Earthlink 2014 Annual Report Download - page 46

Table of Contents
Segment Results of Operations
We evaluate the performance of our operating segments based on segment operating income. Segment operating income includes revenues from
external customers, related cost of revenues and operating expenses directly attributable to the segment, which include expenses over which
segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, operations
expenses, product development expenses, certain technology and facilities expenses, billing operations and provisions for doubtful accounts.
Segment operating income excludes other income and expense items and certain expenses over which segment managers do not have
discretionary control. Costs excluded from segment operating income include various corporate expenses (consisting of certain costs such as
corporate management, human resources, finance and legal), depreciation and amortization, impairment of goodwill and intangible assets,
restructuring, acquisition and integration-related costs and stock-
based compensation expense, as they are not considered in the measurement of
segment performance.
Business Services Segment
The following table sets forth operating results for our Business Services segment for the years ended December 31, 2012, 2013 and 2014 :
The decreases in Business Services operating income during the years ended December 31, 2013 and 2014 compared to the prior years compared
to the prior year were primarily due to declines in revenues for traditional voice and data products, partially offset by revenues from our growth
products and revenues from CenterBeam beginning in July 2013. The decrease in Business Services operating income improved in 2014 due to
efforts to protect our revenue base, such as targeted price increases and re-terms, and efforts to manage cost of revenues and operating expenses.
Consumer Services Segment
Consumer Services Operating Metrics
The following table sets forth subscriber and operating data for our Consumer Services segment for the years ended December 31, 2012, 2013
and 2014 :
41
Year Ended December 31, 2013 vs 2012 2014 vs 2013
2012 2013 2014 $ Change % Change $ Change % Change
(dollars in thousands)
Revenues
$
1,017,425
$
964,227
$
930,931
$
(53,198
)
(5)%
$
(33,296
)
(3
)%
Cost of revenues
527,514
506,245
469,523
(21,269
)
(4)%
(36,722
)
(7
)%
Segment operating expenses
332,542
342,630
345,982
10,088
3%
3,352
1
%
Segment operating income
$
157,369
$
115,352
$
115,426
$
(42,017
)
(27)%
$
74
—
%
Year Ended December 31,
2012 2013 2014
Consumer Subscriber Activity
Subscribers at beginning of year
1,350,000
1,139,000
976,000
Gross organic subscriber additions
146,000
105,000
75,000
Churn
(357,000)
(268,000)
(230,000)
Subscribers at end of year (a)
1,139,000
976,000
821,000
Consumer Metrics
Average dial-up subscribers (b)
678,000
582,000
511,000
Average high-speed subscribers (b)
562,000
473,000
385,000
Average consumer subscribers (b)
1,240,000
1,055,000
896,000
ARPU (c)
$
21.34
$
21.83
$
22.89
Churn rate (d)
2.4
%
2.1
%
2.1
%