Digital River 2002 Annual Report Download - page 35

29
Results Of Operations
The following table sets forth certain items from the Company’ s consolidated statements of operations as a percentage of total revenue for the
years indicated.
2002 2001 2000
R evenue.......................................................................................................................... 100.0% 100.0% 100.0%
C os ts and e xpens es (e xc lus ive of de pre cia tion and a mortiza tion expense show n
s epara te ly be low ):
D irec t c os t of s ervic es .............................................................................................. 3.0 4.7 4.7
N etwork and infras tructure ...................................................................................... 14.
7
17.
6
25.
2
Sales and marke ting ................................................................................................. 41.
7
47.
5
82.
4
Produc t re s ea rc h a nd de ve lopme nt......................................................................... 14.
7
19.
4
41.
9
G enera l and a dministrative ..................................................................................... 8.8 8.1 14.
9
Litiga tion and other charges .................................................................................... 3.2 — —
D epre c ia tion and a mortiza tion................................................................................ 7.7 8.0 10.
2
A mortiza tion of goodw ill a nd othe r intangible s a nd ac quisition re lated costs . 7.4 29.
4
49.
3
Total costs a nd expe nse s.............................................................................................. 101.2 134.7 228.6
Los s from ope ra tions .................................................................................................... (1.
2
) (34.7) (128.6)
Intere st income .............................................................................................................. 0.5 1.5 6.4
N et loss ........................................................................................................................... (0.
7
)% (33.2)% (122.2)%
The Company has two operating segments, Software and Digital Commerce Services and E-Business Services, which have been identified as
components of the Company that are reviewed regularly by management to determine resource allocation and assess performance.
Revenue. The Company’ s revenue increased to $77.8 million in 2002 from $57.8 million in 2001 and $31.2 million in 2000. The revenue
increase in 2002 resulted from further expansion of the Company’ s key client relationships, increasing market acceptance of electronic software
downloading, merchandising activities that increased the average sales generated by the Company’ s software publisher clients, the two
acquisitions completed by the Company in 2002, and a full year of revenue for the four acquisitions completed at various times during 2001.
The assets acquired generated approximately 9% and 7% of the Company’ s total revenue during 2002 and 2001, respectively. The revenue
increases in 2002 and 2001 resulted from significant growth in the number of Company clients, the increasing market acceptance of electronic
software downloading and merchandising activities that increased the average sales generated by the Company’ s software publisher clients.
International sales represented approximately 22%, 22% and 25% of sales in the years ended December 31, 2002, 2001 and 2000, respectively.
In 2002, revenue for the Software and Digital Commerce Services Division was $63.2 million, up from $44.9 million in 2001, and $25.2 million
in 2000. Revenue for the E-Business Services Division was $14.6 million in 2002, up from $12.9 million in 2001, and 6.0 million in 2000.
Gross Profit. Cost of revenue consists of direct cost of services and network and infrastructure expenses and is composed of direct labor costs
related to revenue and the costs to operate and maintain the Company’ s CNS platform, as well as customer service and operations functions.
Such amounts are shown exclusive of any related depreciation and amortization expenses. Gross profit increased substantially in all years
presented, reflecting the Company’ s growth in revenue. During 2002, 2001 and 2000, the Company’ s gross profit margins were 82.3%, 77.7%,
and 70.0%, respectively. The gross profit margin increases in 2002 and 2001 were primarily due to leveraging the Company’ s infrastructure
over significantly more revenue and clients. In 2002, the gross profit margin for the Software and Digital Commerce Services Division was
84.6%, up from 80.6% in 2001and 71.8% in 2000. The gross profit margin for the E-Business Services Division was 72.2% in 2002, up from
67.4% in 2001 and 62.4% in 2000. The Company continues to believe that Internet commerce and related services may become more
competitive in the future. Accordingly, the Company may reduce or alter its pricing structure and policies in the future and any such change
could negatively impact gross margins.