8x8 2014 Annual Report Download - page 42

The cost of product revenue consists primarily of IP Telephones, estimated warranty obligations and direct and indirect costs associated with
product purchasing, scheduling, 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 revenue for fiscal 2014 from fiscal 2013 was primarily due to a $2.7 million increase in the shipment of
equipment to our business customers, a $0.3 million increase in warranty expense, and a $0.2 million increase in freight costs.
The increase in the cost of product revenue for fiscal 2013 from fiscal 2012 was primarily due to a $1.8 million increase in the shipment of
equipment to our business customers, a $0.1 million increase in warranty expense, and a $0.1 million increase in freight costs.
RESEARCH AND DEVELOPMENT EXPENSES
Historically, our research and development expenses have consisted primarily of personnel, system prototype design, and equipment costs
necessary for us to conduct our development and engineering efforts. During the fiscal year ended March 31, 2014, we capitalized $0.8 million
of software development costs in accordance with ASC 985-20. We expensed all other research and development costs as they were incurred.
The increase in research and development expenses for fiscal 2014 from fiscal 2013 was primarily attributable to a $1.7 million increase in
payroll and related expenses and a $1.5 million increase in temporary personnel, consulting and outside service expenses.
The increase in research and development expenses for fiscal 2013 from fiscal 2012 was primarily attributable to a $1.1 million increase in
payroll and related expenses, a $0.1 million increase in recruiting expenses, and a $0.2 million increase in other research and development
expenses.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of personnel and related overhead costs for sales, marketing, and customer service. Such costs
also include outsourced customer service call center operations, sales commissions, as well as trade show, advertising and other marketing and
promotional expenses.
The increase in sales and marketing expenses for fiscal 2014 from fiscal 2013 was primarily due to a $10.2 million increase in payroll and
related expenses from an increase in our sales force, a $1.1 million increase in advertising expenses, a $0.8 million increase in temporary
personnel, consulting and outside service expenses, a $0.5 million increase in third party sales commissions, a $0.5 million increase in travel and
meal expenses, a $0.4 million increase in credit card processing fees, a $0.3 million increase in trade show expenses, a $0.3 million increase in
amortization expense due to intangibles acquired in acquisitions and a $0.2 million increase in expensed computer, software and light furniture.
The increase in sales and marketing expenses for fiscal 2013 from fiscal 2012 was primarily due to a $6.4 million increase in payroll and related
expenses from an increase in our sales force, a $0.9 million increase in advertising expenses, a $0.4 million increase in third party sales
commissions, a $0.3 million increase in sales promotion expenses, a $0.3 million increase in bad debt expense, a $0.2 million increase in
amortization expense due to intangibles acquired in acquisitions, a $0.2 million increase in travel and meal expenses and a $0.7 million net
increases in other sales and marketing expenses.
38
Years Ended March 31,
Year
-
over
-
Year Change
2014 2013 2012 2013 to 2014 2012 to 2013
(dollar amounts in thousands)
Research and development
$
11,633
$
8,147
$
6,745
$
3,486
42.8%
$
1,402
20.8%
Percentage of total revenue
9.0%
7.8%
8.1%
Years Ended March 31,
Year
-
over
-
Year Change
2014
2013
2012
2013 to 2014
2012 to 2013
(dollar amounts in thousands)
Sales and marketing
$
60,906
$
45,573
$
36,227
$
15,333
33.6%
$
9,346
25.8%
Percentage of total revenue
47.4%
43.9%
43.5%