Segment Information | Segment Information General The Company reports segment information along the same lines that its Chief Operating Decision Maker reviews its operating results in assessing performance and allocating resources. The Company's Chief Operating Decision Maker is its Chief Executive Officer. The Company's reportable segments are strategic business units that are aligned around distinct customer categories to optimize operations. The Company operates the following four reportable segments: • Enterprise/Mid-Market . The Company’s Enterprise/Mid-Market segment provides a broad range of data, voice and managed network services to distributed multi-site business customers. • Small Business . The Company’s Small Business segment provides a broad range of data, voice and managed network services to small, often single-site business customers. • Carrier/Transport . The Company’s Carrier/Transport segment provides transmission capacity and other data, voice and managed network services to telecommunications carriers and large enterprises. • Consumer . The Company’s Consumer segment provides nationwide Internet access and related value-added services to residential customers. Segment Results The following table presents segment results for the three and nine months ended September 30, 2015 and 2016 : Three Months Ended Nine Months Ended September 30, September 30, 2015 2016 2015 2016 (in thousands) Enterprise/Mid-Market Revenues $ 110,051 $ 97,972 $ 338,809 $ 300,247 Cost of revenues (excluding depreciation and amortization) 54,574 51,314 167,062 153,384 Gross margin 55,477 46,658 171,747 146,863 Small Business Revenues 72,876 53,722 230,577 $ 173,124 Cost of revenues (excluding depreciation and amortization) 34,059 25,953 106,577 82,892 Gross margin 38,817 27,769 124,000 90,232 Carrier/Transport Revenues 34,190 35,575 101,606 $ 106,768 Cost of revenues (excluding depreciation and amortization) 14,839 16,393 46,124 47,146 Gross margin 19,351 19,182 55,482 59,622 Consumer Revenues 53,787 47,856 166,023 $ 149,605 Cost of revenues (excluding depreciation and amortization) 18,919 15,880 59,138 52,258 Gross margin 34,868 31,976 106,885 97,347 Total Segments Revenues 270,904 235,125 837,015 729,744 Cost of revenues (excluding depreciation and amortization) 122,391 109,540 378,901 335,680 Gross margin $ 148,513 $ 125,585 $ 458,114 $ 394,064 The following table presents a reconciliation of segment gross margin to consolidated income (loss) before income taxes for the three and nine months ended September 30, 2015 and 2016 : Three Months Ended Nine Months Ended September 30, September 30, 2015 2016 2015 2016 (in thousands) Segment gross margin $ 148,513 $ 125,585 $ 458,114 $ 394,064 Operating costs and expenses: Selling, general and administrative expenses 90,775 79,056 280,382 237,393 Depreciation and amortization 46,502 32,569 141,489 106,339 Restructuring, acquisition and integration-related costs 5,486 2,844 14,836 9,136 Total operating costs and expenses 142,763 114,469 436,707 352,868 Income from operations 5,750 11,116 21,407 41,196 Gain on sale of business — 3,401 — 9,128 Interest expense and other, net (11,731 ) (9,877 ) (39,780 ) (31,810 ) Loss on extinguishment of debt (2,482 ) (4,365 ) (9,734 ) (4,823 ) Income (loss) before income taxes $ (8,463 ) $ 275 $ (28,107 ) $ 13,691 The Company evaluates performance of its segments based on segment gross margin. Segment gross margin includes revenues from external customers and related cost of revenues. Costs excluded from segment gross margin include selling, general and administrative expenses, depreciation and amortization, restructuring, acquisition and integration-related costs, gain on sale of business, interest expense and other, net, and loss on extinguishment of debt, as they are not considered in the measurement of segment performance. Management periodically evaluates the segmentation of customers within the distinct customer categories, which may result in changes to segment information in the future. The Company manages its working capital on a consolidated basis and does not allocate long-lived assets to segments. In addition, segment assets are not reported to, or used by, the Chief Operating Decision Maker and therefore, total segment assets and expenditures for additions of long-lived assets have not been disclosed. The Company has not provided information about geographic segments because substantially all of the Company’s revenues, results of operations and identifiable assets are in the United States. Revenues by Type The Company generates revenues by providing a broad range of data, voice and managed network services to business and residential customers. The Company’s revenues primarily consist of the following: • Monthly recurring charges for providing data, voice and managed network services; transmission capacity; and Internet access and related value-added services; • Usage revenues; • Equipment revenues; and • Non-recurring and other revenues, such as installation fees, termination fees and administrative fees. The following table presents revenue detail for the three and nine months ended September 30, 2015 and 2016 : Three Months Ended Nine Months Ended September 30, September 30, 2015 2016 2015 2016 (in thousands) Monthly recurring revenues $ 240,360 $ 205,285 $ 739,480 $ 641,380 Usage revenues 24,284 19,791 77,082 63,520 Equipment revenues 3,617 3,906 11,276 11,960 Non-recurring and other revenues 2,643 6,143 9,177 12,884 Total revenues $ 270,904 $ 235,125 $ 837,015 $ 729,744 |