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Fusion Improves Adjusted EBITDA 160% and Increases Second Quarter Revenue 39%

NEW YORK, NY--(Marketwired - Aug 20, 2013) - Fusion Telecommunications International, Inc. ( OTCQB : FSNN ), a provider of cloud communications, cloud computing and managed cloud solutions ("Fusion"), today announced financial results for the second quarter and six months ended June 30, 2013.

Second Quarter Company Highlights

  • Achieved revenues of $14.2 million, an increase of $4.0 million, or 39%, from the second quarter of 2012.
    • Revenues from Fusion's higher margin Business Services Segment increased by $6.9 million to $7.5 million compared to the same period last year.
  • Gross profit increased 268% to $4.6 million compared to the second quarter of 2012.
  • Gross margin increased to 32.5% as compared to 12.3% for the second quarter of 2012.
  • Adjusted EBITDA was $0.5 million compared to an adjusted EBITDA loss of $0.9 million for the same period last year.
  • Adjusted EBITDA increased by more than 120% from the first quarter of 2013.
  • Business Services Segment churn was 1.1%.
  • Business Services Segment ARPU reached $727.
  • Contracted value of new booked Business Services Segment orders was $2.6 million, a 58% increase compared to the same period last year.

"Fusion's adjusted EBITDA in the second quarter more than doubled from our milestone achievement of positive EBITDA in the first quarter of 2013, a clear indication of our continuing performance improvements and efforts to increase shareholder value," said Matthew Rosen, Fusion's Chief Executive Officer. "The successful integration of NBS products, platforms, people and systems in our Business Services division has contributed to substantial increases in consolidated revenue and gross profit, and positions us well for future acquisitions. Fusion's high ARPU and low attrition reflect our customers' confidence in Fusion's integrated portfolio of cost-effective cloud communications solutions and our unwavering commitment to service excellence. We remain committed to our strategic business model for strong financial gains and continued market expansion as we emerge as a leader in the growing cloud services industry."

Second Quarter Results

Fusion reported consolidated revenues of $14.2 million for the quarter ended June 30, 2013, an increase of $4.0 million, or 39%, from the second quarter of 2012. Revenues from Fusion's Business Services Segment increased by $6.9 million to $7.5 million in the second quarter of 2013 compared to the same period of a year ago, due to the inclusion of revenue contributed by NBS, which the Company acquired on October 29, 2012. The Company's Carrier Services revenue for the second quarter decreased by $2.9 million, or 30.0%, from the second quarter of 2012, due to a decrease in the volume of traffic terminated over its network, partially offset by higher realization rates.

The Company's consolidated gross margin increased to 32.5% for the second quarter of 2013, as compared to 12.3% for the second quarter of 2012, due to an increased contribution from the higher margin Business Services segment, which generated a gross margin of 51.1% in the second quarter of 2013, compared with a 35.2% gross margin in the same period of a year ago, due to the acquisition of NBS. The gross margin for the Carrier Services segment increased to 11.9% in the second quarter of 2013 from 10.9% in the same period of a year ago, mainly due to the insurance proceeds from our business insurance interruption claim related to Hurricane Sandy.

Net income for the second quarter was $1.7 million, or $0.01 per share, as compared to a net loss of $1.2 million, or ($0.01) per share in the same period of a year ago. The net income in the second quarter of 2013 includes a one-time non-cash gain on the extinguishment of a trade payable in the amount of $2.9 million, as well as interest on senior debt of $0.5 million and amortization of intangibles acquired in the NBS transaction of $0.6 million, with no comparable amounts present in 2012. Adjusted EBITDA (earnings (loss) from continuing operations before interest, taxes, depreciation, amortization, and specific non-recurring and non-cash adjustments) for the second quarter of 2013 was $0.5 million, as compared to an adjusted EBITDA loss of $0.9 million in the second quarter of 2012, with the improvement being attributable to the inclusion of NBS' results in the second quarter of 2013.

Six Months Results

Fusion reported consolidated revenues of $30.4 million for the six months ended June 30, 2013, an increase of $8.6 million, or 39.7%, from the six months ended June 30, 2012. Revenues from Fusion's Business Services Segment increased by $13.8 million to $15.0 million for the six months ended June 30, 2013 compared to the same period of a year ago, due to the inclusion of revenue contributed by NBS. The Company's Carrier Services revenue for the six months ended June 30, 2013 decreased by $5.1 million, or 25.0%, from the first six months of 2012, due to a decrease in the volume of traffic terminated.

The Company's consolidated gross margin increased to 29.7% in the six months ended June 30, 2013, as compared to 12.6% for the same period of 2012, due to an increased contribution from the higher margin Business Services segment, which generated a gross margin of 50.4% in the first six months of 2013, compared with a 36.4% gross margin in the same period of a year ago, due to the acquisition of NBS. The gross margin for the Carrier Services segment decreased to 9.8% for the six months ended June 30, 2013 from 11.3% in the same period of a year ago, mainly due to higher rates for the cost of traffic terminated.

Net income for the six months ended June 30, 2013 was $0.1 million, or $0.00 per share, as compared to a net loss of $2.0 million and ($0.01) per share in the same period of a year ago. The net loss in the first six months of 2013 includes the one-time $2.9 million non-cash gain and interest on senior debt of $0.9 million and amortization of intangibles acquired in the NBS transaction of $1.1 million, with no comparable amounts present in 2012. Adjusted EBITDA for the six months ended June 30, 2013 was $0.8 million, as compared to an adjusted EBITDA loss of $1.5 million in the same period of 2012, with the improvement being attributable to the inclusion of NBS' results in the first six months of 2013.

At June 30, 2013, the Company had a working capital deficit and stockholders' deficit of $5.5 million and $3.8 million, respectively, as compared to a working capital deficit of $8.0 million and $6.1 million, respectively, at December 31, 2012, and total assets of $27.3 million.

Use of Non-GAAP Financial Measurements:

The Company believes that EBITDA (earnings from continuing operations before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used in the communications industry to evaluate companies on the basis of operating performance and leverage. The Company also believes that 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. 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 stock-based compensation. 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 period 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 ("U.S. 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 EBITDA and Adjusted EBITDA", immediately following the Consolidated Balance Sheets included in this press release.

 
 
Fusion Telecommunications International, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
Revenues   $ 14,230,178     $ 10,219,436     $ 30,398,599     $ 21,754,140  
Cost of revenues, exclusive of depreciation and amortization, shown separately below    
9,605,534
     
8,963,789
     
21,357,130
     
19,008,549
 
Gross profit     4,624,644       1,255,647       9,041,469       2,745,591  
Depreciation and amortization     872,584       93,954       1,722,499       192,177  
Selling general and administrative expenses     4,433,848       2,258,385       8,701,446       4,309,526  
Total operating expenses     5,306,432       2,352,339       10,423,945       4,501,703  
Operating loss     (681,788 )     (1,096,692 )     (1,382,476 )     (1,756,112 )
Other (expenses) income:                                
Interest expense     (669,731 )     (49,679 )     (1,329,250 )     (106,765 )
Loss on extinguishment of debt     (92,376 )     -       (150,579 )     -  
Other income (expenses), net     220,786       (88,249 )     42,916       (157,694 )
Total other income (expenses)     (541,321 )     (137,928 )     (1,436,913 )     (264,459 )
Gain on extinguishment of accounts payable     2,908,882       -       2,908,882       -  
Net income (loss)     1,685,773       (1,234,620 )     89,493       (2,020,571 )
Preferred stock dividends in arrears     (100,349 )     (100,349 )     (199,595 )     (200,698 )
Net income (loss) applicableto common stockholders   $
1,585,424
    $
(1,334,969
)   $ (110,102 )   $ (2,221,269 )
Basic earnings (loss) per common share:   $ 0.01     $ (0.01 )   $ (0.00 )   $ (0.01 )
Diluted earnings (loss) per common share:   $ 0.01     $ (0.01 )   $ (0.00 )   $ (0.01 )
Weighted average common shares outstanding:                                
Basic     195,867,029       165,875,657       187,316,263       162,932,029  
Diluted     279,677,196       165,875,657       187,316,263       162,932,029  
                                 
 
 
Fusion Telecommunications International, Inc.
Consolidated Balance Sheets
 
    June 30, 2013     December 31, 2012  
ASSETS   (unaudited)        
Current assets:                
Cash and cash equivalents   $ 786,903     $ 543,214  
Accounts receivable, net     4,251,655       2,924,302  
Inventory     433,894       341,118  
Prepaid expenses and other current assets     589,454       1,001,449  
Total current assets     6,061,906       4,810,083  
Property and equipment, net     2,448,760       2,406,944  
Other assets:                
Security deposits     446,855       439,741  
Restricted cash     1,163,550       1,026,326  
Goodwill     2,406,269       2,406,269  
Intangible assets, net     14,289,467       15,396,117  
Other assets     504,040       582,947  
Total other assets     18,810,181       19,851,400  
TOTAL ASSETS   $ 27,320,847     $ 27,068,427  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Notes payable - non-related parties   $ 552,755     $ 208,333  
Notes payable - related parties     567,857       639,286  
Equipment financing obligations     195,308       136,392  
Escrow payable     706,700       -  
Accounts payable and accrued expenses     8,440,521       10,579,496  
Related party payable     1,000,213       1,159,573  
Current liabilities from discontinued operations     55,000       55,000  
Total current liabilities     11,518,354       12,778,080  
Long-term liabilities:                
Notes payable - non-related parties, net of discount     14,319,247       14,475,747  
Notes payable - related parties     4,061,422       4,492,136  
Equipment financing obligations     104,487       102,071  
Derivative liability     960,733       1,066,000  
Other long-term liabilities     198,487       266,132  
Total liabilities     31,162,730       33,180,166  
Stockholders' deficit:                
                 
Preferred stock     119       119  
Common stock     2,045,926       1,782,504  
Capital in excess of par value     148,676,946       146,760,005  
Accumulated deficit     (154,564,874 )     (154,654,367 )
Total stockholders' deficit     (3,841,883 )     (6,111,739 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 27,320,847     $ 27,068,427  
                 
   
   
Fusion Telecommunications International, Inc. and Subsidiaries  
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA  
(unaudited)  
   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
Net loss   $ 1,685,773     $ (1,234,620 )   $ 89,493     $ (2,020,571 )
Interest expense and other financing costs     715,016       143,340       1,458,019       275,579  
Depreciation and amortization     872,583       93,954       1,722,499       192,177  
EBITDA     3,273,372       (997,326 )     3,270,011       (1,552,815 )
Acquisition transaction expenses     2,183       70,956       2,183       87,262  
Loss on extinguishment of debt     92,376       -       150,579       -  
Gain on extinguishment of accounts payable     (2,908,882 )     -       (2,908,882 )     -  
Change in fair value of derivative liability     (238,517 )     -       (105,267 )     -  
One-time executive compensation     175,000       -       175,000       -  
Restructuring charges     34,063       -       34,063       -  
Non-cash adjustment to tax accruals     -       -       -       (98,141 )
Stock-based compensation expense and stock issued for services    
91,664
     
62,186
     
139,495
     
69,182
 
Adjusted EBITDA   $ 521,259     $ (864,184 )   $ 757,182     $ (1,494,512 )
                                 
                                 

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. The primary risk is the Company's ability to raise new and continued capital to execute its comprehensive business strategy. Additional risks include uncertainties associated with: the integration of businesses following an acquisition; the Company's ability to comply with its senior debt agreements; concentration of revenue from one source; 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; the termination of any of the Company's significant contracts or partnerships; the Company's inability to maintain working capital requirements to fund future operations; the Company's ability to attract and retain highly qualified management, technical and sales personnel; 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.

About Fusion

Fusion is a leading provider of cloud communications, cloud computing and managed applications solutions to small, medium and large businesses, and carriers worldwide. Fusion's advanced, high availability service platform enables the integration of leading edge products and services in the cloud, including hosted voice, data, managed network services, Infrastructure as a Service, storage, security, data center services and Emergency Preparedness. Fusion's innovative yet proven cloud-based 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.fusiontel.com.