Digital River 2001 Annual Report Download - page 32

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Years Ended December 31, 2001, 2000 and 1999
The Company has two operating segments, Software and Digital Commerce Services and E-Business
Services, which have been identified as components of the Company that are reviewed regularly by
management to determine resource allocation and assess performance.The Company began presenting
the E-Business Services Division as a separate segment in 2000. Prior to that, substantially all revenue and
related expenses were associated with the Company’s Software and Digital Commerce Services Division.
Revenue.
The Company’s revenue increased to $57.8 million in 2001 from $31.2 million in 2000 and $14.5
million in 1999.The revenue increase in 2001 resulted from the expansion of the Company’s client
relationship with Symantec Corporation, increasing market acceptance of electronic software
downloading, merchandising activities that increased the average sales generated by the Company’s
software publisher clients and the four acquisitions completed by the Company in 2001.The entities
acquired during 2001 generated approximately 7% of the Company’s total revenue during the year.
The revenue increases in 2000 and 1999 resulted from significant growth in the number of Company
clients, the increasing market acceptance of electronic software downloading and merchandising activities
that increased the average sales generated by the Company’s software publisher clients. International
sales represented approximately 22%, 25% and 22% of revenue in the years ended December 31, 2001,
2000 and 1999, respectively. In 2001, revenue for the Software and Digital Commerce Services
Division was $44.9 million, up from $25.2 million in 2000. R evenue for the E-Business Services
Division was $12.9 million in 2001, up from $6.0 million in 2000.
Gross Profit.
Cost of revenue consists of direct cost of services and network and infrastructure expenses and is
composed of direct labor costs related to revenue and the costs to operate and maintain the CNS, as
well as customer service and operations functions. Such amounts are shown exclusive of depreciation
and amortization expense. Cost of revenue increased substantially in all years presented, reflecting the
Company’s growth in revenue. During 2001, 2000 and 1999, the Company’s gross profit margins were
77.7%, 70.0%, and 63.9%, respectively.The gross profit margin increases in 2001, 2000 and 1999 were
primarily due to leveraging the Company’s infrastructure over significantly more revenue and clients.
In 2001, the gross profit margin for the Software and Digital Commerce Services Division was 80.6%,
up from 71.8% in 2000.The gross profit margin for the E-Business Services Division was 67.4% in
2001, up from 62.4% in 2000.The Company believes that Internet commerce and related services
may become more competitive in the future. Accordingly, the Company may reduce or alter its pricing
structure and policies in the future and any such change could reduce gross margins.
30
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report