Vonage 2009 Annual Report Download - page 42

Customer Equipment and Shipping Revenue and Direct Cost of
Goods Sold For the Years Ended December 31,
Dollar
Change
2009 vs.
2008
Dollar
Change
2008 vs.
2007
Percent
Change
2009 vs.
2008
Percent
Change
2008 vs.
2007
(in thousands, except percentages) 2009 2008 2007
Customer equipment and shipping $ 24,232 $ 34,355 $ 24,706 $(10,123) $ 9,649 (29%) 39%
Direct cost of goods sold 71,488 79,382 59,117 (7,894) 20,265 (10%) 34%
Customer equipment and shipping gross loss (47,256) (45,027) (34,411)
2009 compared to 2008
Customer equipment and shipping revenue. Our customer
equipment and shipping revenue decreased by $10,123, or
29%, primarily due to the impact of less period over period
customer additions and the introduction of a new promotion in
May 2009 that eliminated equipment and shipping fees for cus-
tomers who signed up for our residential unlimited plan, which
resulted in a decrease in the dollar value of customer equipment
sales net of rebates of $3,653 and a decrease in customer ship-
ping revenue of $6,470.
Direct cost of goods sold. The decrease in direct cost of
goods sold of $7,894, or 10%, was primarily due to a decrease
in customer equipment costs of $7,382 resulting from fewer
period over period customer additions and lower promotional
activity and a corresponding decrease in shipping costs of
$2,650. There was also a decrease in amortization costs on
deferred customer equipment of $1,062 including $2,852
increase due to the change of our customer life from 48 months
to 44 months in the first quarter of 2009 and an increase in
waived activation fees for new customers of $3,200.
2008 compared to 2007
Customer equipment and shipping revenue. Our customer
equipment and shipping revenue increased by $9,649, or 39%,
primarily due to an increase in the dollar value of customer
equipment sales of $19,791 including sales in the retail channel
for replacement devices or upgrades that do not yield a new
activation offset by the increase in customer rebates of $8,493
and the decrease in customer shipping revenue of $1,649 due to
less period over period customer additions.
Direct cost of goods sold. The increase in direct cost of
goods sold of $20,265, or 34%, was due to an increase in the
cost of customer equipment of $9,072, which included $7,606 of
amortization costs on deferred customer equipment due to the
change of our customer life from 60 months to 48 months in the
first quarter of 2008. In addition, there was a decrease in activa-
tion fees for new customers of $10,447 due to lower gross line
additions which contributed $5,085 and an increase in waived
activation fees for new customers of $5,363.
Selling, General and Administrative
For the Years Ended December 31,
Dollar
Change
2009 vs.
2008
Dollar
Change
2008 vs.
2007
Percent
Change
2009 vs.
2008
Percent
Change
2008 vs.
2007(in thousands, except percentages) 2009 2008 2007
Selling, general and administrative $265,456 $298,985 $461,768 $(33,529) $(162,783) (11%) (35%)
2009 compared to 2008
Selling, general and administrative. The decrease in selling,
general and administrative expenses of $33,529, or 11%, this
decrease was primarily due to a decrease in professional fees of
$5,048, primarily related to consulting, a decrease in salaries,
recruiting and outsourced temporary labor of $17,365, and a
decrease in credit card fees of $1,483. Additionally, we reduced
the number of kiosks locations, which decreased our retail kiosk
costs by $5,135. We also had a decrease in facility and other
costs of $5,977 and a decrease in share-based cost of $3,764,
which was offset by an increase in the cost for settlements and
the potential exposure related to litigation and contractual dis-
putes of $2,055, an increase in severance costs of $267 primar-
ily due to the close down of our Canada facility and an increase
in tax expense of $2,921.
2008 compared to 2007
Selling, general and administrative. The decrease in selling,
general and administrative expenses of $162,783, or 35%, was
due to several reasons. A decrease in settlement expenses of
$132,232 related to our patent litigation with Sprint, AT&T, Ver-
izon and others for the year ended December 31, 2007
accounted for a the majority of the decrease. Professional fees,
primarily related to legal fees for our patent infringement liti-
gations, decreased by $26,932. There were decreases in sal-
aries and employee-related benefits of $6,078, a decrease of
$4,305 in workforce reduction costs and a decrease of our
facility maintenance and other administrative expenses of
$2,920. This was offset by the increase in share-based expense
of $4,696 due to the large number of forfeitures in connection
with terminated employees recorded for the year ended
December 31, 2007. As we continued to add customers, our
credit card, debit card and ECP fees have increased by $1,285.
Our kiosk sales channels increased our expense by $1,938, and
there was an increase in our outsourced labor costs of $2,691.
34 VONAGE ANNUAL REPORT 2009