Fusion Reports Second Quarter 2016 Results

Revenue Grows 21% to $30.4 Million; Introduces Three-Year Financial Targets

NEW YORK, NY -- (Marketwired) -- 08/11/16 -- Fusion (NASDAQ: FSNN), a leading cloud services provider, today announced financial results for the quarter ended June 30, 2016.

Second Quarter Highlights

  • Consolidated revenue increased 21% year-over-year to $30.4 million, driven by a 30% increase in Business Services segment revenue to $20.8 million
  • Adjusted EBITDA (a non-GAAP measure) was $2.2 million, consistent with the second quarter of 2015, reflecting investments in sales and marketing
  • Signed a total of $8.8 million in new Business Services contract value during the second quarter, up 65% from the year-ago period
  • Ended the quarter with approximately $390,000 in Business Services MRR in backlog, representing $13.7 million in total contract value
  • Signed several large, multi-year enterprise customers combining multiple cloud service offerings into an integrated solution
  • Ended the quarter with approximately 12,200 customers, an average monthly revenue per customer (ARPU) of $547, and a churn rate of 1.26%
  • Established three-year financial targets of $200 million in revenue, 50% gross margin, and 15% Adjusted EBITDA margin

Matthew Rosen, Fusion's Chief Executive Officer, commented, "During the second quarter, Fusion delivered very strong year-over-year revenue growth and solid bookings of nearly $9 million driven in part by several large, multi-year enterprise customer wins. These included a $1.3 million contract with a leading cybersecurity company, a $650,000 contract with a regional Midwestern library system, and a $500,000 contract with a major industrial company. These large wins will help drive revenue growth in the second half of the year.

"We anticipate that our momentum will continue as we made additional investments during the second quarter in our direct sales organization. Since we appointed John Hendler as our new Senior Vice President of Sales in April, we have brought in 10 highly experienced sales professionals to strengthen and expand our sales organization. With these new hires expected to ramp up during the second half of 2016, and as we convert our backlog into monthly recurring revenue, we will be in a position to deliver our goal of 5% to 7% annualized organic growth."

Michael Bauer, Fusion's Chief Financial Officer, said, "We are introducing a set of financial objectives for Fusion, targeting a run rate of $200 million in revenue, a 50% gross margin, and a 15% Adjusted EBITDA margin. We intend to achieve these objectives by driving further growth in our higher-margin Business Services segment through a combination of organic growth and targeted acquisitions. Our acquisition pipeline is robust, and we remain optimistic that we can complete one to two transactions per year and achieve our financial objectives within the next three years."

Second Quarter Results

Fusion reported consolidated revenue of $30.4 million for the quarter ended June 30, 2016, which represents an increase of $5.3 million or 21% over consolidated revenue of $25.1 million reported for the second quarter of 2015.

Revenue in the Company's Business Services segment increased 30% to $20.8 million in the second quarter of 2016, as compared to $16.0 million in the second quarter of 2015, driven primarily by the Fidelity acquisition in the fourth quarter of 2015.

Revenue in the Company's Carrier Services segment was $9.6 million, as compared to $9.0 million in the second quarter of 2015, an increase of 7%. This increase was primarily due to an increase in the blended rate per minute of traffic terminated, partially offset by a decrease in the number of minutes of traffic carried during the quarter.

Fusion's consolidated gross margin during the second quarter of 2016 was 43.3% as compared to 44.9% in the second quarter of 2015. Business Services had a gross margin of 61.1% for the second quarter of 2016, compared to 63.6% in the second quarter of 2015. Carrier Services' gross margin for the quarter ended June 30, 2016 was 4.8%, down from 11.6% in the same period a year ago due to a higher per-minute cost of termination for minutes carried.

The Company reported a net loss attributable to common shareholders of $2.9 million, or $0.20 per share on a basic and diluted basis, as compared to a net loss of $1.3 million, or $0.33 per share on a basic and diluted basis for the second quarter of 2015. In the second quarter of 2016, net loss included a $46,000 non-cash gain in the fair value of derivative liability, as compared to a $2.5 million gain in the second quarter of 2015. Adjusted EBITDA was $2.2 million during the second quarter of 2016 and the second quarter of 2015.

Conference Call Information

Fusion will hold a conference call today, Thursday, August 11, 2016 at 10:30 a.m. Eastern Time to discuss its results for the quarter ended June 30, 2016. To participate in the live conference call, interested parties should dial (844) 883-3892 or (412) 317-9248 at least 10 minutes prior to the start time and ask to be placed in the Fusion call. A replay will be available following the call at ir.fusionconnect.com.

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 -

Consolidated Statements of Operations  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
    2016     2015     2016     2015  
Revenues   $ 30,420,291     $ 25,063,695     $ 63,604,706     $ 50,326,733  
Cost of revenues (exclusive of depreciation and amortization, shown separately below)     17,244,814       13,813,615       37,166,491       27,826,307  
Gross profit     13,175,477       11,250,080       26,438,215       22,500,426  
Depreciation and amortization     3,031,890       3,039,758       5,948,153       6,043,205  
Selling, general and administrative expenses     11,270,013       9,851,735       22,694,799       19,582,713  
Total operating expenses     14,301,903       12,891,493       28,642,952       25,625,918  
Operating (loss) income     (1,126,426 )     (1,641,413 )     (2,204,737 )     (3,125,492 )
Other (expenses) income:                                
Interest expense     (1,624,669 )     (1,608,709 )     (3,252,633 )     (3,215,552 )
Gain (loss) on change in fair value of derivative liability     45,642       2,510,950       228,042       1,306,148  
Other income (expense), net     25,115       26,756       15,445       58,767  
Total other income (expenses)     (1,553,912 )     929,006       (3,009,146 )     (1,850,637 )
Loss before income taxes     (2,680,338 )     (712,407 )     (5,213,883 )     (4,976,129 )
Provision for income taxes     -       -       -       -  
Net loss     (2,680,338 )     (712,407 )     (5,213,883 )     (4,976,129 )
Preferred stock dividends in arrears     (284,839 )     (630,523 )     (1,816,821 )     (1,049,511 )
Net loss attributable to common stockholders   $ (2,965,177 )   $ (1,342,930 )   $ (7,030,704 )   $ (6,025,640 )
Basic and diluted loss per common share   $ (0.20 )   $ (0.33 )   $ (0.49 )   $ (0.81 )
Weighted average common shares outstanding:                                
Basic and diluted     14,864,768       8,461,794       14,306,170       8,311,499  
Consolidated Balance Sheets  
    June 30,     December 31,  
    2016     2015  
Current assets:                
Cash and cash equivalents   $ 3,798,911     $ 7,540,543  
Accounts receivable, net of allowance for doubtful accounts of approximately $311,654 and $308,813, respectively     7,881,031       7,650,141  
Prepaid expenses and other current assets     2,627,478       1,618,603  
Total current assets     14,307,420       16,809,287  
Property and equipment, net     13,234,210       14,055,493  
Other assets:                
Security deposits     549,423       575,038  
Restricted cash     27,153       165,123  
Goodwill     27,722,494       27,060,297  
Intangible assets, net     44,078,486       45,824,399  
Other assets     530,732       281,045  
Total other assets     72,958,288       73,905,902  
TOTAL ASSETS   $ 100,499,918     $ 104,770,682  
Current liabilities:                
Notes payable - non-related parties   $ 685,780     $ 685,780  
Due to RootAxcess seller     500,000       300,000  
Due to TFB seller     100,000       -  
Equipment financing obligations     991,681       959,380  
Accounts payable and accrued expenses     13,263,707       13,129,225  
Total current liabilities     15,541,168       15,074,385  
Long-term liabilities:                
Notes payable - non-related parties, net of discount     30,713,635       30,795,745  
Term loan     25,000,000       25,000,000  
Indebtedness under revolving credit facility     15,000,000       15,000,000  
Due to RootAxcess seller     -       333,333  
Due to TFB seller     886,606       -  
Notes payable - related parties     1,099,530       1,074,829  
Equipment financing obligations     1,744,190       2,085,416  
Derivative liabilities     385,990       953,005  
Total liabilities     90,371,119       90,316,713  
Commitments and contingencies                
Stockholders' equity (deficit):                
Preferred stock, $0.01 par value, 10,000,000 shares authorized,17,324 and 23,324 shares issued and outstanding     173       233  
Common stock, $0.01 par value, 50,000,000 shares authorized, 14,975,482 and 12,788,971 shares issued and outstanding     149,755       127,890  
Capital in excess of par value     185,725,991       184,859,082  
Accumulated deficit     (175,747,120 )     (170,533,237 )
Total stockholders' equity     10,128,799       14,453,969  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 100,499,918     $ 104,770,682  
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
    2016     2015     2016     2015  
Net (loss)   $ (2,680,338 )   $ (712,407 )   $ (5,213,883 )   $ (4,976,129 )
Interest expense and other financing costs     1,624,923       1,623,115       3,252,915       3,229,958  
Depreciation and amortization     3,031,890       3,039,758       5,948,153       6,043,205  
EBITDA     1,976,475       3,950,466       3,987,185       4,297,034  
Acquisition transaction expenses     71,439       458,929       163,809       1,165,302  
Change in fair value of derivative liability     (45,642 )     (2,510,950 )     (228,042 )     (1,306,148 )
(Gain) loss on disposal of property and equipment     11,996       (1,390 )     72,818       (1,390 )
Non-recurring employee related expenses     -       -       535,500       28,846  
Stock based compensation expense     207,712       285,662       458,496       504,529  
Adjusted EBITDA   $ 2,221,980     $ 2,182,717     $ 4,989,766     $ 4,688,173  

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.

About Fusion

Fusion, a leading provider of cloud solutions to small, medium and large businesses, is the industry's single source for the cloud. Fusion's advanced, proprietary cloud service platform enables the integration of leading edge solutions in the cloud, including cloud communications, 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.

Fusion Contact
Brian Coyne
(212) 201-2404
Email contact

Darrow Associates Contacts for Fusion
Jordan Darrow
(512) 551-9296
Email contact

Bernie Kilkelly
(516) 236-7007
Email contact

Source: Fusion