On Thursday, March 11, Youbet.com, Inc. announced its 2009 fourth quarter and full year financial results

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Youbet reported fourth quarter 2009 earnings per diluted share from continuing operations of $0.19, compared to a loss per diluted share of $0.29 in the fourth quarter of 2008. Fourth quarter 2009 results included an $8.1 million income tax benefit while fourth quarter 2008 results included an $11.2 million impairment charge. Excluding these items, fourth quarter 2009 earnings per diluted share from continuing operations would have been $0.01, while fourth quarter 2008 loss per diluted share would have been $0.02.

"We are pleased with our fourth quarter results given the strong economic headwinds facing the overall horse racing and pari-mutuel industry," said Youbet President and Chief Executive Officer David Goldberg. "In the fourth quarter, the number of weekly unique wagerers increased 7%; however, due to economic pressures, the average handle per unique weekly wagerer decreased 7% versus the prior-year quarter. Looking at the full year 2009, we increased Youbet Express handle by 10% while the industry declined approximately 10%, all while improving many key features on our best-in-class wagering platform. We added new players and significantly increased the number of active wagerers playing on the Youbet Express system by 15% year-over-year. We believe that the increase in players on the system is a positive leading indicator which positions the company well as the economy begins to turn around."

Revenue at Youbet Express for the fourth quarter of 2009 declined 4% year-over-year to $19.9 million, and gross profit was down 4% as well when compared to the prior-year quarter, primarily due to an increase in player incentives. Income from continuing operations before other income (expense) and income tax at Youbet Express was $0.9 million during the fourth quarter of 2009, up $0.7 million or 350% from the fourth quarter of 2008 primarily due to reduced compensation costs and a credit in business taxes as a result of a settlement with the City of Los Angeles, partially offset by an increase in merger and acquisition costs related to the impending Churchill Downs merger. EBITDA from continuing operations at Youbet Express in the fourth quarter of 2009 was $1.5 million, up $0.8 million or 123% from the fourth quarter of 2008.

For the fourth quarter of 2009, revenue at United Tote increased 3%, primarily as a result of increased equipment sales. United Tote's loss from continuing operations before other income (expense) and income tax for the fourth quarter of 2009 was $0.8 million, compared to a loss of $11.8 million in the fourth quarter of 2008 (which includes the $11.2 million impairment charge). EBITDA from continuing operations at United Tote in the fourth quarter of 2009 was $0.5 million, a decline of 58% compared to the fourth quarter of 2008 primarily due to write-offs of obsolete inventory.

Total revenue in the fourth quarter of 2009 was $25.3 million, a decrease of 3% from $26.0 million in the prior-year quarter.

Youbet Express revenue was $19.9 million for the fourth quarter of 2009, down 4% from fourth quarter 2008 based on handle of $106.6 million, a 1% decline from the prior-year quarter. Youbet Express yield in the fourth quarter of 2009 was 7.0%, a decrease of 20 basis points from the prior-year quarter primarily due to an increase in player incentives.

Fourth quarter 2009 handle of $106.6 million was essentially flat compared with the fourth quarter 2008 handle, as a decrease in handle on existing tracks was mostly offset by new content primarily from TrackNet. Youbet Express handle attributed to new content was up 8%, or $9.1 million, offset by a decline in same-track and same-state handle of $9.8 million, or 9%, compared to the fourth quarter of 2008 due to the overall weak economy and fewer racing days at several racetracks.

For the fourth quarter of 2009, contract revenue at United Tote of $5.1 million was down $0.2 million, or 3%, from the prior-year quarter, while equipment sales increased $0.3 million, or 115%, from the prior-year quarter. Contract costs of $3.6 million were up 4% from the prior-year quarter, as increases in ticket paper expense and inventory write-downs more than offset decreases in freight, maintenance expense, supplies and outside labour expenses. Gross profit for the fourth quarter of 2009 remained flat compared with the prior-year quarter at $2.0 million, with gross profit margin falling to 35.3% from 36.1%, primarily as a result of the increase in contract costs.

Total operating expenses associated with continuing operations for the fourth quarter of 2009 were $8.6 million, a decrease of $12.0 million or 58% from the prior-year quarter. Excluding an $11.2 million impairment charge in the fourth quarter of 2008, total operating expenses for the fourth quarter of 2009 decreased $0.8 million, or 9%, from the prior-year quarter. Research and development costs of $0.8 million were comparable with the same quarter in 2008. Sales and marketing costs of $1.7 million were up $0.1 million, or 9%, from 2008 levels due to increases in personnel and new initiatives undertaken in relation to marketing programs and customer acquisition activities. General and administrative expense, which includes payroll-related costs, transaction processing fees and professional consulting fees, was $4.3 million in the fourth quarter of 2009, a decrease of $0.6 million, or 13%, from the fourth quarter of 2008. The decrease was primarily due to a $1.1 million decrease in compensation costs and a $1.1 million credit in business taxes as a result of a settlement with the City of Los Angeles, offset by $1.8 million in professional fees for merger and acquisition costs associated with the impending merger with Churchill Downs. Depreciation and amortization expense of $1.8 million declined $0.3 million, or 15%, compared to the fourth quarter of 2008, exclusive of the $11.2 million impairment charge in the fourth quarter of 2008.

EBITDA from continuing operations in the fourth quarter of 2009 was $2.0 million, up 12% from $1.8 million in the fourth quarter of 2008.

For the fourth quarter of 2009, net income from continuing operations, which includes Youbet Express and United Tote, was $8.5 million, or $0.19 per diluted share, compared to a net loss from continuing operations of $12.0 million, or $0.29 per diluted share, in the prior-year period. Fourth quarter 2009 results included an $8.1 million income tax benefit primarily due to a reduction in the company's valuation allowance against its deferred tax assets, while fourth quarter 2008 results included an $11.2 million impairment charge. Excluding these items, net income from continuing operations for the fourth quarter of 2009 would have been $0.4 million, or $0.01 per diluted share, while net loss from continuing operations for the fourth quarter of 2008 would have been $0.8 million, or $0.02 per diluted share.

Full Year 2009 Operating Results

Total revenue for the full year 2009 increased 2% to $111.4 million from $109.0 million in 2008.

Youbet Express revenue for the full year 2009 increased 6% from the prior year to $90.7 million, based on handle of $480.3 million -- a 10% rise from 2008 handle. Youbet Express yield for the full year 2009 was 6.9%, a decline of 100 basis points from the prior year primarily due to increased track fees related to changes in track mix resulting from the return of certain lower yielding TrackNet content, increased revenue sharing expense associated with the company's co-branding agreement with tracks in Illinois and an increase in player incentives (which included accrual adjustments related to the Youbet player rewards program, Youbet Advantage).

Contract revenue and equipment sales at United Tote for the full year 2009 declined by 11% to $21.7 million from $24.4 million in the prior year, largely due to reduced handle processed due to track closures and a general industry decline in wagering. Contract and equipment costs for the full year 2009 were $15.0 million, down $0.3 million, or 2%, compared with the prior year.

Gross profit for the full year 2009 declined 9% to $37.6 million compared to $41.4 million in the prior year attributable to the increase in track fees and player incentives for Youbet Express and the decline in revenues and relatively flat cost structure for United Tote as described above.

Total operating expenses associated with continuing operations for the full year 2009 were $33.6 million, a decrease of $12.1 million, or 26%, from 2008. Excluding an $11.2 million impairment charge in 2008, total operating expenses in 2009 decreased $0.9 million, or 3%, from the prior year. Research and development costs of $3.3 million were down $0.1 million, or 4%, from 2008. Sales and marketing costs of $6.1 million were up $0.8 million, or 16%, from 2008 due to an increase in sales and marketing personnel and new initiatives undertaken in relation to marketing programs and customer acquisition activities. General and administrative expense, which includes payroll-related costs, transaction processing fees and professional consulting fees, was $17.0 million for 2009, a decrease of $0.7 million, or 4%, from the prior year primarily due to savings of $2.1 million in compensation costs due mainly to a reduction in severance and bonus expense and a $1.1 million credit in business taxes as a result of a settlement with the City of Los Angeles, which were partially offset by $2.6 million in professional fees for merger and acquisition costs primarily related to the impending Churchill Downs merger. Depreciation and amortization expense of $7.2 million declined $0.9 million, or 11%, compared to 2008, exclusive of the $11.2 million impairment charge in 2008.

EBITDA from continuing operations for the full year 2009 was $11.7 million, down 23% or $3.5 million from $15.1 million in the prior year.

For the full year 2009, net income from continuing operations, which includes Youbet Express and United Tote, was $11.6 million, or $0.27 per diluted share, compared to a net loss from continuing operations of $5.8 million, or $0.14 per diluted share, in the prior year. 2009 results included an $8.1 million income tax benefit due to a reduction in the company's valuation allowance against its deferred tax assets, while 2008 results included an $11.2 million impairment charge. Excluding these items, net income from continuing operations for 2009 would have been $3.5 million, or $0.08 per diluted share, while the net loss from continuing operations for 2008 would have been net income from continuing operations of $5.4 million, or $0.13 per diluted share.

Liquidity and Capital Resources

As of December 31, 2009, the company had net working capital of $7.1 million, compared to negative working capital of $0.8 million at December 31, 2008. As of December 31, 2009, the company had $15.9 million in cash and cash equivalents, $4.6 million in restricted cash and $7.2 million in total debt. Net cash provided by operating activities from continuing operations for 2009 was $7.7 million, a $7.3 million decrease from the prior year due to a decline in operating margins and cash requirements associated with the paydown of various liabilities. Net cash used in investing activities for 2009 was $3.0 million, an increase of $1.7 million from the prior year due to increased expenditures on property and equipment. Net cash used in financing activities in 2009 of $5.3 million increased $2.0 million when compared to that used in 2008, due to higher loan repayments in 2009 in accordance with the terms of the related debt.

The company has a loan and security agreement that provides for a $5.0 million revolving credit facility and a $10.0 million term loan. The principal of the term loan is to be repaid in equal quarterly installments of $1.25 million plus interest, and payments commenced on December 31, 2008. Both the revolving credit facility and the term loan mature on November 30, 2010. As of December 31, 2009, Youbet owed $3.8 million under the term loan and no amount was outstanding under the revolving credit facility. Management believes that unrestricted cash on hand and cash generated by operating activities will be sufficient to pay scheduled payments on the term loan and the remaining balance expected to be owed at maturity.

On April 1, 2009, Youbet announced that it had modified and extended its stock repurchase program, allowing the company to repurchase up to 10% of its common shares outstanding as of March 31, 2009. As of March 10, 2010, no repurchases have been made under the program.

To view a breakdown of various financial statistics, click here.

(With files from Youbet)