Earthlink 2015 Annual Report Download - page 35

Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements
with a narrative from the perspective of management. The following MD&A should be read in conjunction with audited Consolidated Financial Statements and
notes thereto included elsewhere in this Annual Report on Form 10-K. Certain statements in this MD&A are forward-looking statements. Important factors that
could cause actual results to differ from estimates or projections contained in the forward-looking statements are described under “Cautionary Note Concerning
Factors That May Affect Future Results” in this Item 7.
Overview
EarthLink Holdings Corp. (“EarthLink” or the “Company”), together with our consolidated subsidiaries, is a leading managed network, security and cloud services
provider to business and residential customers in the United States. We provide a broad range of data, voice and managed network services to retail and wholesale
business customers. We also provide nationwide Internet access and related value-added services to residential customers. We operate an extensive network
including more than 29,000 route miles of fiber and 90 metro fiber rings that provide data and voice IP service coverage across more than 90 percent of the United
States.
2015 Highlights
Key developments in our business during 2015 are described below:
• Generated revenues of $1.1 billion in 2015, a 7% decrease during the year primarily driven by declines in traditional voice and data products,
discontinuing sales of certain products and mandated rate reductions, partially offset by targeted price increases and increased sales of our growth
products.
•Reduced cost of revenues 10% during 2015, primarily due to the decline in revenues noted above as well as a concentrated effort to manage cost of
revenues through network grooming, auditing telecommunications vendor invoices and other cost saving initiatives.
• Generated a net loss of $43.2 million in 2015, a decrease from a net loss of $72.8 million in the prior year, which reflects an increase in Adjusted EBITDA
as described below.
• Generated Adjusted EBITDA (a non-GAAP measure, see “Non-GAAP Financial Measures” in this Item 7) of $242.5 million in 2015, an increase from
$213.0 million in the prior year, primarily due to improvements in our cost of revenues and operating expenses resulting from various cost savings
initiatives, partially offset by the decrease in revenues noted above.
• Made capital expenditures of $87.5 million in 2015, a 15% reduction from the prior year, primarily due to improving our processes and being more
efficient, as well as a decrease in customer additions.
•Redeemed or repurchased $126.1 million of outstanding debt for $131.3 million during 2015, and drew down $35.0 million (net of repayments) under our
senior secured revolving credit facility.
• Made $26.4 million of dividend payments to shareholders in 2015.
Change in Reportable Segments
We have historically operated two reportable segments, Business Services and Consumer Services. Our Business Services segment provided a broad range of data,
voice and managed network services to retail and wholesale business customers. Our Consumer Services segment provided nationwide Internet access and related
value-added services to residential customers. During 2015, we implemented certain organizational, operational and reporting changes that resulted in the
disaggregation of our Business Services segment into three separate reportable segments: Enterprise/Mid-Market, Small Business and Carrier/Transport. Our
Consumer Services segment was not impacted. Our new reportable segments are strategic business units aligned around distinct customer categories. We
reorganized our organization around these business units to optimize operations. We believe this structure allows for better management accountability and
decision making while providing greater visibility to our Chief Operating Decision Maker. We began reporting the disaggregated information to our Chief
Operating Decision Maker during the third quarter of 2015. We now operate the following four reportable segments:
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