Rosetta Stone 2009 Annual Report Download - page 57

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Table of Contents
Product revenue represented 52% of total institutional revenue for the year ended December 31, 2009, and subscription and service revenue represented
48% for the same period.
Cost of Revenue and Gross Profit
Year Ended
December 31,
2009 2008 Change % Change
(dollars in thousands)
Revenue:
Product $ 218,549 $ 184,182 $ 34,367 18.7%
Subscription and service 33,722 25,198 $ 8,524 33.8%
Total revenue $ 252,271 $ 209,380 $ 42,891 20.5%
Cost of revenue:
Cost of product revenue $ 30,264 $ 26,539 $ 3,725 14.0%
Cost of subscription and service revenue 3,163 2,137 $ 1,026 48.0%
Total cost of revenue 33,427 28,676 4,751 16.6%
Gross profit $ 218,844 $ 180,704 $ 38,140
Gross margin percentages 86.7% 86.3% 0.4%
Cost of revenue for the year ended December 31, 2009 was $33.4 million, an increase of $4.8 million, or 17%, from the year ended December 31, 2008.
As a percentage of total revenue, cost of revenue decreased to 13% for the year ended December 31, 2009 compared to 14% for the year ended December 31,
2008. The dollar increase in cost of revenue was primarily attributable to expansion of our product offering combined with a change in our sales mix, offset in
part by a reduction in affiliate commissions and the absence in the 2009 period of intangible amortization related to core technology associated with the
acquisition of Fairfield & Sons, Ltd., which was fully amortized in 2008. Cost of subscription and service revenue increased by $1.0 million or 48% as we
released Rosetta Stone TOTALe, our new web-based service offering that includes a component of dedicated language conversation coaching. We expect our
cost of revenue will increase as a percent of revenue as we begin bundling time-based subscription licenses of our web-based TOTALe services with perpetual
licenses of our Rosetta Stone Version 3 language learning solutions in the U.S. consumer market with the planned launch of Rosetta Stone Version 4 during
the third quarter of 2010.
Operating Expenses
Year Ended
December 31,
2009 2008 Change % Change
(dollars in thousands)
Sales and marketing $ 114,899 $ 93,384 $ 21,515 23.0%
Research and development 26,239 18,387 7,852 42.7%
General and administrative 57,174 39,577 17,597 44.5%
Lease abandonment — 1,831 (1,831) (100.0)%
Total operating expenses $ 198,312 $ 153,179 $ 45,133 29.5%
Sales and Marketing Expenses
Sales and marketing expenses for the year ended December 31, 2009 were $114.9 million, an increase of $21.5 million, or 23%, from the year ended
December 31, 2008. As a percentage of total
54