Redbox 2004 Annual Report Download - page 24

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20
Years Ended December 31, 2004 and 2003
Revenue
Revenue increased to $307.1 million in 2004 from $176.1 million in 2003. Our revenue grew as a result of two primary
factors: (1) the acquisition of our subsidiary, ACMI, and (2) an increase in coin-counting activity. ACMI is included in our
consolidated financial results in the year ended December 31, 2004 for 178 days (July 7, 2004 (acquisition date)—December
31, 2004).
Revenue for our coin services increased from $176.1 million to $196.0 million, or 11.3% as a result of an increase in
the number of transactions, an increase in the number of coin-counting machines in service during the twelve months ended
December 31, 2004 and the volume of coins processed by the machines in service during this period. The total dollar value of
coins processed through our network increased to approximately $2.2 billion during 2004 from approximately $2.0 billion for
the comparable prior year. The average installed base of coin-counting machines increased to 11,345 in 2004 from 10,976
machines in 2003.
Entertainment services revenue during the period July 7, 2004 (acquisition date) through December 31, 2004 was
$111.1 million. Entertainment services revenue is derived primarily from skill-crane machines and bulk vending equipment
installed in retail locations. Total entertainment services machines installed at December 31, 2004 was approximately
171,000 machines.
Direct Operating Expenses
Direct operating expenses increased to $186.9 million in the year ended December 31, 2004 from $78.6 million in the
comparable prior year period. Direct operating expenses increased primarily due to (1) our acquisition of ACMI, (2) changes
in our transaction fee arrangements we pay certain of our coin services retail partners and (3) increased expenses to develop
and provide ongoing support to our retail partners as we make additional services available through our coin-counting
machines. Direct operating expenses as a percentage of revenue increased to 60.9% in the twelve months ended December
31, 2004 from 44.6% in the same period of 2003 mainly due to the addition of our entertainment subsidiary. We expect
transportation expenses to increase if the current trend of rising fuel costs continues, combined with increased labor costs as
we expand into less densely populated regions.
Sales and Marketing
Sales and marketing expenses decreased slightly to $12.9 million in the year ended December 31, 2004 from $13.2
million in the comparable prior year period. Although our sales and marketing expenses did not change significantly, we did
change our allocation and focus of advertising dollars increasing expenditures to regionally promote new products as they are
introduced. Since revenues increased and our marketing expenditures decreased, sales and marketing as a percentage of
revenue decreased to 4.2% in the year ended December 31, 2004 from 7.5% in the comparable prior year period.
Research and Development
Research and development expenses decreased slightly to $5.5 million in the year ended December 31, 2004 from $5.8
million in the comparable prior year period due to ongoing cost containment measures. Research and development expenses
represent expenditures to support research and development to design complementary new product ideas and continue our
ongoing efforts to enhance our existing products and services, primarily our coin-counting system. Since revenues increased
and our research and development expenditures remained relatively consistent, research and development expenses as a
percentage of revenue decreased to 1.8% for the year ended December 31, 2004 from 3.3% in the comparable prior year
period.
General and Administrative
General and administrative expenses increased to $27.5 million for the year ended December 31, 2004 from $19.3
million in the comparable prior year period. General and administrative expenses increased primarily due to the acquisition of
ACMI, which resulted in additional expenses of $7.1 million. Excluding the impact from ACMI, our general and
administrative expenses remained relatively constant. General and administrative expenses as a percentage of revenue
decreased to 8.9% in the year ended December 31, 2004 from 11.0% in the comparable prior year period.