8x8 2006 Annual Report Download - page 35

32
• Subscriber acquisition cost: Subscriber acquisition cost is defined as costs for advertising, marketing,
promotions, commissions and equipment subsidies. Management reviews this metric to evaluate how effective our
marketing programs are in acquiring new subscribers on an economical basis in the context of estimated subscriber
lifetime value.
• Average monthly revenue per line: Average monthly revenue per line for a particular period is calculated by
dividing our total Packet8 revenue for that period by the simple average number of subscriber lines for the period
and dividing the result by the number of months in the period. The simple average number of subscriber lines for the
period is the number of subscriber lines on the first day of the period, plus the number of subscriber lines on the last
day of the period, divided by two.
Management believes it is useful to monitor these metrics together and not individually as it does not make business
decisions based upon any single metric.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and related
notes included elsewhere in this Report.
REVENUES
Product revenues consist of revenues from sales of VoIP terminal adapters, telephones and videophones, primarily
attributable to our Packet8 service. For fiscal 2006, 2005 and 2004, product revenues also included sales of VoIP
semiconductors and other system products of $0.2 million, $0.6 million and $2.3 million, respectively.
The increase in fiscal 2006, as compared to fiscal 2005, was primarily attributable to a $3.8 million increase in
Packet8 product revenues attributable to the growth in the subscriber base compared to the prior year, partially offset
by a $0.4 million decrease in sales of VoIP semiconductors. During fiscal 2006, our Packet8 lines in service
increased by 133% from approximately 57,000 at March 31, 2005 to approximately 133,000 at March 31, 2006.
The decrease in fiscal 2005, as compared to fiscal 2004, was primarily attributable to a $1.7 million decrease in sales
of video and VoIP semiconductors as we began to focus our business on the Packet8 service in fiscal 2004. This
decrease was partially offset by a $1.4 million increase in Packet8 product revenues attributable to the growth in the
subscriber base compared to the prior year. During fiscal 2005, our Packet8 lines in service increased by 418% from
approximately 11,000 at March 31, 2004 to approximately 57,000 at March 31, 2005.
Service revenues consist primarily of revenues attributable to the provision of our Packet8 service and VoIP
technology licenses and any royalties earned under such licenses. Prior to fiscal 2004, our service revenues were
primarily generated by nonrecurring license transactions and related maintenance revenues.
The increase in fiscal 2006, as compared to fiscal 2005, was primarily attributable to a $17.4 million increase in
Year Ended March 31, Year-Over-Year Change
2006 2005 2004 2005 to 2006 2004 to 2005
(dollar amounts in thousands)
Product revenues.....................................
.
$ 5,779 $ 2,389 $ 2,679 $ 3,390 141.9% $ (290) -10.8%
Percentage of total revenues..................
.
18.1% 20.8% 28.8%
Year Ended March 31, Year-Over-Year Change
2006 2005 2004 2005 to 2006 2005 to 2004
(dollar amounts in thousands)
License and service revenues................
.
$ 26,113 $ 9,086 $ 6,629 $ 17,027 187.4% $ 2,457 37.1%
Percentage of total revenues..................
.
81.9% 79.2% 71.2%