Earthlink 2015 Annual Report Download - page 36

Download and view the complete annual report

Please find page 36 of the 2015 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

Table of Contents
•Enterprise/Mid-Market . Our Enterprise/Mid-Market segment provides a broad range of data, voice and managed network services to distributed multi-
site business customers.
•Small Business . Our Small Business segment provides a broad range of data, voice and managed network services to small, often single-site business
customers.
•Carrier/Transport . Our Carrier/Transport segment provides transmission capacity and other data, voice and managed network services to
telecommunications carriers and large enterprises.
•Consumer Services . Our Consumer Services segment provides nationwide Internet access and related value-added services to residential customers.
We began recording revenue and cost of revenue transactions in the new segment structure during 2015. Management determined that it is impracticable to restate
financial information prior to 2015 to conform to the new reportable segment structure due to the level of effort required to segment customers that terminated
service prior to 2015 and identify the related cost of revenue associated with those customers, as this information is not currently available. As a result, our results
of operations discussion focuses on the previous segment structure since we are able to present comparable periods. For more information concerning our
reportable segments, see Note 12 to our Consolidated Financial Statements and see "Segment Results of Operations" later in this MD&A.
Sale of IT Services Assets
In February 2016, we sold certain assets related to our IT services product offerings in connection with our strategy to simplify our operations and provide more
flexibility to invest in new capabilities and services to drive growth in our core business. The purchase price in the transaction was $29.0 million, subject to post-
closing contingencies. We received $26.0 million of cash upon completion of the sale. The other $3.0 million of consideration was deposited into an escrow
account to fund potential indemnification obligations. The loss of revenues related to our IT services product offerings will contribute to our revenue declines in
2016.
Business Strategy
Our business strategy is to be a leading managed network, security and cloud services provider for multi-location retail and service businesses. We believe there is
a significant market opportunity for managed network, security and cloud services due to the changing technological and business landscape, which is experiencing
increased demand for data, evolving security threats, a shift towards more software based solutions, increased use of outsourcing and tightening budgets. We are
positioning our company to focus on this opportunity. The key elements of our business strategy and transformation are as follows:
•Operate each of our business units with focused, value-optimizing strategies. During 2015, we aligned our organization around four distinct business
units, which are Enterprise/Mid-Market, Small Business, Carrier/Transport and Consumer. We believe this concentrates our resources and investments
into areas that will drive growth and deliver improved performance, enable each business to compete more successfully in the market and provide
strategic optionality. We are focused on operating each business unit with value-optimizing strategies, which are managing the decline in our Small
Business and Consumer Services business units and investing the cash flow to grow our Enterprise/Mid-Market and Carrier/Transport business units.
•Optimize our cost structure and cash flows. We are focused on optimizing our cost structure and maximizing our cash flows. This includes managing our
cost of revenues and operating expenses, streamlining our internal processes and aligning our workforce to current revenue trends. It also includes the
repayment and/or refinancing of debt in order to reduce our interest expense. We plan to use the cash flow generated from our improvement efforts to
continue to optimize our balance sheet and invest in growth.
•Invest in growth business products, marketing and sales. Our growth business products are MultiProtocol Label Switching ("MPLS"), hosted voice,
hybrid WAN and managed network, security and cloud services for multi-location businesses and transport services for other communications carriers and
enterprises. We are focused on investing in product and service capabilities and sales and marketing initiatives to support these growth products.
•Evaluate potential strategic transactions. We continue to evaluate potential strategic transactions in order to accelerate our transformation. We believe
that targeted acquisitions, when available at the right economics, can be an effective means for growth and targeted capability building. In addition, we
continue to evaluate our business, which could lead us to discontinue or divest non-strategic products, assets or customers based on management's
assessment of their strategic value to our business.
33