Carbonite 2011 Annual Report Download - page 41

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial
statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements
that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in
“Risk Factors.”
Overview
We are a leading provider of online backup solutions for consumers and SMBs. We provide easy-to-use, affordable, unlimited, and secure online
backup solutions with anytime, anywhere access to files stored on our servers, which we call the Carbonite Personal Cloud. We believe that we are the
best known brand in the online backup market.
In 2005, we began development of our online backup solution and raised our first capital from investors. We sold the first Carbonite subscription
in 2006. In 2010, we introduced our SMB solution, opened our office in Beijing, China, and expanded our management team to better focus on our
consumer and SMB markets. We surpassed 100,000 subscribers in 2008, 500,000 subscribers in 2009, and 1,000,000 subscribers in early 2011. As of
December 31, 2011, we had subscribers in more than 100 countries, with subscribers based in the U.S representing 94% of our total revenue for 2011.
We derive our revenue from subscription fees from consumers and SMBs. We charge consumers a $59 flat fee for one year of unlimited online
backup with our Carbonite Home solution. Our Carbonite HomePlus and Carbonite HomePremier solutions provide consumers with additional features
at annual prices of $99 and $149, respectively. The pricing of all of our consumer solutions is discounted for multi-year subscriptions. Our SMB
solutions, Carbonite Business and Carbonite BusinessPremier, allows for an unlimited number of users, with tiered pricing based on the total amount of
data backed up. As of December 31, 2011, approximately 70% of subscribers to our consumer service had one year subscriptions, although the
percentage of customers with multi-year subscriptions has increased over time. We charge customers the full subscription amount at the beginning of
each subscription period. We initially record a subscription fee as deferred revenue and then recognize it ratably over the subscription period. The annual
or multi-year commitments of our customers enhance management’s visibility of our revenue and charging customers at the beginning of the
subscription period provides working capital.
We are investing aggressively in customer acquisition because we believe that the market for online backup is in the early stages of development.
Our largest expense is advertising for customer acquisition, which is recorded as sales and marketing expense. This is comprised of television and radio
advertising, online display advertising, print advertising, paid search, direct marketing, and other expenses. In 2011, 2010, and 2009, our total
advertising expense was $25.1 million, $23.6 million, and $10.8 million, respectively. We generally spend more on advertising in the first and third
quarters of each year based on the seasonality of customer purchasing patterns and fluctuations in advertising rates.
As we grow our business we continue to invest in additional storage and infrastructure. Our capital expenditures in 2011, 2010, and 2009 were
$13.5 million, $10.7 million, and $7.1 million, respectively.
Our revenue has grown from $19.1 million in 2009 to $38.6 million in 2010 and $60.5 million in 2011. At the same time, our total operating costs
have grown from $29.8 million in 2009 to $48.2 million in 2010 and $60.9 million in 2011, principally as a result of our investment in customer
acquisition. We expect to continue to devote substantial resources to customer acquisition, improving our technologies, and expanding our solutions. In
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