Incredimail 2013 Annual Report Download - page 46

Selling and marketing expenses
. Selling and marketing expenses increased 47%, from $29.5 million in 2012 to $43.4 million in 2013.
This increase was primarily attributable to the increased investment in customer acquisition costs, which increased from $22.1 million in 2012 to
$32.3 million in 2013. This increase does not include the $14.3 million of customer acquisition costs associated with revenues from our
Commercial Agreement with Conduit and netted from revenues. Based on reports received from Conduit, in 2013 the ClientConnect business
had $185.4 million in customer acquisition costs, including $18.0 million incurred in connection with the Conduit Commercial Agreement. We
therefore expect this expense to increase significantly in 2014, even as a percentage of sales, to fuel future growth. At the same time, we
continue to condition this investment on a positive return on investment ("RoI") within one year, and to the extent we cannot maintain a positive
RoI, we may curtail this expenditure. In addition, other marketing expenses increased by $3.6 million, or 48%, primarily due to personnel costs
incurred by increasing the size of our marketing department as we added the SweetIM marketing department in 2013 and amortization of
acquisition-
related intangible assets. Based on reports received from Conduit, in 2013 the ClientConnect business had other sales and marketing
expenses of $10.3 million, including $9.1 million related to the Conduit business not acquired by us. We expect these expenses, excluding the
customer acquisition costs, to grow only nominally from the level established in 2013, while decreasing as a percentage of sales.
General and administrative expenses ("G&A").
G&A increased from $8.6 million in 2012, to $15.1 in 2013. This increase was
primarily due to costs associated with the acquisition of companies in 2013, which increased by $4.0 million, compared to those expenses in the
previous year. G&A expenses from organic operations in 2013 increased by $2.5 million and were equal to 10% of sales, compared to 11% in
2012. Based on reports received from Conduit, in 2013 the ClientConnect business had $19.1 million in G&A expenses, including $6.5 million
related to the Conduit business not acquired by us.
With the exception of costs that could be incurred in connection with future acquisitions,
although we expect G&A cash expenses to increase nominally, we expect these cash expenses to decrease as a percentage of sales in 2014.
Taxes on Income.
Income tax in 2013 was $2.3 million, compared to $2.5 million in 2012. While nominally taxes on income declined,
the effective income tax rate increased primarily as a result of the significant increase in expenses not deductible for tax purposes in 2013,
particularly $6.2 million of acquisition-related costs and $1.5 million in employee stock-
based compensation. Based on reports received from
Conduit, in 2013 the ClientConnect business had tax expenses of $22.6 million and an effective tax rate of 27%.
Net Income.
Net income in 2013 was $0.3 million, compared to $3.5 million in 2012. As described above, this decrease was primarily a
result of an increase of $4.0 million in acquisition-
related costs that did not contribute to the current operations. Based on reports received from
Conduit, in 2013 the ClientConnect business had $28.6 million in net income.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues.
Revenues increased by 70% in 2012, from $35.5 million in 2011 to $60.2 million in 2012. This increase was a result of
increases in each of our revenue streams, as discussed below:
Search revenues
. Search revenues increased by 49% in 2012, from $25.5 million in 2011 to $38.1 million in 2012. This
increase was due to an increase in the number of downloads and subsequently the number of users using our search service. We offer
our search service in conjunction with our products and toolbar, with Google powering the search service for substantially all our users
in such years. In addition, our SweetIM acquisition contributed one month of search revenues from the acquired company in 2012.
Product s revenues
. Product revenues increased by 144% in 2012, from $7.2 million in 2011 to $17.6 million in 2012. This
increase was primarily attributable to the addition of Smilebox to our product portfolio in September 2011, and the subsequent growth
in sales of our Smilebox product. Revenues from our Smilebox product in 2012 were $11.6 million, compared to $2.2 million in 2011.
IncrediMail product revenues increased by $1.0 million in 2012, as a result of our discontinuing the Gold Gallery Lifetime subscription.
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