Vonage 2010 Annual Report Download - page 39

20
1
0
compare
d
to
2009
C
ustomer equipment and shipping revenue.
O
ur customer
equipment and shipping revenue decreased by
$
12,124, or
50%, primaril
y
due to the impact of a
$
1,500 reserve made t
o
cover potential refunds in connection with the settlement of th
e
consumer class action litigation
(S
ee Item 3. Legal Proceedings
)
and a decrease in equipment sales, net of rebates, of
$
8,36
3
r
elated to lower equipment recover
y
fees due to fewer termi
-
nations and elimination of equipment recover
y
fees for ne
w
customers beginning in
S
eptember 2010. In addition, there wa
s
a decrease in customer shipping revenue of
$
2,260 due t
o
p
romotions providing free shipping for customers who signed
up for our residential unlimited plan or our Vonage World plan
.
D
irect cost of goods sold
.
The decrease in direct cost of
g
oods sold of
$
15,523, or 22%, was primarily due to a decreas
e
in customer equipment costs of
$
3,970 resulting from fewer
p
eriod over
p
eriod customer additions, a lower cost devic
e
introduced in
S
eptember 2010, and lower promotional activit
y
a
nd a correspondin
g
decrease in shippin
g
costs of
$
2,506
.
T
h
e
r
e
w
as a
l
so a dec
r
ease
in
a
m
o
rtiz
a
ti
o
n
cos
t
so
n
de
f
e
rr
ed
c
ustomer e
q
ui
p
ment of
$
7,500, which included an offset of
$
2,627 due to the chan
g
e of our customer life from 44 months to
3
8 months in the first
q
uarter of 2010, and a decrease in waive
d
a
ctivation fees for new customers of
$
1,547
.
2009
compare
d
to
2008
C
ustomer equipment and shipping revenue.
O
ur customer
equipment and shipping revenue decreased by
$
10,123, or
29%, primaril
y
due to the impact of less period over perio
d
customer additions and the introduction of a new promotion i
n
M
ay 2009 that eliminated equipment and shipping fees for cus
-
t
omers who signed up for our residential unlimited plan or ou
r
V
onage
W
or
ld
p
l
an, w
hi
c
h
resu
l
te
di
na
d
ecrease
i
nt
h
e
d
o
ll
a
r
v
alue of customer equipment sales net of rebates of
$
3,653 an
d
a decrease in customer shipping revenue of
$
6,470
.
D
irect cost of goods sold
.
The decrease in direct cost of
g
oods sold of
$
7,894, or 10%, was primarily due to a decreas
e
in customer equipment costs of
$
7,382 resulting from fewe
r
p
er
i
o
d
over per
i
o
d
customer a
ddi
t
i
ons an
dl
ower promot
i
ona
l
a
ctivity and a corresponding decrease in shipping costs o
f
$
2
,
650. There was also a decrease in amortization costs o
n
d
eferred customer equipment of
$
1,062 including
$
2,85
2
increase due to the chan
g
e of our customer life from 48 month
s
to 44 months in the first
q
uarter of 2009 and an increase in
waived activation fees for new customers of
$
3,200
.
S
elling, General and Administrativ
e
F
or t
h
e
Y
ears
E
n
d
e
dD
ecem
b
er
3
1
,
D
o
ll
a
r
C
hange
20
1
0
vs
.
2009
D
o
ll
ar
Chang
e
2009
vs.
2008
P
ercent
C
hange
20
1
0
vs
.
2009
P
ercent
Chang
e
2009
vs.
2008
(in thousands, except percentages
)
20
1
0 2009 2008
Selling, general and administrative $238,986 $265,456 $298,985 $(26,470) $(33,529) (10%) (11%)
2010 com
p
ared to 2009
S
elling, general and administrative
.
Th
e
d
ecrease
i
nse
lli
ng,
g
eneral and administrative expense of
$
26,470, or 10%, wa
s
p
rimarily due to a decrease in salary related expense and out
-
s
ourced temporary labor cost of
$
13,780, facility and othe
r
c
osts of
$
3,091, and credit card fees of
$
2,308. Additionally, we
had lower costs of
$
2,894 for settlements related to liti
g
atio
n
a
nd contractual dis
p
utes and lower costs of
$
863 for severance
c
osts related to the close down of our
C
anadian facility in 2009.
W
e had a decrease in
p
rofessional fees of
$
2,322, a decrease i
n
s
hared based cost of $219, and lower retail kiosk costs of
$
1,294 due to fewer kiosk locations for most of 2010
.
2009 com
p
ared to 2008
S
elling, general and administrative
.
Th
e
d
ecrease
i
nse
lli
ng,
g
eneral and administrative expenses of
$
33,529, or 11%, wa
s
p
rimarily due to a decrease in professional fees of
$
5,048, pri
-
marily related to consultin
g
, a decrease in salaries, recruitin
g
a
nd outsourced temporary labor of
$
17,365, and a decrease i
n
c
redit card fees of
$
1,483. Additionally, we reduced the numbe
r
o
f kiosks locations, which decreased our retail kiosk costs by
$
5,135. We also had a decrease in facility and other costs of
$
5,977 and a decrease in share-based cost of
$
3,764, whic
h
was o
ff
set by an increase in the cost
f
or settlements and th
e
p
otential exposure related to liti
g
ation and contractual dispute
s
o
f $2,055, an increase in severance costs of $267 primarily due
to the close down of our Canada facility and an increase in tax
e
x
p
ense of $2,921.
Marketin
g
For the Years Ended December 31
,
D
o
ll
ar
C
hange
20
1
0
v
s.
2
009
Do
ll
a
r
C
hang
e
2009
v
s
.
2008
Pe
r
ce
nt
C
hange
2
0
1
0
v
s.
2
009
P
e
r
ce
nt
C
hang
e
2
009
v
s
.
2
008
(
in thousands, except percenta
g
es
)
20
1
0
2
009
2
008
Marketin
g$
198,170
$
227,990
$
253,370
$
(29,820)
$
(25,380) (13%) (10%)
2010 com
p
ared to 2009
M
arketin
g.
T
he decrease in marketin
g
expense of $29,820
,
o
r13
%
, primarily related to a decrease in direct mail costs o
f
$
9,216, alternative media of $10,749, other marketin
g
o
f
$
10,378, online advertisin
g
of $14,329, and retail advertisin
g
o
f
$
4,350, which was offset by an increase in television advertisin
g
o
f
$
19,203. We have reduced marketing spending as we con
-
tinue to refine our marketing strategies including the use of cer
-
ta
i
n promot
i
ons w
hi
c
h
are recor
d
e
d
asare
d
uct
i
on to revenue.
32
VO
NA
G
E ANN
U
AL REP
O
RT 2010