Stamps.com 2003 Annual Report Download - page 27

Table of Contents
Sales and Marketing. Sales and marketing expense principally consists of costs associated with strategic partnership relationships,
advertising, and compensation and related expenses for personnel engaged in marketing and business development activities. Sales and
marketing expense increased from $2.5 million for the year ended December 31, 2002, to $6.3 million for the year ended December 31, 2003,
an increase of 151.0%. In 2003, we began to scale up our marketing spending as we shifted from test-level spending in 2002. During the year
we focused our acquisition efforts on existing programs as well as new marketing channels that have a proven positive return on investment.
Existing programs that are working well and we plan to continue to invest in include, among other programs, web partnerships; software- and
hardware-based partnerships; retail partnerships; our customer referral program; and our remarketing efforts. In addition, we continue to see
positive return on investments in the direct mail and online advertising channels.
General and Administrative. General and administrative expenses principally consist of compensation and related costs for executive and
administrative personnel, fees for legal and other professional services, depreciation of equipment and software used for general corporate
purposes and amortization of intangible assets and deferred compensation. General and administrative expenses decreased from $15.5 million
for the year ended December 31, 2002, to $14.5 million for the year ended December 31, 2003, a decrease of 6.5%. The decrease is primarily
due to a reduction in depreciation of fixed assets.
Interest Income (Expense), Net. Interest income (expense), net consists of income from cash equivalents and investments, net of interest
expense related to financing obligations. Net interest income for the years ended December 31, 2002 and 2003 were $4.9 million and
$3.3 million, respectively. This decrease is primarily due to lower invested balances in cash equivalents and investments as well as overall
lower interest rates year over year.
Years Ended December 31, 2001 and 2002
Revenue. 2001 and 2002 revenue was derived primarily from three sources: (1) service fees charged to customers for the ability to buy and
print postage, (2) professional contract revenue, received from Mail Boxes Etc. USA, Inc., for shipping tools used by Mail Boxes Etc. USA,
Inc. franchise locations and (3) other revenue, consisting of on-
line store revenue, advertising revenue from controlled access advertising to our
existing customer base, and revenue from the direct sale of consumables, such as NetStamps labels.
Service fee revenue decreased from $16.3 million to $14.9 million, or 8.8%, for the years ended December 31, 2001 and 2002, respectively.
The decrease in service fee revenue was primarily due to a decline in customers throughout most months of 2002. This can be attributed to
minimal marketing spend prior to our new product releases in the third and fourth quarters of 2002.
Product sales and other revenue decreased from $3.1 million to $1.5 million, or 53.2%, for the years ended December 31, 2001 and 2002,
respectively. The decrease is primarily due to the Mail Boxes Etc. USA, Inc. agreement that was initiated in 2000 and terminated in January
2001. Further, there was a reduction of the bounty that we earned under our agreement with Office Depot, which was amended in January
2002.
Cost of Revenues. Cost of revenues principally consists of the cost of customer service, promotional expenses, system operating costs and
consumables and products sold through our online store.
Cost of service revenue decreased from $6.9 million for the year ended December 31, 2001, to $5.0 million for the year ended December 31,
2002, a decrease of 26.9%. The decrease is primarily due to increased automation and reduced labor costs in our customer support operations.
We also reduced promotional expenses by decreasing the amount of free postage given to each new customer.
Cost of product sale and other revenue decreased from $1.1 million for the year ended December 31, 2001, to $299,000 for the year ended
December 31, 2002, a decrease of 72.2%. The decrease is primarily due to the reduction of the online store activity during 2002.
Research and Development. Research and development expenses principally consist of compensation for personnel involved in the
development of our service and, in 2001, enterprise shipping service and expenditures for consulting services and third-party software.
Research and development expenses for the year ended December 31, 2002 decreased to $4.8 million from $12.6 million for the year ended
December 31, 2001, a decrease of 61.9%. The
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