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Fusion Reports Fourth Quarter and Full Year 2016 Financial Results

NEW YORK, NY--(Marketwired - March 20, 2017) - Fusion (FSNN), a leading cloud services provider, today announced financial results for its fourth quarter and full year ended December 31, 2016.

Fourth Quarter 2016 Highlights

  • Consolidated revenue grew 8% to $28.9 million, compared to $26.8 million in Q4 2015, driven by a 41% increase in Business Services segment revenue to $24.2 million
  • Consolidated gross margin increased 850 basis points to 51.2%, compared to 42.7% in Q4 2015
  • Adjusted EBITDA (a non-GAAP measure) grew 36% to $2.2 million, compared to $1.6 million in Q4 2015
  • Completed the acquisition of Apptix, adding a high-quality business customer revenue base and advancing Fusion's leadership position in the rapidly expanding cloud computing market for SMB and Enterprise customers
  • Closed a new $70.0 million senior secured credit facility, at an interest rate of LIBOR (with no floor) + 5.00%, which replaced Fusion's previous $40.0 million senior credit facility
  • Signed new Business Services sales (bookings) with a total contract value of $9.9 million, up 39% year-over-year
  • Ended the quarter with approximately 13,300 Business Services customers and approximately $393,000 of Business Services monthly recurring revenue (MRR) in backlog and representing $13.4 million in total contract value, up 28% year over year
  • Ended the quarter with an average monthly revenue per customer (ARPU) of $679 and a churn rate of 0.8%, compared to $568 and 1.1% at September 30, 2016 and $544 and 0.7% at December 31, 2015
  • Named to Deloitte's 2016 Technology Fast 500™, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and energy tech companies in North America

Full Year 2016 Highlights

  • Consolidated revenue grew 20% to $122.0 million, compared to $101.7 million in 2015, driven by a 31% increase in Business Services segment revenue to $86.6 million
  • Adjusted EBITDA grew 9% to $8.9 million, compared to $8.2 million in 2015
  • Expanded Fusion's product offering in the Contact Center market through the acquisition of Technology for Business Corporation (TFB) in March 2016
  • Received a 2016 INTERNET TELEPHONY Product of the Year Award for Fusion360, Fusion's comprehensive and integrated cloud communications solution

Management Commentary

"Fusion delivered a strong fourth quarter highlighted by 41% year-over-year revenue growth in our Business Services segment," said Matthew Rosen, Fusion's Chief Executive Officer. "We continued to win large new multi-solution clients which we expect to deliver revenue and Adjusted EBITDA growth in the coming quarters, leveraging Fusion's position in the market as the single source for the cloud. Our key service metrics of ARPU and churn likewise demonstrated sequential improvement in the fourth quarter, thanks to the success of our recent acquisitions and our strategy of targeting larger customers with more complex requirements.

"We are also beginning to see our investments in sales and marketing bear fruit. During the fourth quarter, our organic sales strategy contributed to a 39% increase in the contract value of our bookings, and to a 66% increase over the last 12 months. Additionally, we expect the Apptix acquisition to further develop and enhance Fusion's growth platform. Together with our investments in sales and marketing and our robust M&A pipeline, these achievements give us confidence in our overall growth plans," Mr. Rosen continued.

"During the fourth quarter, we made significant strides toward achieving our intermediate goals of $200 million in consolidated revenue, a 50% gross margin, and a 15% Adjusted EBITDA margin," said Michael Bauer, Fusion's Chief Financial Officer. "The Apptix acquisition, which closed on November 14, 2016, was a major milestone in this effort, and our integration of the business is well under way. We anticipate realizing the full run-rate of our expected cost synergies by the second half of 2017."

Fourth Quarter 2016 Financial Results

Consolidated revenue grew 8% in Q4 2016 to $28.9 million, compared to $26.8 million in Q4 2015, primarily due to an increase in the company's Business Services segment.

Business Services revenue grew 41% in Q4 2016 to $24.2 million, compared to $17.1 million in Q4 2015, primarily due to the acquisitions of Fidelity and Apptix. Carrier Services revenue declined 51% in Q4 2016 to $4.8 million, compared to $9.8 million in the fourth quarter of 2015, primarily due to a decline in the total minutes of traffic carried on Fusion's network.

Consolidated gross margin increased by 850 basis points in Q4 2016 to 51.2%, compared to 42.7% in Q4 2015, primarily due to a greater proportion of Business Services revenue in consolidated revenue. Business Services gross margin was 60.0%, compared to 63.0% in Q4 2015, primarily due to the integration of Fidelity which carried a lower gross margin. Carrier Services gross margin was 7.0%, compared to 7.2% in the fourth quarter of 2015.

Net loss attributable to common shareholders in Q4 2016 was $4.6 million, or $0.26 per share per share on a basic and diluted basis, compared to net income in Q4 2015 of $1.2 million, or $0.12 per share on a basic and diluted basis. The income tax benefit in Q4 2016 was $1.6 million compared to a benefit of $7.7 million in Q4 2015.

Adjusted EBITDA grew 36% in Q4 2016 to $2.2 million, compared to $1.6 million in Q4 2015 (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below).

Full Year 2016 Financial Results

Consolidated revenue grew 20% in 2016 to $122.0 million, compared to $101.7 million in 2015. Business Services revenue grew 31% to $86.6 million, compared to $66.2 million in 2015, primarily due to the Fidelity and Apptix acquisitions. Carrier Services revenue was $35.5 million in 2016 and 2015.

Consolidated gross margin was flat in 2016 at 44.2% versus 2015. Business Services gross margin was 60.4%, compared to 63.5% in 2015, primarily due to the inclusion of revenue from Fidelity which carried a lower gross margin. Carrier Services gross margin was 4.8%, compared to 8.2% in 2015, primarily driven by a decline in the volume of traffic terminated.

Net loss attributable to common shareholders in 2016 was $15.1 million, or $0.98 per share per share on a basic and diluted basis, compared to net loss in 2015 of $9.8 million, or $1.32 per share per share on a basic and diluted basis. The income tax benefit in 2016 was $1.6 million compared to a benefit of $7.7 million in 2015.

Adjusted EBITDA grew 9% in 2016 to $8.9 million, compared to $8.2 million in 2015.

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

Conference Call Information

Fusion CEO Matthew Rosen and CFO Michael Bauer will host a conference call today to discuss the Company's financial results, followed by a question and answer period.

Date: Monday, March 20, 2017

Time: 10:30 a.m. ET / 7:30 a.m. PT

Live / Archived Audio Webcast: ir.fusionconnect.com under "Upcoming Events"

Live Dial-in: 1 844.883.3892 (toll free) / 1 412.317.9248 (international)

Interested parties should dial into the call 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 1 949.491.8235.

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

  Three Months Ended December 31,     Twelve Months Ended December 31,  
  2016     2015     2016     2015  
                               
Revenues $ 28,943,485     $ 26,836,959     $ 122,045,320     $ 101,694,516  
Cost of revenues, exclusive of depreciation and amortization, shown separately below   14,122,354       15,364,166       68,058,432       56,724,121  
Gross profit   14,821,131       11,472,793       53,986,888       44,970,395  
Depreciation and amortization   4,149,806       3,792,349       13,096,587       12,975,981  
Selling, general and administrative expenses   14,422,076       11,629,911       48,524,923       41,009,107  
Total operating expenses   18,571,882       15,422,260       61,621,510       53,985,088  
Operating loss   (3,750,751 )     (3,949,467 )     (7,634,622 )     (9,014,693 )
Other (expenses) income:                              
Interest expense   (1,864,315 )     (1,412,637 )     (6,742,143 )     (6,062,923 )
Loss on extinguishment of debt   (214,294 )     -       (214,294 )     (2,720,355 )
Gain on change in fair value of derivative liabilities   (114,716 )     (699,881 )     265,383       1,843,997  
Loss on disposal of property and equipment   (42,344 )     (34,942 )     (129,119 )     (37,444 )
Other income, net   8,696       42,186       128,987       101,057  
Total other expenses   (2,226,973 )     (2,105,274 )     (6,691,186 )     (6,875,668 )
Loss before income taxes   (5,977,724 )     (6,054,741 )     (14,325,808 )     (15,890,361 )
Benefit from income taxes   1,620,436       7,660,536       1,609,485       7,660,536  
Net (loss) income   (4,357,288 )     1,605,795       (12,716,323 )     (8,229,825 )
Preferred stock dividends in arrears   (285,540 )     (391,394 )     (2,388,007 )     (1,578,220 )
Net (loss) attributable to common stockholders $ (4,642,828 )   $ 1,214,401     $ (15,104,330 )   $ (9,808,045 )
Loss applicable to common stockholders:                              
Basic and diluted loss per common share $ (0.26 )   $ 0.12     $ (0.98 )   $ (1.32 )
Weighted average common shares outstanding:                              
Basic and diluted   18,014,151       9,894,916       15,406,184       8,873,766  
                               

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

  December 31,     December 31,  
  2016     2015  
               
ASSETS              
Current assets:              
Cash and cash equivalents $ 7,221,910     $ 7,540,543  
Accounts receivable, net of allowance for doubtful accounts of approximately $427,000 and $309,000, respectively   9,359,876       7,650,141  
Prepaid expenses and other current assets   1,160,184       1,618,603  
Total current assets   17,741,970       16,809,287  
Property and equipment, net   14,248,915       14,055,493  
Other assets:              
Security deposits   630,373       575,038  
Restricted cash   27,153       165,123  
Goodwill   35,689,215       27,060,297  
Intangible assets, net   63,617,471       45,824,399  
Other assets   77,117       9,808  
Total other assets   100,041,329       73,905,902  
TOTAL ASSETS $ 132,032,214     $ 104,499,445  
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
Notes payable - non-related parties $ 2,979,167     $ 685,780  
Obligations under asset purchase agreements - current portion   622,463       300,000  
Equipment financing obligations   1,002,578       959,380  
Accounts payable and accrued expenses   19,722,838       13,129,225  
Total current liabilities   24,327,046       15,074,385  
Long-term liabilities:              
Notes payable - non-related parties, net of discount   31,431,602       30,795,746  
Notes payable - related parties   875,750       1,074,829  
Term loan   60,731,204       24,728,762  
Indebtedness under revolving credit facility   3,000,000       15,000,000  
Obligations under asset purchase agreements   890,811       333,333  
Equipment financing obligations   1,237,083       2,085,416  
Derivative liabilities   348,650       953,005  
Total liabilities   122,842,146       90,045,476  
Commitments and contingencies              
Stockholders' equity (deficit):              
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 17,299 and 23,324 shares issued and outstanding   174       234  
Common stock, $0.01 par value, 90,000,000 shares authorized, 20,642,028 and 12,788,971 shares issued and outstanding   206,422       127,890  
Capital in excess of par value   192,233,032       184,859,082  
Accumulated deficit   (183,249,560 )     (170,533,237 )
Total stockholders' equity   9,190,068       14,453,969  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 132,032,214     $ 104,499,445  
               

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Reconciliation of Net (Loss) Income to EBITDA and Adjusted EBITDA

  Three Months Ended December 31,     Twelve Months Ended December 31,  
  2016     2015     2016     2015  
Net (loss) income $ (4,357,288 )   $ 1,605,795     $ (12,716,323 )   $ (8,229,825 )
Interest expense and other financing costs   1,864,599       1,423,491       6,742,927       6,113,270  
Income tax benefit   (1,620,436 )     (7,660,536 )     (1,609,485 )     (7,660,536 )
Depreciation and amortization   4,149,806       3,792,349       13,096,587       12,975,981  
EBITDA   36,681       (838,901 )     5,513,706       3,198,890  
Acquisition and transaction expenses   1,464,165       1,429,925       1,739,875       2,972,440  
Change in fair value of derivative liability   114,716       699,881       (265,383 )     (1,843,997 )
Loss on disposal of property and equipment   42,344       34,942       129,119       37,444  
Non-recurring employment related expenses   -       2,150       535,500       30,996  
Legal settlements   -       -       -       108,360  
Loss on extinguishment of debt   214,294       -       214,294       2,720,355  
Stock based compensation expense   309,958       276,302       996,494       934,739  
Adjusted EBITDA $ 2,182,158     $ 1,604,299     $ 8,863,605     $ 8,159,227  
                               

About Fusion

Fusion (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 service 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.