Digital River 2006 Annual Report Download - page 51

Quarterly Period Ended June 30, 2006
The following table sets forth certain items from our condensed consolidated statements of operations as
a percentage of total revenue for the periods indicated.
2006 2005 2006 2005
Three Months Ended
June 30,
Six Months Ended
June 30,
As Restated(1) As Restated(1)
Revenue ................................. 100.0% 100.0% 100.0% 100.0%
Cost of Revenue (exclusive of depreciation and
amortization expense shown separately below):
Direct cost of services ..................... 2.7 2.4 2.5 2.4
Network and infrastructure ................. 8.8 9.3 9.2 8.7
Sales and marketing ...................... 38.7 30.8 36.5 30.5
Product research and development ............ 10.5 10.1 10.1 9.1
General and administrative ................. 11.6 10.4 11.1 10.3
Depreciation and amortization ............... 3.5 4.6 3.2 4.3
Amortization of acquisition-related costs ....... 4.3 4.1 3.9 4.3
Total costs and expenses ..................... 80.1 71.7 76.5 69.6
Income from operations ..................... 19.9 28.3 23.5 30.4
Other income/(expense), net .................. 8.9 1.8 6.2 2.0
Income before income tax expense ............. 28.8 30.1 29.7 32.4
Income tax expense ........................ 10.2 10.2 9.8 7.7
Net income .............................. 18.6% 19.9% 19.9% 24.7%
(1) See Note 2, “Restatement of Consolidated Financial Statements,” in Notes to Consolidated Financial
Statements.
REVENUE. Our revenue increased to $71.3 million for the three months ended June 30, 2006 from
$51.1 million for the same period in the prior year, an increase of $20.1 million, or 39.4%. For the six months
ended June 30, 2006, revenue totaled $149.3 million, an increase of $43.6 million, or 41.3%, from revenue of
$105.7 million in the same period of the prior year. The increase was primarily attributable to higher online
sales activity across our client base, increased sales from international sites, expanded strategic marketing
activities with a larger number of clients, and acquisitions made during 2005 and 2006.
International sales were approximately 42% and 39% of total sales in the three month period ended
June 30, 2006 and 2005, respectively, and approximately 41% and 38% of total sales for the six month period
ended June 30, 2006 and 2005, respectively. That growth is attributable to a larger number of international
stores being operated for our clients as well as the European outsourced e-commerce providers we acquired in
2004 and 2005.
DIRECT COST OF SERVICES. Our direct cost of services line item primarily includes the personnel
costs and costs related to product fulfillment, physical on demand, our proprietary back-up CD production and
client-specific dedicated costs. Direct cost of service expense was $1.9 million for the three months ended
June 30, 2006, up from $1.2 million for the same period in the prior year. For the six months ended June 30,
2006, direct cost of service expense was $3.8 million, up from $2.5 million for the same period of the prior
year. The increase resulted primarily from (i) personnel added to serve new clients, and to handle increased
transaction volumes, (ii) recent acquisitions and (iii) stock-based compensation expense related to employee
stock options and employee stock purchases recognized under SFAS 123(R). We currently believe that direct
cost of services will increase in absolute dollars in 2006 compared to 2005 as we continue to expand our
worldwide fulfillment capacity in order to meet anticipated shipment volumes from sales, and expense related
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