Incredimail 2014 Annual Report Download - page 48

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Research and development expenses ("R&D")
. R&D increased by $21.7 million in 2014, from $22.4 million in 2013, or 7% of sales, to
$44.1 million, or 11% of sales, in 2014. The increase was primarily attributable to maintaining the technological edge of our desktop
technologies and their ability to adapt to changing Internet platforms; and investing in mobile advertising platforms, primarily in our advertising
marketing platform, developing tools and platforms to enhance our ability to increase advertising revenues, independent of our search offering.
As a result, we expect our R&D expenditure to continue to increase nominally, and, coupled with an expected decrease in revenues, this will
cause R&D expenses to increase as a percentage of sales as well.
Selling and marketing expenses ("S&M")
. Selling and marketing expenses increased 147%, from $10.3 million in 2013 to $25.4
million in 2014. This increase was primarily attributable to the Perion acquisition. In 2013, Perion's S&M expenses amounted to $11.1 million.
As we increase the marketing efforts required for our new products and platforms, we expect these expenses to increase only nominally from the
level established in 2014, and, coupled with a lower level of expected revenue, we expect this expenditure to increase as a percentage of revenue
in 2015.
General and administrative expenses ("G&A").
G&A increased 97%, from $19.1 million in 2013 to $37.6 million in 2014. The increase
reflects primarily the fact that 2013 does not include Perion’
s activity and G&A in that year are those of ClientConnect prior to the acquisition,
reflecting the G&A expenses of a private company, acting as a division of a larger one, focused on organic growth. G&A expenses in 2014 are
reflective of an independent public company, with all of its requisite costs, managing organic activity as well as being an active acquirer of other
businesses. In 2013, Perion’
s G&A expenses were in the amount of $15.1 million. We expect G&A expense in 2015 to continue at a level
similar to that of 2014.
Impairment and restructuring charges.
Impairment charges of $19.9 million related to intangible assets associated with desktop
technologies acquired in the Perion acquisition that during the integration process were determined to be redundant to the technology of
ClientConnect. This impairment was also a result of our shifting future growth strategy towards mobile platforms and discontinuing some of the
desktop products and technologies that we had developed or acquired.
On November 6, 2014, we announced a restructuring of our search monetization business, which included a head count reduction as
well as other cost saving measures, such as consolidating of our Israeli offices from three floors to two in order to sublease the third floor. The
cost of $4.0 million recorded reflects expenses accrued, resulting from this restructuring.
Taxes on income.
Income tax in 2014 was $9.6 million, compared to $22.6 million in 2013. In 2013, taxes on income includes tax
expenses of $11.8 million in respect of release of ClientConnect trapped earnings. Excluding such $11.8 million, the effective tax rate in 2013
was 13%, increasing to 18% in 2014, primarily as a result of the significant increase in expenses not deductible for tax purposes in 2014,
including $3.2 million of acquisition-related costs and $4.7 million in employee stock-based compensation.
Net income.
Net income in 2014 was $42.8 million, compared to $28.6 million in 2013. This increase was primarily a result of net loss
of $33.8 million from discontinued operations in 2013, partially offset by an impairment costs to intangible assets in the amount of $19.9
million, net of deferred tax benefit of $3.2 million that did not contribute to the current operations.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Revenues.
Revenues decreased by 39% in 2013, from $537.0 million in 2012 to $325.5 million in 2013. This decrease was a result of a
significant decrease in our search revenues partially offset by an increase in advertising revenues, as discussed below:
Search revenues
. Search revenues decreased by 46%, from $517.0 million in 2012 to $277.3 million in 2013, primarily due to the
significant decrease in the fees payable under the Microsoft agreement. The fees payable by Microsoft vary annually over the term of our prior
agreement with Microsoft.
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