Industry Segment and Geographic Information

12 Months Ended

Dec. 31, 2019

Industry Segment and Geographic Information

ASC 280, Segment Reporting, establishes reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Under ASC 280, the method for determining what information to report is based upon the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. Our chief operating decision-maker reviews revenue and gross margin information for each of our reportable segments, but does not review operating expenses on a segment by segment basis. In addition, with the exception of goodwill and intangible assets, we do not identify or allocate our assets by the reportable segments.

Business

For our Business customers, our Applications Group provides innovative, cloud-based UCaaS and CCaaS solutions, comprised of integrated voice, text, video, data, collaboration, and mobile applications over our flexible, scalable SIP based VoIP network. The API Platform Group also offers CPaaS solutions designed to enhance the way businesses communicate with their customers embedding communications into apps, websites and business processes. Together we have a robust set of product families tailored to serve the full range of the business value chain, from the SMB, market, through mid-market and enterprise markets. We provide customers with multiple deployment options, designed to provide the reliability and quality of service they demand. We provide customers the ability to integrate our cloud communications platform with many cloud-based productivity and CRM solutions, including Google’s G Suite, Zendesk, Salesforce’s Sales Cloud, Oracle, Clio, and other CRM solutions. In combination, our products and services permit our business customers to communicate with their customers and employees through any cloud-connected device, in any place, at any time without the often costly investment required with on-site equipment.

Consumer

For our Consumer customers, we enable users to access and utilize our UCaaS services and features, via a single “identity,” either a number or user name, regardless of how they are connected to the Internet, including over 3G/4G, LTE, Cable, or DSL broadband networks. This technology enables us to offer our Consumer customers attractively priced voice and messaging services and other features around the world on a variety of devices.

For our segments we categorize revenues as follows:

Services revenues. Services revenues consists primarily of revenue attributable to our communication services for Consumer and Software Defined Wide Area Network, or SD-WAN, UCaaS and CPaaS services for Business,

Access and product revenues. Product revenues include equipment sold to customers, shipping and handling, professional services, and broadband access, as well as revenues associated with providing access services to Business customers.

USF revenues. USF revenues represent fees passed on to customers to offset required contributions to the USF.

For our segments we categorize cost of revenues as follows:

Services cost of revenues. Services cost of revenues consists of costs associated with network operations and technical support personnel, communication origination, and termination services provided by third party carriers and excludes depreciation and amortization.

Access and product cost of revenues. Product cost of revenues includes equipment sold to customers, shipping and handling, professional services, cost of certain products including equipment or services that we give customers as promotions, and broadband access, as well as costs associated with providing access services to Business customers.

USF cost of revenues. USF cost of revenues represents contributions to the Federal USF and related fees.

Information about our segment results for the years ended December 31, 2019, 2018, and 2017 were as follows:



Year ended December 31, 2019
	Business			Consumer			Total
Revenues
Service revenues	$	719,514		$	340,462		$	1,059,976
Access and product revenues (1)	46,232			264			46,496
Service, access and product revenues	765,746			340,726			1,106,472
USF revenues	38,134			44,740			82,874
Total revenues	803,880			385,466			1,189,346

Cost of revenues
Service cost of revenues (2)	336,045			34,677			370,722
Access and product cost of revenues (1)	53,455			4,033			57,488
Service, access and product cost of revenues	389,500			38,710			428,210
USF cost of revenues	38,134			44,740			82,874
Total cost of revenues	427,634			83,450			511,084

Segment gross margin
Service margin	383,469			305,785			689,254
Access and product margin	(7,223		)	(3,769		)	(10,992		)
Gross margin ex-USF (Service, access and product margin)	376,246			302,016			678,262
USF margin	—			—			—
Segment gross margin	$	376,246		$	302,016		$	678,262



Segment gross margin %
Service margin %	53.3	%	89.8	%	65.0	%
Gross margin ex-USF (Service, access and product margin) %	49.1	%	88.6	%	61.3	%
Segment gross margin %	46.8	%	78.4	%	57.0	%

(1) Includes customer premise equipment, access, professional services, and shipping and handling.

(2) Excludes depreciation and amortization of $33,484, $4,683, and $38,167, respectively.



Year ended December 31, 2018
	Business			Consumer			Total
Revenues
Service revenues	$	526,707		$	394,389		$	921,096
Access and product revenues (1)	50,068			559			50,627
Service, access and product revenues	576,775			394,948			971,723
USF revenues	31,369			45,690			77,059
Total revenues	608,144			440,638			1,048,782

Cost of revenues
Service cost of revenues (2)	239,096			47,439			286,535
Access and product cost of revenues (1)	58,081			5,289			63,370
Service, access and product cost of revenues	297,177			52,728			349,905
USF cost of revenues	31,374			45,716			77,090
Total cost of revenues	328,551			98,444			426,995

Segment gross margin
Service margin	287,611			346,950			634,561
Access and product margin	(8,013		)	(4,730		)	(12,743		)
Gross margin ex-USF (Service, access and product margin)	279,598			342,220			621,818
USF margin	(5		)	(26		)	(31		)
Segment gross margin	$	279,593		$	342,194		$	621,787



Segment gross margin %
Service margin %	54.6	%	88.0	%	68.9	%
Gross margin ex-USF (Service, access and product margin) %	48.5	%	86.6	%	64.0	%
Segment gross margin %	46.0	%	77.7	%	59.3	%

(1) Includes customer premise equipment, access, and shipping and handling.

(2) Excludes depreciation and amortization of $22,554, $5,200, and $27,754, respectively.



Year ended December 31, 2017
	Business			Consumer			Total
Revenues
Service revenues	$	417,118		$	454,340		$	871,458
Access and product revenues (1)	54,971			525			55,496
Service, access and product revenues	472,089			454,865			926,954
USF revenues	26,833			48,499			75,332
Total revenues	498,922			503,364			1,002,286

Cost of revenues
Service cost of revenues (2)	184,054			80,454			264,508
Access and product cost of revenues (1)	57,906			7,208			65,114
Service and product cost of revenues	241,960			87,662			329,622
USF cost of revenues	26,833			48,499			75,332
Total cost of revenues	268,793			136,161			404,954

Segment gross margin
Service margin	233,064			373,886			606,950
Access and product margin	(2,935		)	(6,683		)	(9,618		)
Gross margin ex-USF (Service, access and product margin)	230,129			367,203			597,332
USF margin	—			—			—
Segment gross margin	$	230,129		$	367,203		$	597,332



Segment gross margin %
Service margin %	55.9	%	82.3	%	69.6	%
Gross margin ex-USF (Service, access and product margin) %	48.7	%	80.7	%	64.4	%
Segment gross margin %	46.1	%	72.9	%	59.6	%

(1) Includes customer premise equipment, access, and shipping and handling.

(2) Excludes depreciation and amortization of $20,100, $7,208, and $27,308, respectively.

A reconciliation of the total of the reportable segments' gross margin to consolidated income before provision for income taxes is as follows:



	Years Ended December 31,
	2019			2018			2017
Total reportable gross margin	$	678,262		$	621,787		$	597,332
Sales and marketing	363,111			311,433			313,251
Engineering and development	69,460			52,139			29,630
General and administrative	152,672			135,324			122,537
Depreciation and amortization	86,256			70,980			72,523
Income from operations	$	6,763		$	51,911		$	59,391

Interest expense	$	(32,821	)	$	(15,068	)	$	(14,868	)
Other income (expense), net	(50		)	(318		)	1,270
Income before income taxes	$	(26,108	)	$	36,525		$	45,793

Information about our operations by geographic location is as follows:



	For the years ended December 31,
	2019		2018		2017
Revenues:
United States	$	855,255	$	825,721	$	851,413
Canada	26,696		27,267		30,252
United Kingdom	66,723		49,430		28,309
Other Countries ⁽¹⁾	240,672		146,364		92,312
	$	1,189,346	$	1,048,782	$	1,002,286

(1) No individual other international country represented greater than 10% of total revenue during the periods presented.



	December 31, 2019		December 31, 2018
Long-lived assets:
United States	$	640,277	$	596,820
United Kingdom	299,660		366,594
Israel	1,609		1,688
	$	941,546	$	965,102