Fusion Reports First Quarter 2017 Financial Results

Tailwinds’ Take: solid growth in EBITDA as this undervalued company looks to start organic growth on top of the acquisition strategy it has used to grow in the past. 

NEW YORK, NY—(May 10, 2017) – Fusion (NASDAQ: FSNN), a leading cloud services provider, today announced financial results for its first quarter ended March 31, 2017.

Highlights

  • Consolidated revenue grew 6% to $35.8 million, compared to $33.8 million in Q1 2016, driven by a 32% increase in Business Services segment revenue to $28.5 million, over 85% of which was contracted and recurring
  • Excluding the contribution from Apptix, Business Services revenue grew 2.5% year-over-year
  • Consolidated gross margin increased approximately 700 basis points to 46.2%, compared to 39.2% in Q1 2016
  • Net loss attributable to common shareholders was $4.7 million or $(0.23) per share on a basic and diluted basis, compared to net loss in Q1 2016 of $4.1 million or $(0.30) per share on a basic and diluted basis
  • Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) grew 18% to $3.3 million, compared to $2.8 million in Q1 2016, and grew 49% compared to $2.2 million in Q4 2016 (see definition and further discussion about the presentation of Adjusted EBITDA, a non-GAAP term, below)
  • Ended the quarter with approximately 13,600 Business Services customers and approximately $11.4 million in total contract value in backlog
  • Ended the quarter with an average monthly revenue per customer (“ARPU”) of $732, compared to $557 at March 31, 2016 and $695 at December 31, 2016
  • Churn was 1.0%, compared to 1.0% in Q1 2016 and 0.8% in Q4 2016
  • Reduced the number of outstanding shares of B-2 Preferred Stock by 24% through conversions to common stock, thereby reducing future dividend payment obligations
  • Reduced the term loan balance by $0.8 million as the Company commenced scheduled principal payments during the quarter
  • Received a 2017 INTERNET TELEPHONY Product of the Year Award for Fusion Contact360 cloud contact center solution

Management Commentary

“The strong momentum from 2016 has accelerated into the first quarter of 2017, as demonstrated by our solid growth in both revenue and Adjusted EBITDA,” said Matthew Rosen, Fusion’s Chief Executive Officer. “Our first quarter results validate our sales and marketing initiatives and our investments in our service delivery platform that are now generating improved operating and financial performance. We also saw continued traction in delivering organic growth in our Business Services segment, as our key service metrics of ARPU and churn once again reflect the success of our strategy to sell multiple cloud services to our growing customer base.

“Our sales and M&A pipelines remain robust and position Fusion to achieve our intermediate financial goals of $200 million in annual revenue and $30 million in annual Adjusted EBITDA. In addition, we expect to continue de-levering our balance sheet by making scheduled principal payments on our indebtedness, expanding our Adjusted EBITDA with continued revenue growth, and executing on targeted acquisitions at attractive valuations. For all these reasons, we believe Fusion is poised to create substantial value for shareholders,” Mr. Rosen continued.

Michael Bauer, Fusion’s Chief Financial Officer, said, “During the first quarter, we converted a significant number of outstanding B-2 Preferred Stock into common stock, thereby reducing future dividend obligations. This brings the total amount of B­-2 Preferred Stock that we have eliminated to approximately 60% of the original $23 million issued. We intend to take meaningful steps to simplify our capital structure and improve our financial flexibility in the coming quarters.

“We are also making excellent progress on the integration of Apptix which should result in greater operating efficiencies, and we remain on track to realize the full run-rate of our expected cost synergies by the second half of 2017,” Mr. Bauer concluded.

First Quarter 2017 Financial Results

Consolidated revenue grew 6% in Q1 2017 to $35.8 million, compared to $33.8 million in Q1 2016, due to an increase in the Company’s Business Services segment revenue. Business Services revenue grew 32% in Q1 2017 to $28.5 million, compared to $21.6 million in Q1 2016, primarily due to the acquisition of Apptix. Carrier Services revenue in Q1 2017 was $7.3 million, compared to $12.2 million in Q1 2016, primarily due to a decline in the total minutes of traffic carried on Fusion’s network.

Consolidated gross margin in Q1 2017 was 46.2%, an increase of approximately 700 basis points compared to 39.2% in Q1 2016, primarily due to a greater proportion of Business Services revenue in consolidated revenue. Business Services gross margin was 57.4%, compared to 59.0% in Q1 2016. Carrier Services gross margin was 2.7%, compared to 4.4% in Q1 2016.

Net loss attributable to common shareholders in Q1 2017 was $4.7 million, or $(0.23) per share on a basic and diluted basis, compared to net loss in Q1 2016 of $4.1 million, or $(0.30) per share on a basic and diluted basis.

Adjusted EBITDA grew 18% in Q1 2017 to $3.3 million, compared to $2.8 million in Q1 2016. Adjusted EBITDA grew 49% compared to $2.2 million in Q4 2016, due primarily to the successful integration of Apptix and synergies achieved from the acquisition which closed in November 2016.

Cash at March 31, 2017 totaled $6.6 million, compared to $7.2 million at December 31, 2016. During Q1 2017, the Company made approximately $813,000 in principal payments, reducing its outstanding term loan balance.

On March 31, 2017, the Company converted 2,958 shares of its Series B-2 Preferred Stock into 986,665 shares of common stock.

Further details about the Company’s financial results are available in its quarterly report on Form 10-Q, which is available in the investor relations section of the Company’s website at ir.fusionconnect.com.

Conference Call Information

Fusion will host a conference call today to discuss its Q1 2017 financial results, followed by a question and answer period. To access the call, please use the following information:

Date: Wednesday, May 10, 2017

Time: 4:30 p.m. ET / 1:30 p.m. PT

Dial-in: (844) 883-3892 (domestic) / (412) 317-9248 (international) 

Webcast: ir.fusionconnect.com under “Events”

Participants should dial in 10 minutes prior to the start time and ask to be placed into the Fusion call. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact MZ Group at (949) 491-8235.

Use of Non-GAAP Financial Measurements

The Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used in the cloud communications industry to evaluate companies on the basis of operating performance and leverage. Adjusted EBITDA provides an adjusted view of EBITDA that takes into account certain significant non-recurring transactions, if any, such as impairment losses and expenses associated with pending acquisitions, which vary significantly between periods and are not recurring in nature, as well as certain recurring non-cash charges such as changes in fair value of the Company’s derivative liabilities and stock-based compensation. The Company also believes that Adjusted EBITDA provides investors with a measure of the Company’s operational and financial progress that corresponds with the measurements used by management as a basis for allocating resources and making other operating decisions. Although the Company uses Adjusted EBITDA as one of several financial measures to assess its operating performance, its use is limited as it excludes certain significant operating expenses. EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with SEC Regulation G, the non-GAAP measurements in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Loss to Adjusted EBITDA”, immediately following the Consolidated Balance Sheets included in this press release.

– Tables Follow –

 

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

 

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2017

 

 

 

2016

 

Revenues

 

$

35,811,876

 

 

$

33,794,249

 

Cost of revenues (exclusive of depreciation and amortization, shown separately below)

 

 

19,270,913

 

 

 

20,531,511

 

Gross profit

 

 

16,540,963

 

 

 

13,262,738

 

Depreciation and amortization

 

 

3,837,148

 

 

 

2,916,263

 

Selling, general and administrative expenses (including stock- based compensation of $224,647 and $198,884, respectively)

 

 

14,134,875

 

 

 

11,424,786

 

Total operating expenses

 

 

17,972,023

 

 

 

14,341,049

 

Operating loss

 

 

(1,431,060)

 

 

 

(1,078,311)

 

Other (expenses) income:

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,092,312)

 

 

 

(1,627,964)

 

(Loss) gain on change in fair value of derivative liabilities

 

 

(40,445)

 

 

 

182,400

 

Loss on disposal of property and equipment

 

 

(26,800)

 

 

 

 

Other income, net

 

 

116,480

 

 

 

(9,670)

 

Total other expenses

 

 

(2,043,077)

 

 

 

(1,455,234)

 

Loss before income taxes

 

 

(3,474,137)

 

 

 

(2,533,545)

 

Provision for income taxes

 

 

(7,811)

 

 

 

 

Net loss

 

 

(3,481,948)

 

 

 

(2,533,545)

 

Preferred stock dividends

 

 

(1,254,109)

 

 

 

(1,531,982)

 

Net loss attributable to common stockholders

 

$

(4,736,057)

 

 

$

(4,065,527)

 

Basic and diluted loss per common share

 

$

(0.23)

 

 

$

(0.30)

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

20,707,699

 

 

 

13,741,366

 

 

 

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

 

 

 

March 31,

 

 

 

December 31,

 

 

 

 

2017

 

 

 

2016

 

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,642,153

 

 

$

7,221,910

 

Accounts receivable, net of allowance for doubtful accounts of approximately $690,000 and $427,000, respectively

 

 

12,316,401

 

 

 

9,359,876

 

Prepaid expenses and other current assets

 

 

1,590,928

 

 

 

1,084,209

 

Total current assets

 

 

20,549,482

 

 

 

17,665,995

 

Property and equipment, net

 

 

13,520,740

 

 

 

14,248,915

 

Security deposits

 

 

630,373

 

 

 

630,373

 

Restricted cash

 

 

27,153

 

 

 

27,153

 

Goodwill

 

 

35,286,629

 

 

 

35,689,215

 

Intangible assets, net

 

 

63,190,659

 

 

 

63,617,471

 

Other assets

 

 

68,822

 

 

 

77,117

 

TOTAL ASSETS

 

$

133,273,858

 

 

$

131,956,239

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Term loan – current portion

 

$

4,062,500

 

 

$

2,979,167

 

Obligations under asset purchase agreements – current portion

 

 

912,212

 

 

 

546,488

 

Equipment financing obligations

 

 

1,041,466

 

 

 

1,002,578

 

Accounts payable and accrued expenses

 

 

23,347,554

 

 

 

19,722,838

 

Total current liabilities

 

 

29,363,732

 

 

 

24,251,071

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Notes payable – non-related parties, net of discount

 

 

31,561,993

 

 

 

31,431,602

 

Notes payable – related parties

 

 

889,413

 

 

 

875,750

 

Term loan

 

 

58,900,945

 

 

 

60,731,204

 

Indebtedness under revolving credit facility

 

 

3,000,000

 

 

 

3,000,000

 

Obligations under asset purchase agreements

 

 

1,315,811

 

 

 

890,811

 

Equipment financing obligations

 

 

974,701

 

 

 

1,237,083

 

Derivative liabilities

 

 

376,321

 

 

 

348,650

 

Total liabilities

 

 

126,382,916

 

 

 

122,766,171

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000,000 shares authorized, 14,341 and 17,299 shares issued and outstanding

 

 

143

 

 

 

174

 

Common stock, $0.01 par value, 90,000,000 and 50,000,000 shares authorized, 22,412,403 and 20,642,028 shares issued and outstanding

 

 

224,124

 

 

 

206,422

 

Capital in excess of par value

 

 

193,398,183

 

 

 

192,233,032

 

Accumulated deficit

 

 

(186,731,508)

 

 

 

(183,249,560)

 

Total stockholders’ equity

 

 

6,890,942

 

 

 

9,190,068

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

133,273,858

 

 

$

131,956,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

 

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2017

 

 

 

2016

 

Net loss

 

$

(3,481,948)

 

 

$

(2,533,545)

 

Interest expense and other financing costs

 

 

2,108,635

 

 

 

1,627,992

 

Income tax benefit

 

 

7,811

 

 

 

 

Depreciation and amortization

 

 

3,837,148

 

 

 

2,916,263

 

EBITDA

 

 

2,471,646

 

 

 

2,010,710

 

Acquisition and transaction expenses

 

 

322,639

 

 

 

92,370

 

Change in fair value of derivative liability

 

 

40,445

 

 

 

(182,400)

 

Loss on disposal of property and equipment

 

 

26,800

 

 

 

60,822

 

Non-recurring employment related expenses

 

 

 

 

 

535,500

 

Stock based compensation expense

 

 

397,392

 

 

 

250,785

 

Adjusted EBITDA

 

$

3,258,922

 

 

$

2,767,787

 

About Fusion

Fusion (NASDAQ: FSNN), a leading provider of integrated cloud solutions to small, medium and large businesses, is the industry’s single source for the cloud. Fusion’s advanced, proprietary cloud services platform enables the integration of leading edge solutions in the cloud, including cloud communications, contact center, cloud connectivity, and cloud computing. Fusion’s innovative, yet proven cloud solutions lower our customers’ cost of ownership, and deliver new levels of security, flexibility, scalability, and speed of deployment. For more information, please visit www.fusionconnect.com.

Forward Looking Statements

Statements in this press release that are not purely historical facts, including statements regarding Fusion’s beliefs, expectations, intentions or strategies for the future, may be “forward-looking statements” under the Private Securities Litigation Reform Act of 1996. Such statements consist of any statement other than a recitation of historical fact and may sometimes be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “intend”, “estimate” or “continue” or the negative thereof or other variations thereof or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements. Important risks regarding the Company’s business include the Company’s ability to raise additional capital to execute its comprehensive business strategy; the integration of businesses and assets following an acquisition; the Company’s ability to comply with covenants included in its senior debt agreements; competitors with broader product lines and greater resources; emergence into new markets; natural disasters, acts of war, terrorism or other events beyond the Company’s control; and other factors identified by Fusion from time to time in its filings with the Securities and Exchange Commission, which are available through http://www.sec.gov. However, the reader is cautioned that Fusion’s future performance could also be affected by risks and uncertainties not enumerated above.

In the event that there is any inconsistency between the information contained in this press release and the information set forth in Fusion’s Form 10-K or 10-Q filed with the Securities and Exchange Commission, the information contained in the Form 10-K or 10-Q governs.

Fusion Contact:

Brian Coyne

(212) 201-2404

Email contact

Investor Relations:

Chris Tyson 

MZ North America

(949) 491-8235

Email contact

MZ Group

New York, NY

Phone: 212-301-7130

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