eFax 2008 Annual Report Download - page 31

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Results of Operations
Years Ended December 31, 2008, 2007 and 2006
The following table sets forth, for the years ended December 31, 2008, 2007 and 2006, information derived from our statements
of operations as a percentage of revenues. This information should be read in conjunction with the accompanying financial statements
and the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31,
2008 2007 2006
Revenues 100% 100% 100%
Cost of revenues 19 20 20
Gross profit 81 80 80
Operating expenses:
Sales and marketing 17 18 17
Research, development and engineering 5 5 5
General and administrative 18 18 21
Total operating expenses 40 41 43
Operating earnings 41 39 37
Gain on sale of investment - - -
Interest and other income 2 4 4
Interest and other expense 1 — —
Earnings before income taxes 42 43 41
Income tax expense 12 12 11
Net earnings 30% 31% 30%
Revenues
Subscriber Revenues. Subscriber revenues consist of both a fixed monthly recurring subscription component and a variable
component that is driven by the actual usage of our service offerings. Over the past three years the fixed portion of our subscriber
revenues has contributed an increasing percentage to our subscriber revenues of 79%, 76% and 72% for 2008, 2007 and 2006,
respectively. Subscriber revenues were $236.8 million, $212.3 million and $175.2 million for the years ended December 31, 2008,
2007 and 2006, respectively. The increase in subscriber revenues over this three-year period was due primarily to an increase in the
number of our paying subscribers. The increase in our base of paying subscribers was primarily the result of new sign-ups derived
from subscribers coming directly to our Websites, free-to-paid subscriber upgrades, small to mid-sized corporate and enterprise sales,
direct large enterprise and government sales, direct marketing spend for acquisition of paying subscribers, international sales and
business acquisitions, in each case net of cancellations.
Other Revenues. Other revenues were $4.7 million, $8.4 million and $5.9 million for the years ended December 31, 2008, 2007
and 2006, respectively. Other revenues consist primarily of patent licensing revenues and advertising revenues generated by delivering
email messages to our customers on behalf of advertisers. The decrease in other revenues from 2007 to 2008 resulted primarily from a
$2.0 million paid up patent license fee relating to past periods, earned during 2007, as well as lower advertising revenue in 2008. The
increase in other revenues from 2006 through 2007 resulted primarily from an increase in patent licensing revenues.
Cost of Revenues
Cost of revenues is primarily comprised of costs associated with data and voice transmission, telephone numbers, network
operations, customer service, online processing fees and equipment depreciation. Cost of revenues was $46.3 million, or 19% of
revenues, $44.0 million, or 20% of revenues, and $36.7 million, or 20% of revenues, for the years ended December 31, 2008, 2007
and 2006, respectively. Cost of revenues as a percentage of revenues decreased from 2007 to 2008 primarily due to enhanced
utilization of network capacity. Cost of revenues as a percentage of revenues was consistent from 2006 to 2007 due to enhanced
utilization of network capacity offset by costs associated with network expansion.