Stamps.com 2014 Annual Report Download - page 38

Operating Expenses
The following table outlines the components of our operating expense and their respective percentages of total revenue for the periods indicated
(in thousands except percentage):
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Sales and marketing expense increased 11% to $43.7 million in 2014 from
$39.5 million in 2013. The increase is primarily due to the addition of sales and marketing expense from our ShipStation and ShipWorks
acquisitions as well as the increased marketing spending as we continued to focus on acquiring customers in our Core mailing and shipping
business while spending in our Non-Core mailing and shipping and PhotoStamps businesses both decreased compared to 2013. Ongoing
marketing programs include the following: customer referral programs, customer re-marketing efforts, direct mail, online advertising,
partnerships, telemarketing, and traditional advertising.
Research and Development
Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation
of equipment and software and expenditures for consulting services and third party software. Research and development expense increased 21%
to $13.3 million in 2014 from $11.0 million in 2013. The increase is primarily due to the addition of research and development expense from our
ShipStation and ShipWorks acquisitions as well as an increase in headcount-related expenses to support our expanded product offerings and
technology infrastructure investments.
General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative personnel, fees for
legal and other professional services, depreciation of equipment, software and building used for general corporate purposes and amortization of
intangible assets. General and administrative expense increased 59% to $25.1 million in 2014 from $15.8 million in 2013. General and
administrative expense as a percentage of revenue increased to 17% in 2014 from 12% in 2013. The increase, both on an absolute basis and as a
percentage of revenue, is primarily attributable to (1) the addition of general and administrative expense from our ShipStation and ShipWorks
acquisitions as well as increase in headcount related expenses (2) headcount and infrastructure investments to support our multi-subsidiary
structure post acquisitions as well as the growth in the business, (3) increased corporate legal expenses not related to our acquisitions (4) the
inclusion of acquisition related legal and accounting related expenses and (5) the amortization of acquired intangibles in 2014 that we did not
have in 2013.
Contingent consideration charges
Contingent consideration charges are attributable to the change in the fair value of our contingent consideration liability related to the acquisition
of ShipStation and were $8.4 million in 2014. We did not have this charge in 2013. See Note 3 – “Acquisition” in our Notes to Consolidated
Financial Statements for further description of our contingent consideration liability related to the acquisition of ShipStation.
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Table of Contents
2014
2013
Operating Expenses:
Sales and marketing
$
43,659
$
39,449
Research and development
13,309
10,958
General and administrative
25,147
15,794
Contingent consideration charges
8,438
-
Total operating expenses
$
90,553
$
66,201
Operating expenses as a percentage of total revenue:
Sales and marketing
30
%
31
%
Research and development
9
%
9
%
General and administrative
17
%
12
%
Contingent consideration charges
6
%
-
Total operating expenses
61
%
52
%