Actually, contrary to the stock price, the company performed pretty well in the first quarter of this calendar year. Will this continue? We'll find out in 3 weeks! Progress must continue or the selling will increase.
Product Sales. Total product sales for the three months ended March 31, 2008 were $13.3 million, an increase of approximately $2.8 million, or 26.6%, from $10.5 million for the three months ended March 31, 2007. The increase in product sales resulted from the $1.5 million, or 20.5%, increase in on-demand product sales to $8.6 million in the three months ended March 31, 2008, from $7.1 million in the three months ended March 31, 2007. The increase in on-demand product revenue resulted from a $3.3 million increase in North American on-demand product revenue in the three months ended March 31, 2008, compared to the same period of the prior year. The increase in North American on-demand revenue was primarily due to several existing cable company customers upgrading their systems to our latest generation technology and/or expanding their systems to handle greater simultaneous usage of on-demand services. Partially offsetting this increase, on-demand product sales in the Asia/Pacific region decreased approximately $1.8 million during the three months ended March 31, 2008, compared to the same period of the prior year, due to prior year revenues from a Japanese cable distributor for a custom web client project that did not recur in the current year. Fluctuation in on-demand revenue is often due to the fact that a significant percentage of revenue is attributable to periodic large purchases by a small base of large customers.
Additionally, real-time product sales increased approximately $1.3 million, or 39.3%, to $4.7 million in the three months ended March 31, 2008 from $3.4 million in the three months ended March 31, 2007. This increase was due to a $1.4 million increase in real-time sales in Europe and Asia. The increase in international real-time sales resulted from an increase in government and defense contractor customer orders for iHawk and Imagen systems in both Europe and Asia during the three months ended March 31, 2008, compared to the same period in the prior year. This increase was primarily due to timing of orders in Europe and Asia during the three months ended March 31, 2008 and we may not generate the same level of international real-time revenue levels in subsequent quarters.
Service Revenue. Total service revenue for the three months ended March 31, 2008 was $6.1 million, an increase of approximately $0.4 million, or 7.8%, from $5.7 million for the three months ended March 31, 2007. Service revenue associated with on-demand products increased $0.3 million, or 8.2%, as we continue to expand our base of on-demand market deployments and data collection and reporting software that requires maintenance and support services. We expect that service revenue for on-demand products may continue to grow at a diminishing rate in future quarters as new, less expensive products replace older products currently under service contracts.
The increase in on-demand service revenues was accompanied by approximately a $0.1 million, or 7.1%, increase in service revenue related to real-time products. We believe service revenue associated with real-time products is beginning to stabilize. For years we have experienced a steady decline in real-time service revenues, as our legacy systems have been removed from service and, to a lesser extent, from customers purchasing our new products that produce significantly less service revenue. The remaining legacy systems are currently being removed from service at a slower rate, and additional maintenance on our newer real-time systems and software continue to grow with the related expanding base of products and software. We expect real-time service revenues to remain somewhat level over the next twelve months, but to ultimately decline further, partially offset by newer system service, as additional legacy systems continue to be removed from service.
Product Gross Margin. Product gross margin was $7.3 million for the three months ended March 31, 2008, an increase of approximately $2.6 million, or 54.3%, from $4.7 million for the three months ended March 31, 2007. Product gross margin as a percentage of product revenue increased to 54.7% in the three months ended March 31, 2008 from 44.8% in the three months ended March 31, 2007. Product gross margins, as a percentage of product revenue, increased primarily due to a favorable real-time product mix, as well as technological advances in our systems allowing us to utilize less hardware per system, coupled with a lower fixed component of labor and overhead and our ability to purchase product components at lower prices during the three months ended March 31, 2008, compared to the same period in the prior year.
Service Gross Margin. The gross margin on service revenue increased approximately $0.2 million, or 5.5%, to $3.3 million, or 54.8% of service revenue in the three months ended March 31, 2008 from $3.2 million, or 56.0% of service revenue in the three months ended March 31, 2007. The increase in service margins was primarily due to additional maintenance revenue generated from our expanding customer base. We expect to maintain similar or slightly higher service margins as we continue to expand our support revenue base and manage costs related to our maintenance and support infrastructure.
Sales and Marketing. Sales and marketing expenses increased approximately $0.4 million, or 10.9% to $3.9 million in the three months ended March 31, 2008 from $3.5 million in the three months ended March 31, 2007. Sales and marketing expenses increased primarily due to a $0.3 million increase in commission and other incentive compensation generated by an increase in sales in the three months ended March 31, 2008, compared to the same period in the prior year.
Research and Development. Research and development expenses decreased approximately $0.4 million, or 8.1%, to approximately $4.2 million in the three months ended March 31, 2008 from $4.6 million in the three months ended March 31, 2007. Decreasing research and development expenses were primarily due to the fact that we incurred $0.2 million less in depreciation expense related to development and test equipment in the three months ended March 31, 2008, compared to the same period in the prior year, as a result of a downward trend in capital expenditures for development and test equipment over the past few years. The decrease in research and development expenses was further attributable to a $0.1 million reduction in lease costs during the three months ended March 31, 2008, compared to the same period in the prior year, due to relocating our UK development team to a smaller and less expensive office during the current fiscal year.
General and Administrative. General and administrative expenses remained relatively flat, decreasing $0.1 million, or 4.0%, to $2.4 million in the three months ended March 31, 2008, from $2.5 million in the three months ended March 31, 2007. This decrease in general and administrative expenses resulted from a $0.1 million reduction in international salaries, wages and benefits in the three months ended March 31, 2008, compared to the prior year, as part of our business plan to reduce operating costs going forward. Additionally, insurance expense decreased by $0.1 million in the three months ended March 31, 2008, compared to the same period of the prior year, due to our ability to obtain more favorable insurance pricing in the current year. Partially offsetting these general and administrative cost reductions, during the three months ended March 31, 2008 we incurred approximately $0.2 million of severance charges for termination of part of our administrative workforce in Australia and North America as part of our business plan to reduce operating costs going forward. |
