Earthlink 2013 Annual Report Download - page 41

Table of Contents
General Developments in our Business
Key developments in our business during 2013 are described below:
Trends in our Business
Our financial results are impacted by several significant trends, which are described below.
Industry factors .
We operate in the communications and IT services industry, which is characterized by intense competition, industry
consolidation resulting in larger competitors, an evolving regulatory environment, changing technology and changes in customer needs. We
expect these trends to continue. In addition, merger and acquisition transactions and other factors have reduced the number of vendors from
which we may purchase network elements that we leverage to operate our business.
Traditional business services revenues .
Our traditional voice and data business service revenues, specifically traditional voice and
lower-
end, single site broadband services, have been declining due to competitive pressures and changes in the industry, and we expect this trend
to continue. We have also experienced an increase in churn for these retail products, especially as customers come out of contract term. To
counteract trends in our Business Services revenues, we are focused on building long-
term customer relationships, offering customers a bundle
that includes our growth services and focusing on larger, more complex customers who have a lower churn profile. As a result, sales in our
growth products have increased and the mix of new sales is shifting towards our growth products. We are also taking steps to lower the cost
structure of our Business Services operations.
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• Issued $300.0 million aggregate principal amount of 7.375% Senior Secured Notes due 2020 (the “Senior Secured Notes”)
in May 2013
and used the net proceeds, together with available cash, to fund a tender offer and redemption of our ITC^DeltaCom 10.5% Senior
Secured Notes due April 2016 (the "ITC^DeltaCom Notes"), which had been assumed in connection with our acquisition of
ITC^DeltaCom, Inc. ("ITC^DeltaCom"). The debt issuance and redemption will reduce the amount of interest we will pay going
forward.
• Acquired substantially all of the assets of CenterBeam, Inc. ("CenterBeam"), a privately-
held information technology managed service
provider delivering cloud computing and hosted IT services to mid-
sized businesses, in July 2013 for a total consideration of
approximately $23.5 million to further grow our IT services portfolio by adding IT services customer scale, expanded IT support center
resources and complementary products and capabilities.
• Sold our ITC^DeltaCom telecom systems business in August 2013, which was a low margin business that generated mostly non-
recurring revenue streams.
•
Completed the roll out of four additional data centers, launched our next generation cloud hosting platform in five of our eight data
centers and expanded our fiber network with additional unique routes.
•
Made progress in the integration of our operating support systems and began to leverage some of these new capabilities in pursuing our
business strategy.
• Generated revenues of $1.2 billion in 2013, a 7% decrease during the year consisting of a $53.2 million
decrease in Business Services
revenue and a $41.3 million
decrease in Consumer Services revenue. The decreases were primarily driven by declines in traditional
voice and data products. However, partially offsetting these declines was an increase in sales of growth products for our Business
Services and a decrease in churn for our Consumer Services.
• Generated a net loss of $538.8 million
in 2013, which reflects a $255.6 million goodwill impairment and related tax impact, a $265.3
million increase to our income tax provision due to the recording of a full valuation allowance against our deferred tax assets, an
increase in restructuring, acquisition and integration costs and a decrease in Adjusted EBITDA, as described below.
• Generated Adjusted EBITDA (a non-GAAP measure, see “Non-GAAP Financial Measures” in this Item 7) of $227.1 million
in 2013, a
decrease from $283.9 million
in the prior year primarily due to the decrease in revenues from traditional voice and data products, as
well as increased costs to grow our business.
•
Made $20.8 million of dividend payments to shareholders and repurchased 1.2 million shares of common stock for $6.1 million during
the year.