SOURCE: Fusion

Fusion

August 20, 2014 08:30 ET

Fusion Increases Second Quarter Revenue by 63%

Five-fold Increase in Second Quarter Adjusted EBITDA; Adjusted EBITDA for the First Six Months of 2014 Reaches $6.1 million

NEW YORK, NY--(Marketwired - Aug 20, 2014) -   Fusion (NASDAQ: FSNN), a provider of integrated cloud solutions, including cloud communications, cloud connectivity, cloud computing and other cloud services, today announced financial results for its fiscal second quarter and six months ended June 30, 2014.

Second Quarter Highlights

  • Revenues increased by approximately 63%, from $14.2 million in the second quarter of 2013 to $23.1 million in the second quarter of 2014
  • Business Services revenue increased approximately 109%, from $7.5 million in the second quarter of 2013 to $15.6 million in the second quarter of 2014
  • Business Services bookings increased $2.8 million, or 78%, over the second quarter of 2013 to $6.4 million for the second quarter of 2014
  • Consolidated gross margin was 44.9%, up from 32.5% for the same quarter of 2013
  • Gross margin for the primary Business Services segment was 61.4%, compared to 51.1% in 2013
  • Generated Adjusted EBITDA of $3.0 million, compared to $0.5 million in 2013
  • Ended the quarter with approximately 11,300 customers and ARPU of $460; churn was 1.0%
  • Ended the quarter with approximately $9.8 million in cash

Six Months Highlights

  • Revenues increased by 51.5% over the first six month period in 2013 to $46.0 million
  • Business Services revenue increased by approximately 110% over the first six month period in 2013 to $31.4 million
  • Consolidated gross margin increased from 29.7% for the period in 2013 to 45.8%
  • Business Services gross margin increased from 50.3% in 2013 to 61.9% in 2014
  • Adjusted EBITDA was $6.1 million in 2014, as compared to $0.8 million in 2013

CEO Matthew Rosen commented, "Fusion's year over year growth in Business Services revenue, bookings and gross margin reflects our continued focus on building the company into the leading provider of cloud-based solutions in a rapidly expanding market. Our customers are increasingly counting on us to facilitate their migration to the cloud. Once they have taken that step, they gain a host of solutions that can increase productivity while reducing costs. We're building a comprehensive and fully integrated cloud services portfolio as we continue to grow into the single source for the cloud for enterprises large and small."

Mr. Rosen added, "Fusion's advanced cloud communications, cloud connectivity and cloud computing solutions create value for our customers by minimizing capital expenditures, reducing resource and infrastructure requirements, eliminating technology refresh and end-of-life concerns, and delivering business continuity that's built into the solution seamlessly. We believe that our focus on delivering unparalleled service and support will reward us with increased market share, especially in the demanding vertical markets we serve. Our customers include large national and multi-national companies and organizations with diverse communications, connectivity, computing and storage requirements."

"This was a fast-moving quarter for the company," added Don Hutchins, Fusion's President and Chief Operating Officer. "We successfully integrated our Business Services division, which includes NBS and the former Broadvox cloud services business, under the revitalized Fusion brand, and launched a new website and domain name. The new domain, www.fusionconnect.com, reflects our position as a leading cloud services company."

"Also during the quarter," Mr. Hutchins said, "we up-listed our common stock to the Nasdaq Capital Market. At Nasdaq's invitation, we rang the opening bell on our first day of trading, which was June 9. We believe our up-listing will help Fusion appeal to a much broader base of investors, increase liquidity and help to position the company for long term value creation. We have faith in our three-pronged strategy of growth by acquisition, verticalization and organic growth, and believe it will help us achieve significant year-over-year uptrends to meet our performance objectives, creating value for our stockholders."

"We believe that our company is undervalued in the stock market," Mr. Rosen added, "especially when compared with other cloud and unified communications companies in our size category -- companies that do not offer the breadth of services that we do. We believe that investors will inevitably discover our true value and the exciting opportunities that lie ahead for Fusion."

Second Quarter Results

Fusion reported consolidated revenues of $23.1 million for the quarter ended June 30, 2014, which represents an increase of $8.9 million, or 62.6%, over the $14.2 million reported for the second quarter of 2013. The Company's Business Services segment, augmented by the acquisition of the Broadvox cloud services business on December 31, 2013, posted second quarter 2014 revenues of $15.6 million, as compared to $7.5 million in the second quarter of 2013, an increase of 109%. The Company's Carrier Services business segment posted revenues of $7.5 million, as compared to year-earlier revenues of $6.7 million, an increase of 11.5%. Business Services, which comprised approximately 68% of the Company's total revenues for the quarter, had a gross margin of 61.4% for the second quarter of 2014, compared to 51.1% in the second quarter of 2013. Carrier Services gross margin for the quarter ended June 30, 2014 was 10.6%, compared to 11.9% percent in the year-earlier second quarter. 

The Company reported a net loss of $2.5 million, or $0.42 per share on a fully diluted basis, as compared to net income of $1.7 million, or $0.30 per diluted share, for the second quarter of 2013. The difference was largely attributable to a one-time non-cash gain of $2.9 million in 2013, increased depreciation and amortization expenses in the amount of $1.7 million associated with the acquisition of the Broadvox cloud services division, a $0.7 million non-cash loss on the change in fair value of the Company's derivative liabilities and increased cash and non-cash interest expense.

For the second quarter of 2014, the Company reported Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and specific non-recurring and non-cash adjustments), a non-GAAP metric that is used widely in our industry for comparative purposes, of $3.0 million, as compared to the second quarter 2013 Adjusted EBITDA of $0.5 million.

Six Months Results

Fusion reported consolidated revenues of $46.0 million for the six months ended June 30, 2014, which represents an increase of $15.6 million, or 51.5%, over the $30.4 million reported for the same period of a year ago. The Company's Business Services segment posted revenues of $31.4 million for the first six months of 2014, as compared to $15.0 million for the first six months of 2013, an increase of approximately 109%. The Company's Carrier Services business segment posted revenues of $14.7 million, as compared to year-earlier revenues of $15.4 million, a decrease of 4.9%. Business Services gross margin was 61.9% for the first six months of 2014, compared to 50.3% in the same period of a year ago. Carrier Services gross margin for the six months ended June 30, 2014 was 11.2%, compared to 9.8% percent for the six months ended June 30, 2013. 

The Company reported a net loss of $1.0 million, or $0.38 per fully diluted share, for the first six months of 2014, as compared to net income of $0.1 million, or ($0.03) per diluted share, for the same period in 2013. The difference was largely attributable to a one-time non-cash gain of $2.9 million in 2013, largely offset by a non-cash gain on the change in fair value of derivative liabilities in 2014 of $1.9 million.

For the six months ended June 30, 2014, the Company reported Adjusted EBITDA $6.1 million, as compared to Adjusted EBITDA of $0.8 million for the six months ended June 30, 2013.

At June 30, 2014, the Company had approximately 11,300 business customers with an Average Revenue per User (ARPU) of $460. Churn was approximately 1.0%.

At June 30, 2014, the Company's consolidated cash balance was $9.8 million, up from $6.2 million at December 31, 2013. Working capital at June 30, 2014 was $5.6 million, as compared to $1.8 million at December 31, 2013. Stockholders' equity increased by $5.0 million to $12.0 million at June 30, 2014, as compared to approximately $7.0 million at December 31, 2013. 

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) Income to Adjusted EBITDA", immediately following the Consolidated Balance Sheets included in this press release.

   
   
Fusion Telecommunications International, Inc.  
Consolidated Statements of Operations  
(unaudited)  
   
    Three Months Ended June 30,   Six Months Ended June 30,  
    2014   2013   2014   2013  
Revenues   $ 23,140,973   $ 14,230,178   $ 46,045,802   $ 30,398,599  
Cost of revenues, exclusive of depreciation and                          
amortization, shown separately below     12,747,441     9,605,534     24,976,473     21,357,130  
Gross profit     10,393,532     4,624,644     21,069,329     9,041,469  
Depreciation and amortization     2,597,978     872,584     5,165,469     1,722,499  
Selling general and administrative expenses     7,825,494     4,433,848     15,644,891     8,701,446  
Total operating expenses     10,423,472     5,306,432     20,810,360     10,423,945  
Operating (loss) income     (29,940 )   (681,788 )   258,969     (1,382,476 )
Other (expenses) income:                          
Interest expense     (1,597,215 )   (669,731 )   (2,991,761 )   (1,329,250 )
Loss on extinguishment of debt     -     (92,376 )   -     (150,579 )
Change in fair value of derivative liability     (690,878 )   238,517     1,919,069     105,267  
Other income (expenses), net     719     (17,731 )   (40,355 )   (62,351 )
Total other expenses     (2,287,374 )   (541,321 )   (1,113,047 )   (1,436,913 )
Gain on extinguishment of accounts payable     -     2,908,882     -     2,908,882  
(Loss) income before income taxes     (2,317,314 )   1,685,773     (854,078 )   89,493  
Provision for income taxes     151,583     -     173,078     -  
Net (loss) income     (2,468,897 )   1,685,773     (1,027,156 )   89,493  
Preferred stock dividends in arrears     (443,194 )   (100,349 )   (885,282 )   (199,595 )
Net (loss) income applicable to common stockholders:   $ (2,912,091 ) $ 1,585,424   $ (1,912,438 ) $ (110,102 )
                           
Basic (loss) earnings per common share:   $ (0.42 ) $ 0.40   $ (0.28 ) $ (0.03 )
                           
Diluted (loss) earnings per common share:   $ (0.42 ) $ 0.30   $ (0.38 ) $ (0.03 )
Weighted average common shares outstanding:                          
  Basic     6,876,617     3,917,341     6,842,532     3,746,326  
  Diluted     6,876,617     5,593,544     6,842,532     3,746,326  
                           
                           
   
   
Fusion Telecommunications International, Inc.  
Consolidated Balance Sheets  
   
    June 30, 2014     December 31, 2013  
ASSETS   (unaudited)        
Current assets:            
Cash and cash equivalents   $ 9,786,329     $ 6,176,575  
Accounts receivable, net of allowance for doubtful accounts     7,361,697       5,828,389  
Prepaid expenses and other current assets     1,336,097       2,704,787  
Total current assets     18,484,123       14,709,751  
Property and equipment, net     11,793,189       11,193,355  
Other assets:                
Security deposits     596,073       585,083  
Restricted cash     1,164,007       1,163,872  
Goodwill     5,222,088       5,124,130  
Intangible assets, net     31,705,263       35,048,818  
Other assets     1,089,404       1,125,652  
Total other assets     39,776,835       43,047,555  
TOTAL ASSETS   $ 70,054,147     $ 68,950,661  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Notes payable - non-related parties   $ 2,027,724     $ 625,000  
Notes payable - related parties     125,000       310,714  
Equipment financing obligations     202,805       245,138  
Escrow payable     -       295,000  
Accounts payable and accrued expenses     10,496,322       11,161,550  
Related party payable     -       226,148  
Current liabilities from discontinued operations     55,000       55,000  
Total current liabilities     12,906,851       12,918,550  
Long-term liabilities:                
Notes payable - non-related parties, net of discount     36,511,327       36,788,987  
Notes payable - related parties, net of discount     1,267,114       1,478,081  
Equipment financing obligations     123,711       167,614  
Derivative liability     7,082,401       10,515,472  
Deferred tax liabilities     147,341       -  
Other long-term liabilities     57,442       131,627  
Total liabilities     58,096,187       62,000,331  
Commitments and contingencies                
Stockholders' deficit:                
Preferred stock, $0.01 par value, 10,000,000 shares authorized,                
27,883 and 23,525 shares issued and outstanding     279       235  
Common stock, $0.01 par value, 18,000,000 shares authorized,                
6,204,169 and 6,077,071 shares issued and outstanding     62,041       60,770  
Capital in excess of par value     172,659,066       166,625,595  
Accumulated deficit     (160,763,426 )     (159,736,270 )
Total stockholders' equity     11,957,960       6,950,330  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 70,054,147     $ 68,950,661  
                 
                 
   
   
Fusion Telecommunications International, Inc. and Subsidiaries  
Reconciliation of Net (Loss) Income to Adjusted EBITDA  
(unaudited)  
   
   Three Months Ended June 30,    Six Months Ended June 30, 
    2014     2013     2014     2013  
Net (loss) income   $ (2,468,897 )   $ 1,685,773     $ (1,027,156 )   $ 89,493  
Interest expense and other financing costs     1,633,049       715,016       3,085,798       1,458,019  
Provision for income taxes     151,583       -       173,078       -  
Depreciation and amortization     2,597,978       872,583       5,165,469       1,722,499  
Acquisition transaction expenses     34,872       2,183       146,748       2,183  
Loss on extinguishment of debt     -       (2,816,506 )     -       (2,758,303 )
Change in fair value of derivative liability     690,878       (238,517 )     (1,919,069 )     (105,267 )
Loss on disposal of property and equipment     84,373       -       84,373       -  
Recapitalization expenses     75,350       -       75,350       -  
Restructuring charges     -       34,063       -       34,063  
One-time employee related expenses     163,069       175,000       163,069       175,000  
Stock-based compensation expense     81,115       91,664       179,682       139,495  
Adjusted EBITDA   $ 3,043,370     $ 521,259     $ 6,127,342     $ 757,182  
                                 
                                 

About Fusion

Fusion is a leading provider of integrated cloud solutions to small, medium and large businesses. Fusion's advanced, high availability cloud services platform enables the integration of leading edge solutions in the cloud, including cloud communications, cloud connectivity, cloud computing and additional cloud services such as storage and security. 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. Fusion is a trademark of Fusion Telecommunications International, Inc. 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 can 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. This disclosure highlights some of the important risks regarding the Company's business. These risks include the Company's ability to raise new capital to execute its comprehensive business strategy; the integration of businesses following an acquisition; the Company's ability to comply with 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 the other factors identified by us from time to time in the Company's filings with the Securities and Exchange Commission, which are available through http://www.sec.gov. However, the reader is cautioned that our future performance could also be affected by risks and uncertainties not enumerated above.

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