SOURCE: Fusion

Fusion

May 10, 2017 16:01 ET

Fusion Reports First Quarter 2017 Financial Results

Business Services Revenue Grew 32% Year over Year; Adjusted EBITDA of $3.3 Million Grew 18% Year over Year and 49% Sequentially

NEW YORK, NY--(Marketwired - 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.

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