Chegg 2013 Annual Report Download - page 99

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Cost of Revenues
The following table sets forth our cost of revenues for the periods shown (dollars in thousands):
Year Ended December 31, Change in 2013 Change in 2012
2013 2012 2011 $ % $ %
Cost of revenues(1) ...................... $175,060 $145,669 $127,012 $29,391 20% $18,657 15%
(1) Includes stock-based compensation expense ....... $ 1,185 $ 542 $ 537 $ 643 119% $ 5 1%
Cost of revenues in 2013 increased $29.4 million, or 20%, compared to 2012. The increase was primarily
due to an increase in order fulfillment and payment processing costs of $10.3 million, textbook depreciation of
$7.6 million and cost of digital content of $2.5 million. The increase in order fulfillment costs, in particular
eTextbook fees and payment processing fees, is directly attributable to the increase in textbook unit volumes
during 2013. Textbook depreciation increased primarily due to our purchases of textbooks during the year. The
cost of digital content increased during the year due to our expansion of digital content solutions made available
to students. In addition, we experienced an increase in the cost of textbooks purchased on a just-in-time basis of
approximately $5.3 million, which was primarily driven by an increase in the number of units sold. We also
experienced increased costs of approximately $2.7 million associated with hiring temporary personnel to assist
with higher transaction and textbook volumes during 2013 and higher write-offs of $1.3 million. Cost of
revenues as a percentage of net revenues was flat from 2013 to 2012.
Cost of revenues in 2012 increased $18.7 million, or 15%, compared to 2011. The increase was primarily
due to an increase in order fulfillment costs of $13.7 million, cost of digital content of $3.8 million and textbook
depreciation of $1.0 million. The increase in order fulfillment costs is directly attributable to the increase in
textbook unit volumes in 2012 compared to 2011. The cost of digital content increased in 2012 due to our
expansion of digital content solutions we developed or licensed from publishers and made available to students.
Textbook depreciation increased primarily due to the expansion of our textbook library. Cost of revenues as a
percentage of net revenues decreased to 68% for 2012 from 74% for 2011, primarily due to the increase in our
net revenues from higher margin non-print products and digital services.
Operating Expenses
The following table sets forth our operating expenses for the periods shown (dollars in thousands):
Year Ended December 31, Change in 2013 Change in 2012
2013 2012 2011 $ % $ %
Technology and development(1) .......... $ 41,944 $ 39,315 $29,591 $ 2,629 7% $ 9,724 33%
Sales and marketing(1) .................. 50,302 51,082 28,400 (780) (2) 22,682 80
General and administrative(1) ............. 40,486 25,117 20,328 15,369 61 4,789 24
Loss (gain) on liquidation of textbooks ..... (1,186) (2,594) 2,785 1,408 (54) (5,379) (193)
$131,546 $112,920 $81,104 $18,626 16% $31,816 39%
(1) Includes stock-based compensation expense of:
Technology and development ................. $ 9,414 $ 7,657 $ 3,840 $ 1,757 23% $ 3,817 99%
Sales and marketing ......................... 7,107 5,164 3,062 1,943 38 2,102 69
General and administrative ................... 19,252 4,682 5,692 14,570 311 (1,010) (18)
Stock-based compensation expense ............. $ 35,773 $ 17,503 $ 12,594 $ 18,270 104% $ 4,909 39%
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