8x8 2011 Annual Report Download - page 34

The following table illustrates our net revenues by geographic area. Revenues are attributed to countries based on the
destination of shipment (in thousands):
2011 2010 2009
United States $ 69,455 $ 63,272 $ 64,633
Other locations 708 124 41
$ 70,163 $ 63,396 $ 64,674
Years Ended March 31,
COST OF REVENUES
2011 2010 2009
Cost of service revenues $ 14,508 $ 13,599 $ 15,714 $ 909 6.7% $ (2,115) -13.5%
Percentage of service revenues 22.3% 23.2% 26.9%
(dollar amounts in thousands)
Year-over-Year Change
2010 to 2011 2009 to 2010
Years Ended March 31,
Cost of service revenues primarily consists of costs associated with network operations and related personnel, telephony
origination and termination services provided by third party carriers and technology license and royalty expenses.
The increase in the cost of service revenues for fiscal 2011 from fiscal 2010 was primarily due to a $0.9 million increase in
payroll and related expenses, a $0.3 million increase in depreciation expenses, a $0.2 million increase in expensed computer
equipment and furniture and fixtures, a $0.1 million increase in recruiting expenses, a $0.1 million increase in license and fee
expenses, and a $0.1 million increase in repair and maintenance expenses. The increase in cost of service revenues was
partially offset by a $0.7 reduction in the prices we pay to third party network service vendors, reduction of related accruals, as
well as our use of multiple third party network provider vendors, which allows us to route call and network traffic to the third
party network provider vendor with the most favorable pricing, and a $0.1 decrease in consultant and outside service expenses.
Cost of service revenues for fiscal 2010 compared with fiscal 2009 decreased $2.1 million primarily due to a reduction in the
prices we pay to third party network service vendors, as well as our use of multiple third party network provider vendors. The
reduction in pricing by third party network service vendors was partially offset by an increase in personnel and licenses fee
costs compared with the prior fiscal year.
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ervice margin has improved because revenue from business customers has a higher margin than revenue from residential
ustomers and product margins have declined due to more aggressive discounting on the telephones.
2011 2010 2009
Cost of product revenues $ 8,115 $ 7,257 $ 7,135 $ 858 11.8% $ 122 1.7%
Percentage of product revenues 157.1% 154.0% 115.3%
(dollar amounts in thousands)
2010 to 2011
Years Ended March 31,
2009 to 2010
Year-over-Year Change
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The cost of product revenues consist of costs associated with systems, components, system manufacturing, assembly and
testing performed by third party vendors, estimated warranty obligations and direct and indirect costs associated with product
purchasing, scheduling, quality assurance, shipping and handling. We allocate a portion of service revenues to product
revenues but these revenues are less than the cost of the product.
The increase in the cost of product revenues for fiscal 2011 from fiscal 2010 was primarily due to a $1.0 million increase in the
shipment of equipment to our business customers. The increase in cost of product revenues was partially offset by a $0.1
million decrease in freight costs.
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