Classmates.com 2004 Annual Report Download - page 35

Year Ended June 30, 2003 Compared to
the Year Ended June 30, 2002
Revenues
Billable Services Revenues
Billable services revenues increased by $106.8 million, or 76%, to $247.8 million for the year ended June 30, 2003, compared to
$141.0 million for the year ended June 30, 2002. The increase was due to an increase in our average number of pay accounts, which was partially
offset by a decrease in our ARPU. Our average number of pay accounts was approximately 2,127,000 during the year ended June 30, 2003,
compared to approximately 959,000 during the year ended June 30, 2002. The increase in our average number of pay accounts resulted from a
number of factors, including the Merger in September 2001, which increased our pay account base by over 875,000 users, a significant number
of our free accounts upgrading to pay services, increased marketing of our pay services and the acquisition of approximately 174,000 pay
accounts from BlueLight in November 2002. ARPU was $9.71 for the year ended June 30, 2003, compared to $12.26 for the year ended June 30,
2002. ARPU was abnormally high in the year ended June 30, 2002 as a result of the timing of the Merger.
Advertising and Commerce Revenues
Advertising and commerce revenues increased by $3.0 million, or 11%, to $29.5 million for the year ended June 30, 2003, compared to
$26.5 million for the year ended June 30, 2002. The increase was primarily due to higher advertising revenues generated from our advertising
agreement with GM and a significant increase in revenues from fees derived from our Internet search partners. We derived approximately 37%
of our advertising and commerce revenues for the year ended June 30, 2003 from GM, compared to approximately 34% for the year ended
June 30, 2002. Additionally, we derived approximately 20% of our advertising and commerce revenues for the year ended June 30, 2003 from
Internet search fees primarily provided through our agreement with Overture, compared to approximately 9% for the year ended June 30, 2002.
The increased revenues from GM and Overture were partially offset by a decrease in advertising inventory available for sale as a result of a
decrease in our active free user base and the use of available inventory for the promotion of our pay services to our free users.
Cost of Billable Services
Cost of billable services increased by $15.1 million, or 20%, to $89.3 million for the year ended June 30, 2003, compared to $74.2 million
for the year ended June 30, 2002. The increase was due to a $12.1 million increase in telecommunications costs, a $3.1 million net increase in
network personnel and overhead-related costs allocated to billable services and a $1.7 million increase in customer support and billing-related
costs. These costs were partially offset by a $2.0 million decrease in network depreciation allocated to billable services. Telecommunications
costs increased as a result of an increase in the number of pay accounts and an increase in the average usage per pay account. The increase in
telecommunications hours utilized was partially offset by a 25% decrease in average hourly telecommunications costs, which decreased due to
improvements in modem port utilization, consolidation of our network data centers and better pricing obtained from our managed modem
vendors. Telecommunication hours allocated to our pay account base increased to approximately 85% of total telecommunications hours
purchased during the year ended June 30, 2003, compared to approximately 63% during the year ended June 30, 2002. Network personnel and
overhead-related costs allocated to billable services increased due to the increase in telecommunications hours utilized by pay accounts as a
percentage of total telecommunications hours purchased. Customer support and billing-related costs increased as a result of the increase in the
number of pay accounts. Depreciation expense
33