Classmates.com 2008 Annual Report Download - page 71

Table of Contents
subscription plans. The decrease in dial-up services revenues was partially offset by a $6.3 million increase in 2007 versus 2006 in revenues
from our broadband Internet access service, which was launched in the December 2006 quarter.
Communications advertising revenues increased by $6.3 million, or 15%, to $47.1 million for the year ended December 31, 2007, from
$40.8 million for the year ended December 31, 2006. The vast majority of the increase was attributable to an increase in search revenues.
Communications Cost of Revenues. Communications cost of revenues decreased by $14.3 million, or 17%, to $69.3 million, or 21.6% of
Communications revenues, for the year ended December 31, 2007, compared to $83.5 million, or 21.8% of Communications revenues, for the
year ended December 31, 2006. The decrease was primarily due to a $15.4 million decrease in telecommunications costs associated with our
dial-up Internet access business due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account as well as lower
average hourly telecommunications costs. In addition, customer support and billing-related costs decreased by $5.4 million in 2007 versus 2006
as a result of a decrease in the number of dial-up Internet access pay accounts and a decrease in the hourly rate charged by our third-party
vendor, and by $2.1 million due to a decrease in costs associated with our VoIP services as a result of our decision during 2007 to exit our VoIP
services. These decreases were partially offset by a $7.4 million increase in costs associated with our broadband Internet access service, which
was launched in the December 2006 quarter.
Communications Sales and Marketing Expenses. Communications sales and marketing expenses decreased by $31.9 million, or 27%, to
$84.1 million, or 26.3% of Communications revenues, for the year ended December 31, 2007, compared to $116.0 million, or 30.3% of
Communications revenues, for the year ended December 31, 2006. This decrease was attributable to a $24.3 million decline in advertising,
promotion and distribution costs related to our dial-up Internet access services and an $8.6 million decrease in advertising costs associated with
our VoIP services as a result of our decision during 2007 to exit our VoIP services. These decreases were partially offset by a $1.5 million
increase in advertising costs related to our broadband Internet access service, which was launched in the December 2006 quarter.
Communications Technology and Development Expenses. Communications product development expenses decreased by $7.8 million, or
21%, to $29.6 million, or 9.3% of Communications revenues, for the year ended December 31, 2007, compared to $37.4 million, or 9.8% of
Communications revenues, for the year ended December 31, 2006. The decrease was primarily the result of a $4.9 million decrease in personnel-
related expenses associated with reduced headcount needs, a $1.8 million decrease in other overhead-related expenses and a $0.8 million
decrease in stock-based compensation. Internal capitalized software development expenses decreased to $6.1 million for the year ended
December 31, 2007, compared to $7.3 million for the year ended December 31, 2006, due to a decrease in the number of development projects in
2007 compared to 2006.
Communications General and Administrative Expenses.
Communications general and administrative expenses decreased by $2.7 million,
or 7%, to $36.7 million, or 11.5% of Communications revenues, for the year ended December 31, 2007, compared to $39.4 million, or 10.3% of
Communications revenues, for the year ended December 31, 2006. The decrease was due to a $2.0 million decrease in professional fees, a
$1.1 million decrease in overhead-related expenses, a $1.0 million decrease in stock-based compensation primarily related to the resignation of a
former executive, a $0.8 million decrease in recruiting and relocation costs, and a $0.5 million decrease in facilities costs. These decreases were
partially offset by a $2.4 million increase in bad debt expense related to a technology partner combined with a litigation-related allowance
recorded in the September 2007 quarter.
69