Business Tools Blog

Where to start?

I thought I’d start with first page ever posted on Zayo’s Intranet. We have Lexicon built around financial definitions. We want everyone to have a reference to key business terms.

· Adjusted EBITDA: EBITDA revised to exclude non-cash/stock based compensation, transaction costs, loss/gain on sale of assets, other (non-operating) income

· Amortized Install Charges: Installation charges for circuits are billed by third party vendors are typically amortized over 24 months and are part of Network Expense

· Amortized Install Revenue: Installation charges are amortized over 24 months. Example: if we billed a customer $240 this month for an install charge, we would recognize $10 in revenue per month for the next 24 months

· Amortized IRU’s: IRU’s are Indefeasible Rights of Use (long-term lease aka temporary ownership of a portion of the capacity) these are amortized over the term of the lease. Example: a $1.2M IRU with a 10 year term, would amortize at $10K per month for 10 years

· BRR (Billable Run Rate): The value of one full month’s billing for all active MRR service orders

· Backbills: Billing for services earned in prior months

· Cancels: An order that is cancelled prior to install for any gross sale counted in a previous month

· Capital approved for Infrastructure without Discrete Revenue: The amount of capital spent in anticipation of future Gross Sales opportunities. Examples of projects that would fit in this category are the deployment of a new WDM system or the extension of the fiber network into a major data center.

· Capital Intensity Ratio: The amount of capital required per dollar of sales. Formula: (Success Based Capital less NRR$)/Gross Sales

· Churn: Any negative change to Billable Run Rate. Includes: Disconnects, Negative Re-rates, Negative impact of Volume Discounts

· Credits: Service, goodwill, billing error or other credits given to customers in the current month

· Construction Revenue: Revenue paid for construction or for joint build fees. This revenue is not related to any ongoing service and is recognized in the month that construction completes

· Contract Value of Gross Sales: MRR * Contract Term in months for gross sales in a given period

· Contract Value of Pipeline: MRR * Contract Term in months for all orders in the Pipeline

· Contract Value Embedded Base: MRR * Remaining Contract Term in months for all orders that are billing

· Disconnect: Services that stop billing

· Disconnect Funnel: Services for which sales believes we will receive a Disconnect Order, but the order has not yet been received

· Disconnect Pipeline: Services for which a Disconnect Order has been received but the Disconnect has not yet been processed

· EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Revenue – Expenses (excluding tax, interest, depreciation and amortization) or Net Income with interest, taxes, depreciation, and amortization added back

· Fiber miles: are measured by taking the number of strands in a fiber conduit and multiplying that number by the route distance of the conduit. For example, a 10 miles of conduit with 144 fiber strands = 1,440 fiber miles.

· Financial Statement Network Expense: NetEx is equal to NetEx BRR at the beginning of the month +/- pro-rates, +/- change in volume discounts, plus backbills, less credits, less disputes, plus dispute reserves, plus regulated costs, plus usage, plus termination fees, plus amortized installs, plus amortized IRU’s, plus construction fees, plus professional service fees, plus late fees, +/- other adjustments

· Financial Statement Revenue: (FSR) is equal to Billable Run Rate at the beginning of the month +/- pro-rates, +/- change in volume discounts, plus backbills, less credits, less revenue reserves, plus regulated revenue, plus usage revenue, plus termination revenue, plus amortized installs, plus amortized IRU’s, plus construction revenue +/- other adjustments

· Gross Installs: All services that have been installed, tested, accepted by the customer and entered into the billing system

· Gross Margin: Gross Margin is equal to Financial Statement Revenue less Financial Statement Network Expense

· Gross Sales: An order that has been signed by the customer and accepted by service activation. The dollar value of a gross sale is equal to the monthly recurring price that the customer will pay for the service (includes reduction for any discounts) Gross Sales include any dollar changes to orders, prior to install

· Hard Disconnects: Disconnects without an Associated Replacement Service. An Associated Replacement Service must be on the same route for a similar service.

· Install Pipeline: All services that have been recorded as net sales, that have not yet installed

· Invested Capital: Equity + Net Indebtedness

· Net Installs: The change in Billable Run Rate for a given month. This number should equal Gross Installs, less Disconnects +/- Rate Changes.

· Net Pipeline: difference between the Service Activation Pipeline and the Disconnect Pipeline

· Net Sales: Gross Sales less Cancels

· NetEx BRR: The value of one full month’s billing for all active Network Expense obligations

· Network Expense: network costs directly associated with billed revenue. These include third party offnet circuit charges, IRU costs, Colocation Rents, Switch Rents, and Fiber Leases

· Network Operations Expense: includes Pop Rents, Utilities, Right of Way, Franchise Fees, Network Repairs & maintenance, Locates, Emergency Restoration, Fiber Relocation, Network Vehicles Costs, Network Related Shipping, and Network Rentals

· On-net building: a lit building on Zayo’s network with a fiber connection to someone other than the local ILEC

· Other SG&A: includes Agent Commissions, T&E (Travel and Entertainment), Marketing, PR, Website, Office/Warehouse Rent, Office Supplies, Office Cleaning, Office Utilities, Hardware and Software Maintenance, Telephone, Cell Phone, Internet, LAN/WAN, Insurance, Training & Education, Business Taxes, Corp and Professional Fees, Recruiting, Relocation, Bad Debt, Tools and Small Parts and Misc. Other Expenses

· Payback Period: the period of time required for the return on an investment to “repay” the sum of the original investment. For example, a $1000 investment which returned $500 per year gross margin would have a two year payback period. The time value of money is not taken into account.

· Personnel and Contractor Expense: includes wages, paid time off, car allowance, bonus, overtime, commissions, contract labor expense, and benefits expense.

· Pro-Rates: A partial month’s billing for services installed or disconnected that month.

· Rate Changes: All services that have a positive or negative change to monthly recurring billing in a given month

· Revenue Commitment: These are also known as Take-or-Pays. A provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount. These contracts typically have portability (flexibility on the specific service and location in which to satisfy the commitment)

· Revenue Reserves: Reserves held to offset known billing or non-payment issues. Revenue Reserves are typically held when a customer files for bankruptcy or otherwise indicates that they will not pay for service.

· Regulated Revenue: Regulated Inter and Intrastate Originating and Terminating Revenue

· Route Miles: are measured by the conduit length. A conduit can have 12 – 1024 fiber strands inside it. If you own 2 strands of fiber inside a conduit, you own zero fiber route miles. The owner of the conduit owns the route miles.

· SG&A: Selling, General and Administrative Expenses. SG&A is broken into (1) Personnel and Contractor Expense, (2) Network Operations Expense (3) Other SG&A

· Service Activation Pipeline: services that have been sold, the orders have been accepted by service delivery, but the service has not yet activated and accepted by billing

· Speculative Projects: Capital Project, where the payback period is greater than the term of the contract that the customer signed. Speculative Projects are approved with the anticipation of leveraging CAPEX on future revenue opportunities. An example that would fit in this category is that the life of the optronics might be longer than the contract term. If the customer does not renew, it is expected that the capital would be redeployed to support other revenue. Another example is that OSP expenditures are made to extend the fiber network into a new location and it is expected that future sales will leverage this investment.

· Termination Revenue: When a customer terminates a contract prior to the end of their contract, they are billed termination fees. These are recognized when the revenue is collected

· Transactional Sales: sales with <12 month payback

· Usage Revenue: Services billed based on a customer’s monthly usage.

· Upgrade Disconnect: Disconnects with an Associated Replacement Service. An Upgrade is when a customer replaces one type of service with another higher bandwidth/higher priced service, where both services have the same location. Typically the service being replaced was purchased several years ago and has reverted to a month-to-month contract. Typically, the new service is higher bandwidth and includes an extension of the term.

These definitions are not universal across companies. I would be interested in other company’s definitions for these terms – if they are different.

How do other companies communicate their Lexicon to employees?