Earthlink 2014 Annual Report Download - page 39

Table of Contents
Business Outlook
We expect continued declines in Business Services revenues from traditional voice and data products. In addition, we expect revenues to decline
as we simplify and rationalize our product portfolio and as we limit sales to small business customers. However, we are increasing revenues
from our growth products services. As a result, we expect the mix of our Business Service revenues to change over time, from traditional
products to growth products and services. We expect our consumer access subscriber base and revenues to continue to decrease due to limited
sales and marketing activities, competition from cable, DSL and wireless providers, declines in gross broadband subscriber additions and the
continued maturation of the market for narrowband Internet access. However, we expect the rate of churn to continue to generally decline as our
customer base becomes longer tenured. We expect cost of revenues and operating expense to decline due to our cost saving initiatives and lower
sales of traditional voice and data products, which will partially offset the revenue declines.
Consolidated Results of Operations
The following table sets forth statement of operations data for the years ended December 31, 2012, 2013 and 2014 :
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• Traditional business services revenues .
Our traditional business voice and data service revenues have been declining due to
competition and migration to more advanced integrated voice and data services, and we expect this trend to continue. We have also
experienced an increase in churn for these products, especially as customers come out of contract term and as we implement targeted
price increases.
• Consumer access declines
. Our consumer access subscriber base and revenues have been declining and are expected to continue to
decline due to the continued maturation of the market for Internet access and competitive pressures in the industry. In addition, we have
implemented, and expect to continue to implement, targeted price increases, which could negatively impact our churn rates. However,
we are focused on customer retention and, as a result, the rate of churn and revenue decline has declined as our customer base becomes
longer tenured.
•
Dispute settlements.
Due to the nature of our industry, we are periodically involved in disputes related to our billings to other carriers
for access to our network and network access charges that we are assessed by other companies. The disputes often take significant time
to resolve, and they may be resolved or require adjustment in future periods although they relate to costs and revenues in prior periods.
We have experienced an increase in dispute settlements impacting revenues and cost of revenues over the past few years, and this trend
is likely continue.
Year Ended December 31,
2012 2013 2014
(in thousands)
Revenues
$
1,335,135
$
1,240,606
$
1,176,895
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown
separately below)
632,616
600,742
557,436
Selling, general and administrative (exclusive of of depreciation and
amortization shown separately below)
429,087
426,070
419,019
Depreciation and amortization
183,165
183,114
186,872
Impairment of goodwill and long-lived assets
—
255,599
14,334
Restructuring, acquisition and integration-related costs
18,244
40,030
20,088
Total operating costs and expenses
1,263,112
1,505,555
1,197,749
Income (loss) from operations
72,023
(264,949
)
(20,854
)
Interest expense and other, net
(63,416
)
(60,686
)
(56,261
)
Income (loss) from continuing operations before income taxes
8,607
(325,635
)
(77,115
)
Income tax (provision) benefit
1,331
(211,231
)
4,744
Income (loss) from continuing operations
9,938
(536,866
)
(72,371
)
Loss from discontinued operations, net of tax
(2,418
)
(1,961
)
(381
)
Net income (loss)
$
7,520
$
(538,827
)
$
(72,752
)