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Cost of Revenues
Cost of revenues is primarily comprised of costs associated with data and voice transmission, DIDs, network operations, customer
service, online processing fees and equipment depreciation. Cost of revenues was $44.1 million, or 17% of revenues, $44.7 million, or 18% of
revenues, and $46.3 million, or 19% of revenues, for the years ended December 31, 2010, 2009 and 2008, respectively. Cost of revenues as a
percentage of revenues decreased from 2008 to 2009 to 2010 primarily due to increased efficiency of network operations, customer service and
reduced depreciation.
Operating Expenses
Sales and Marketing . Our sales and marketing costs consist primarily of Internet-
based advertising, sales and marketing, personnel
costs and other business development-related expenses. Our Internet-
based advertising relationships consist primarily of fixed cost and
performance-based (cost-per-impression, cost-per-click and cost-per-
acquisition) advertising relationships with an array of online service
providers. We have a disciplined return-on-investment approach to our Internet-
based advertising and marketing spend, which causes sales and
marketing costs as a percentage of total revenues to vary from period to period based upon available opportunities. Advertising cost for the year
ended December 31, 2010, 2009 and 2008 was $36.3 million, $28.3 million and $30.3 million, respectively. Total sales and marketing expense
was $46.3 million, or 18% of revenues, $37.0 million, or 15% of revenues, and $41.3 million, or 17% of revenues, for the years ended December
31, 2010, 2009 and 2008, respectively. The increase in sales and marketing expenses from 2009 to 2010 was primarily due to
increased
marketing worldwide to enhance the acquisition of free customers for fax and voice services
and an increase in personnel and severance costs
associated with personnel from businesses acquired in fiscal 2010 .
The decrease in sales and marketing expenses as a percentage of revenues
from 2008 to 2009 was primarily due to more efficient and cost effective marketing opportunities both in the United States and around the world.
Research, Development and Engineering . Our research, development and engineering costs consist primarily of personnel-
related
expense. Research, development and engineering expense was $12.8 million, or 5% of revenues, $11.7 million, or 5% of revenues, and $12.0
million, or 5% of revenues, for the years ended December 31, 2010, 2009 and 2008, respectively. The increase in research, development and
engineering costs from 2009 to 2010 was primarily due to an increase in personnel and severance costs associated with personnel from
businesses acquired in fiscal 2010. The decrease in research, development and engineering costs from 2008 to 2009 was primarily due to
increased efficiency and synergies from the integration of acquisitions.
General and Administrative . Our general and administrative costs consist primarily of personnel-
related expenses, depreciation and
amortization, share-
based compensation expense, bad debt expense and insurance costs. General and administrative expense was $48.2 million,
or 19% of revenues, $45.3 million, or 18% of revenues, and $44.0 million, or 18% of revenues, for the years ended December 31, 2010, 2009
and 2008, respectively. The increase in general and administrative expense from 2009 to 2010 was primarily due to an
increase in personnel and
severance costs associated with personnel from businesses acquired in fiscal 2010,
increased professional fees, compensation costs and office
rent offset by decreased customer refunds and credits and bad debt expense.
The increase in general and administrative expense from 2008 to
2009 was primarily due to increased amortization resulting from acquisitions and compensation costs offset by decreased bad debt and
professional fee expenses.
Loss on disposal of long-lived asset
. During the fourth quarter of 2009, we determined based upon our current and future business
needs that the rights to certain external administrative software would not provide any future benefit. Accordingly, we recorded a disposal in the
amount of $2.4 million to the consolidated statement of operations representing the capitalized cost as of December 31, 2009. Total disposals of
long-lived assets for the year ended December 31, 2010, 2009 and 2008 was approximately $0.2 million, $2.5 million and zero, respectively.
Share
-Based Compensation
The following table represents the share-
based compensation expense included in cost of revenues and operating expenses in the
accompanying consolidated statements of operations for the years ended December 31, 2010, 2009 and 2008 (in thousands):
Year Ended December 31,
2010
2009
2008
Cost of revenues
$
1,217
$
1,263
$
901
Operating expenses:
Sales and marketing
1,826
1,818
1,268
Research, development and engineering
815
853
803
General and administrative
7,079
7,084
5,014
$
10,937
$
11,018
$
7,986
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