Incredimail 2012 Annual Report Download - page 39

Revenues
We generate our revenues primarily from three major sources: (i) search generated revenues and other services, (ii) sale of premium
software products and solutions, and (iii) advertising and other. The following table shows our revenues by category (in thousands of U.S.
dollars):
Cost of Revenues
Cost of revenues consists primarily of salaries and related expenses, license fees, amortization of acquired technology, amortization of
capitalized research and development costs and payments for content and server maintenance, all related to our product revenues and
communicating with our users. The direct cost relating to search and advertising revenues are immaterial.
Research and Development Expenses, net
Our research and development expenses consist primarily of salaries and other personnel-
related expenses for employees primarily
engaged in research and development activities, allocated facilities costs, subcontractors and consulting fees. Our research and development
expenditures in 2012 increased compared to the prior year but decreased as a percentage of sales. The increase was primarily due to costs
associated with our mobile product development for Smilebox on the iPhone, which is already being distributed, and IncrediMail for the iPad,
which was released in the first quarter of 2013. We expect this trend to continue in 2013, with our research and development costs continuing to
increase in nominal dollars, while decreasing as a percentage of sales, as our sales continue to grow at an accelerated pace. The nominal increase
will enable us to continue to enrich our product pipeline going forward, particularly on mobile platforms.
Selling and Marketing Expenses
Our selling and marketing expenses consist of customer acquisition cost, salaries and other personnel-
related expenses for employees
primarily engaged in marketing activities, allocated facilities costs, as well as other outsourced marketing activity. As part of our strategy to
accelerate growth, we increased customer acquisition costs dramatically in 2011 and 2012, particularly in the second half of 2012, and expect to
increase the pace of investment even further in 2013. This investment aims to increase the number of product downloads, users, search queries
generated by those downloading our software and, subsequently, revenue from search, premium subscriptions and advertising. Customer
acquisition costs were $1.8 million, $8.0 million and $22.1 million in 2010, 2011 and 2012, respectively. The number of employees in sales and
marketing were 18, 32, and 50 at the end of 2010, 2011 and 2012, respectively.
General and Administrative Expenses (“G&A”)
Our general and administrative expenses consist primarily of salaries and other personnel-
related expenses for executive and
administrative personnel, allocated facilities costs, professional fees and other general corporate expenses. In order to facilitate our strategy for
accelerated organic and non-
organic growth, starting towards the end of 2010 and continuing into the beginning of 2011, we enhanced our
management team with experienced professionals, capable of taking the Company to the next level, including engaging a new experienced CEO,
creating a corporate development department and hiring a VP to manage it, and creating an internal legal department with a General
Counsel. With the acquisition of Smilebox in the second half of 2011 and the execution of our acquisition strategy, we continued to enhance our
management capabilities, particularly enhancing our budget and controls. As a result, G&A expenses increased nominally in 2010, 2011 and in
2012. In 2011 and 2012, on a GAAP basis, G&A expenses also included significant direct acquisition expenses incurred in connection with the
acquisitions made in each year. However, excluding acquisition-
related expenses, as a percentage of sales, G&A in 2012 was at its lowest level
since going public in 2006. Looking forward, we expect G&A expenses, excluding costs stemming from new acquisitions, to continue to
increase nominally to accommodate our growth and meet our regulatory requirements, without increasing as a percentage of sales in 2013.
Year Ended December 31,
2010 2011 2012
Search
$
22,792
$
25,466
$
38,061
Products
5,404
7,191
17,574
Other
1,301
2,816
4,588
Total revenues
$
29,497
$
35,473
$
60,223
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