.6 million in the same period in
2008.
Liquidity and capital resources
As of June 30, 2009, the Company had net working capital of $2.6 million,
compared to negative working capital of $0.8 million at December 31, 2008, a
$3.4 million improvement. During the first six months of 2009, the Company
funded operations primarily with net cash provided by operating activities.
Principal ongoing cash requirements consist of payroll and benefits, business
insurance, real estate and equipment leases, legal fees, data center operations,
telecommunications and debt service.
As of June 30, 2009, we had $15.5 million in cash and cash equivalents,
$4.8 million in restricted cash and $9.9 million in debt.
Net cash provided by operating activities for the six months ended June 30, 2009
of $2.8 million decreased by $4.7 million from the $7.5 million provided by
operating activities in the same 2008 period, primarily due to unfavorable
working capital fluctuations related to increased receivables and payment of
various accruals.
Net cash used in investing activities for the first six months of 2009 was
$1.1 million, compared to net cash used in investing activities of $0.6 million
for the same period of 2008. The $0.5 million increase is attributable to
increased capital spending in 2009, associated with the continued improvement of
our ADW platform.
Net cash used in financing activities in the first six months of 2009 of
$2.7 million decreased $0.3 million when compared to that used in the same
period in 2008, primarily due to higher loan repayments in 2008 in accordance
with the terms of the related debt.
The United States is currently experiencing a widespread recession accompanied
by, among other things, reduced credit availability and highly curtailed gaming
and other recreational activities, employment and general discretionary consumer
spending. The effects and duration of these developments and related risks and
uncertainties on our future operations and cash flows cannot be estimated by
management at this time; however, such effects may be significant.
Nevertheless management presently believes that our borrowing capacity, as well
as on-going efforts to contain costs and operate efficiently, and growth in
handle and associated commissions at Youbet Express will generate sufficient
cash flow to adequately support its operations. We believe that our cash flow
from operations and our unrestricted cash and cash equivalents are sufficient to
fund our working capital and capital expenditure requirements for at least the
next 12 months. However, we may from time to time seek additional capital to
fund our operations, and to reduce our liabilities in response to changes in the
business environment. To raise capital, we may seek to sell additional equity
securities, issue debt or convertible securities or seek to obtain credit
facilities through financial institutions or other resources. We have an
effective shelf registration statement under which we may from time to time
issue shares of preferred stock, shares of common stock, warrants, stock
purchase contracts, stock purchase units, and stock purchase rights for an
original maximum aggregate offering amount of approximately $30 million. Unless
otherwise described in future prospectus supplements, we intend to use the net
proceeds from the sale of securities registered under this universal shelf
registration statement for general corporate purposes, which may include
additions to working capital, the repayment or redemption of existing
indebtedness and the financing of capital expenditures and future acquisitions.
The sale of additional equity or convertible securities would result in
additional dilution to our stockholders.
Item 3. Quantitative and qualitative disclosures about market risk
We do not undertake any specific actions to diminish our exposure to interest
rate risk, and we are not a party to any interest rate risk management
transactions. We do not purchase or hold any derivative financial instruments.
We believe there has been no material change in our exposure to market risk from
that discussed in our annual report on Form 10-K for the year ended December 31,
2008, as amended.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("the
Exchange Act")) that are designed to ensure that information required to be
disclosed by us in the reports we file or submit under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Accounting Officer,
as appropriate, to allow timely decisions regarding required disclosure.
The Company's management evaluated, with the participation of the Chief
Executive Officer and Chief Accounting Officer, the effectiveness of the
company's disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer and Chief
Accounting Officer have concluded that the company's disclosure controls and
procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There has been no change in the company's internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the quarter covered by this report that has materially affected,
or is reasonably likely to materially affect, the company's internal control
over financial reporting.
Part II. Other information
Item 1. Legal proceedings
Refer to Note 5: "Contingencies" in Part I, Item 1 of this Form 10-Q.
|
|