8x8 2006 Annual Report Download - page 36

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Packet8 service revenues attributable to the significant growth in the subscriber base, which was partially offset by a
decrease of $0.4 million in license and royalty revenues associated with our IP semiconductor technology and hosted
iPBX product. In addition, we began charging a regulatory recovery fee of $1.50 per line effective in May 2005 and
a $1.99 emergency 911 service cost recovery fee of $1.99 per line effective in January 2006. These fees are
recorded as service revenues.
The increase in fiscal 2005, as compared to fiscal 2004, was primarily attributable to a $7.3 million increase in
Packet8 service revenues attributable to the growth in the subscriber base, which was partially offset by a decrease
of $4.8 million in license and maintenance revenues associated with our hosted iPBX product and IP semiconductor
telephony technology.
Our average monthly revenue per line, or ARPU, increased to $27.39 for fiscal 2006 from $24.52 for the same
period of fiscal 2005. The increase for fiscal 2006 was primarily attributable to our implementation of regulatory
recovery and emergency 911 fees in fiscal 2006 combined with an increase in Virtual Office lines in service, which
have higher monthly service fees. We did not compute or analyze ARPU for fiscal 2004, as Packet8 was an
insignificant portion of our business.
Churn approximated 3.0% for fiscal 2006 and 3.7% for fiscal 2005. The decrease in churn was due to a reduction in
service outages and an increase in voice quality and customer service staffing levels. If we are unable to compete
effectively against our other existing competitors as well as against potential new entrants into the VoIP telephone
service business, in both retaining our existing subscribers and attracting new subscribers, our churn will likely
increase and our business will be adversely affected. We did not compute or analyze churn for fiscal 2004, as
Packet8 was an insignificant portion of our business.
Revenues from our ten largest customers in the fiscal years ended March 31, 2006, 2005 and 2004 accounted for
approximately 3%, 11% and 73%, respectively, of our total revenues. No single customer represented more than
10% of our total revenues during fiscal 2006 or 2005. Two customers represented 26% and 16% of our total
revenues in fiscal 2004.
Sales to customers outside the United States represented 2%, 9% and 71% of total revenues in the fiscal years ended
March 31, 2006, 2005 and 2004, respectively. The following table illustrates our net revenues by geographic area.
Revenues are attributed to countries based on the destination of shipment (in thousands):
Cost of Product Revenues
The cost of product revenues consists of costs associated with systems, components, estimated warranty obligations
and direct and indirect costs associated with product purchasing, scheduling, quality assurance, shipping and
handling. We generally do not charge Packet8 subscribers for the terminal adapters used to provide our service
when they subscribe on our website. We have also offered incentives to customers who purchase terminal adapters
Year Ende d Mar ch 3 1 ,
2006 2005 2004
United States..........................................................................
.
$ 31,141 $ 10,472 $ 2,728
Europe.....................................................................................
.
291 646 1,309
Taiwan.....................................................................................
.
127 157 4,163
Japan........................................................................................ 1 -- 568
Other........................................................................................
.
332 200 540
$ 31,892 $ 11,475 $ 9,308
Year Ended March 31, Year-Over-Year Change
2006 2005 2004 2005 to 2006 2004 to 2005
(dollar amounts in thousands)
Cost of product revenues.......................
.
$ 10,732 $ 4,546 $ 1,768 $ 6,186 136.1% $ 2,778 157.1%
Percentage of total revenues..................
.
33.7% 39.6% 19.0%