Stamps.com 2013 Annual Report Download - page 38

Operating Expenses
The following table is our operating expense and operating expense as a percentage of total revenue for the periods indicated (in $000s except
percentage):
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Sales and marketing expense increased 12% to $38.8 million in 2012 from
$34.6 million in 2011. The increase is primarily due to increased marketing expenditures to acquire customers in our Core PC Postage business.
Ongoing marketing programs include the following: traditional advertising, partnerships, customer referral programs, customer re-marketing
efforts, telemarketing, direct mail, and online advertising. Sales and marketing expenses as a percent of total revenue was consistent at 34% for
both 2011 and 2012.
Research and Development
Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation
of equipment and software, and expenditures for consulting services and third party software. Research and development expense increased 9%
to $10.2 million in 2012 from $9.4 million in 2011. The increase is primarily due to headcount-related expenses as we continued to invest in the
development and enhancement of our PC Postage solution. Research and development expenses as a percent of total revenue was consistent at
9% for both 2011 and 2012.
General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative personnel, fees for
legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of intangible
assets. General and administrative expense increased 4% to $14.8 million in 2012 from $14.2 million in 2011. The increase is primarily due to
the one-time relocation expense we incurred associated with the move to our new corporate headquarters and headcount related expenses.
General and administrative expenses as a percent of total revenue decreased slightly from 14% in 2011 to 13% in 2012 as a result of lower
litigation expenses in 2012 following the settlement of our patent infringement lawsuit with Endicia in the first quarter of 2012.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest income from cash equivalents, short-term and long-term investments and rental
income from our corporate headquarters in El Segundo, California. Interest and other income, net decreased 4% to $541,000 in 2012 from
$562,000 in 2011. The decrease is primarily due to lower yields on our investment balances including certain investments in our portfolio that
matured and were replaced with lower yield investments.
Provision for Income Taxes
Income tax benefit increased 64% to $13.9 million in 2012 from $8.5 million in 2011. During 2012, our income tax benefit consisted of a
reduction of a portion of our valuation allowance on our deferred tax asset (as described below) and federal and state alternative minimum taxes.
Our effective income tax rate differs from the statutory income tax rate primarily as a result of the reduction of a portion of our valuation
allowance.
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Table of Contents
2012 2011
Operating Expenses:
Sales and marketing
$
38,755
$
34,569
Research and development
10,243
9,395
General and administrative
14,750
14,181
Total operating expenses
$
63,748
$
58,145
Operating expenses as a percentage of total revenue:
Sales and marketing
34
%
34
%
Research and development
9
%
9
%
General and administrative
13
%
14
%
Total operating expenses
55
%
57
%