Classmates.com 2005 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 2005 Classmates.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

2002. The increase was primarily due to higher advertising revenues generated from our advertising agreement with GM and an increase in fees
derived from our Internet search partners. We derived approximately 44% of our advertising and commerce revenues for the six months ended
December 31, 2003 from GM, compared to approximately 36% for the six months ended December 31, 2002. The increase in advertising
revenues from GM was partially a result of a $1.5 million performance bonus earned during the September 2003 quarter. We derived
approximately 21% and 19% of our advertising and commerce revenues, respectively, for the six months ended December 31, 2003 and 2002
from Internet search fees primarily provided through our search agreement with Yahoo! Search. Our agreement with GM expired in
December 2003 and was not renewed.
Cost of Billable Services
Cost of billable services increased by $3.5 million, or 8%, to $46.2 million for the six months ended December 31, 2003, compared to
$42.7 million for the six months ended December 31, 2002. The increase was due to a $2.1 million increase in customer support and billing-
related costs, a $1.3 million increase in telecommunications costs and a $0.7 million increase in network personnel and overhead-related costs
allocated to billable services. These costs were partially offset by a $0.6 million decrease in network depreciation allocated to billable services.
Telecommunications costs increased as a result of an increase in the average number of pay access accounts, which was partially offset by a 23%
decrease in average hourly telecommunications costs and, to a lesser extent, a decrease in the average hourly usage per pay access account. Our
average hourly telecommunications costs decreased as a result of better port utilization, improvements made in allocating our
telecommunications usage to our lower cost vendors and lower telecommunications prices. Telecommunications hours allocated to our pay
access account base increased to approximately 90% of total telecommunications hours purchased during the six months ended December 31,
2003, compared to approximately 84% during the six months ended December 31, 2002. Network personnel and overhead-
related costs allocated
to billable services increased due to the increase in telecommunications hours utilized by pay access accounts as a percentage of total
telecommunications hours purchased. Customer support and billing-related costs increased as a result of the increase in the average number of
pay access accounts. Depreciation expense allocated to billable services has decreased due to network assets placed in service in prior years
becoming fully depreciated and significantly lower levels of capital expenditures in recent years versus prior years.
Cost of billable services as a percentage of billable services revenues was 27.5% in the six months ended December 31, 2003, compared to
39.0% in the six months ended December 31, 2002. This decrease resulted from an increase in ARPU due to significant adoption of our
accelerator services; a decrease in average hourly telecommunications costs per pay access account; decreased customer billing and support costs
per pay access account as a result of better pricing obtained from our primary customer support vendor; decreased depreciation expense; and a
slight decrease in average hourly usage per pay access account.
Cost of Free Services
Cost of free services decreased by $2.9 million, or 43%, to $4.0 million for the six months ended December 31, 2003, compared to
$6.9 million for the six months ended December 31, 2002. The decrease was due to a $2.4 million decrease in telecommunications costs, a
$0.3 million decrease in network depreciation allocated to free services, a $0.1 million decrease in customer support costs allocated to free
services and a $0.1 million decrease in network personnel and overhead-related costs allocated to cost of free services. The decrease in
telecommunications costs was a result of a decrease in average hourly telecommunications costs, a decrease in the number of active free access
accounts and a decrease in the average hourly usage of our free access accounts. Our active free access account base consisted of approximately
2.4 million users at December 31, 2003, compared to approximately 2.8 million users at
50