XM Radio 2014 Annual Report Download - page 88

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•2013 vs. 2012: For the years ended December 31, 2013 and 2012, subscriber acquisition
costs were $495,610 and $474,697, respectively, an increase of 4%, or $20,913, but
decreased as a percentage of total revenue. The increase was primarily a result of higher
subsidies related to increased OEM installations and lower benefit to earnings from the
amortization of the deferred credit for acquired executory contracts recognized in purchase
price accounting associated with the Merger, partially offset by improved OEM subsidy rates
per vehicle.
We expect subscriber acquisition costs to fluctuate with OEM installations and aftermarket
volume; however, the cost of subsidized radio components is expected to decline. We intend to
continue to offer subsidies, commissions and other incentives to acquire subscribers.
Sales and Marketing includes costs for marketing, advertising, media and production, including
promotional events and sponsorships; cooperative marketing; and personnel. Marketing costs
include expenses related to direct mail, outbound telemarketing and email communications.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, sales and marketing
expenses were $336,480 and $291,024, respectively, an increase of 16%, or $45,456, and
increased as a percentage of total revenue. The increase was primarily due to additional
subscriber communications and retention programs associated with a greater number of
subscribers and promotional trials, the inclusion of a full year of costs associated with our
connected vehicle services business, increased personnel costs, and the elimination of the
benefit to earnings in 2014 from the amortization of the deferred credit for acquired executory
contracts recognized in purchase price accounting associated with the Merger; partially offset
by lower loyalty costs due a change in a contract with an automaker. The benefit to earnings
from the amortization of the deferred credit for acquired executory contracts for the year
ended December 31, 2013 was $12,922.
•2013 vs. 2012: For the years ended December 31, 2013 and 2012, sales and marketing
expenses were $291,024 and $248,905, respectively, an increase of 17%, or $42,119, and
increased as a percentage of total revenue. The increase was primarily due to additional
subscriber communications and retention programs associated with a greater number of
subscribers and promotional trials.
We anticipate that sales and marketing expenses will increase as we expand programs to
retain our existing subscribers, win back former subscribers, and attract new subscribers.
Engineering, Design and Development consists primarily of compensation and related costs to
develop chipsets and new products and services, research and development for broadcast
information systems and costs associated with the incorporation of our radios into new vehicles
manufactured by automakers.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, engineering, design and
development expenses were $62,784 and $57,969, respectively, an increase of 8%, or
$4,815, but remained flat as a percentage of total revenue. The increase was driven primarily
by the inclusion of a full year of costs associated with our connected vehicle services
business and higher personnel costs.
•2013 vs. 2012: For the years ended December 31, 2013 and 2012, engineering, design and
development expenses were $57,969 and $48,843, respectively, an increase of 19%, or
$9,126, but remained flat as a percentage of total revenue. The increase was driven primarily
by higher product development costs, costs related to enhanced subscriber features and
functionality for our service, and by the reversal of certain non-recurring engineering charges
that were recorded in the second quarter of 2012.
We expect engineering, design and development expenses to increase in future periods as we
continue to develop our products and services.
General and Administrative primarily consists of compensation and related costs for personnel
and facilities, and include costs related to our finance, legal, human resources and information
technologies departments.
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