Fusion Telecommunications International, Inc. (NASDAQ: FSNN) offers a suite of cloud solutions to businesses of all sizes, including cloud communications, cloud connectivity, cloud computing and additional cloud services such as storage and security.
On August 28, 2017, the company announced it would acquire the Cloud and Business Services segment of privately held Birch Communications in an all-stock transaction. The combination is expected to create one of the largest cloud services providers in North America, with more than 150,000 business customers and a 100% Internet Protocol-based network, including 30 data centers, 31,000 fiber route-miles of network, and metro fiber assets in 11 major markets. The combined customer base is expected to demonstrate strong fundamentals, with monthly recurring revenue comprising approximately 87% of total revenue.
FSNN shares had been trading at about $1.20 per share throughout the month of August, and closed at $1.22 on Friday, August 25, 2017. After the acquisition announcement, the share price exploded and FSNN is trading at $3.12 per share in the August 30th, 2017 session, a gain of 155%.
Moody’s Investor service expects the deal to close near the end of 2017 or in the first quarter of 2018.
Recent Developments
August 28, 2017. Fusion plans to buy the cloud and business services unit of Birch Communications, a private enterprise, in an all-stock deal that it said would broaden its customer base. The acquisition would form one of the largest North American cloud services providers, with more than 150,000 business customers, 30 data centers and 31,000 miles of fiber network.
Fusion’s management will run the combined company. Birch Equity Partners LLC, Birch’s majority owner, will get 75 percent of the new company, while Fusion shareholders will have 25 percent. Together, the company expects annual revenue of $575 million.
Birch Equity and other Birch shareholders will get about 73 million Fusion shares that the companies said would be worth $3.85 each, or about $281 million in total. Fusion would assume Birch’s existing debt of about $458 million. It plans to refinance that along with its own debt of about $101 million.
July 18, 2017. Fusion has secured a three-year, $350,000 cloud communications solution contract with an international self-storage company. The new customer, one of the largest providers of renewable energy within the self-storage industry operates 195 self-storage facilities with more than 15 million square feet of storage space in the United States, Canada, and United Kingdom.
June 26, 2017. Fusion has been added to the Russell Microcap® Index effective at the open of trading today, marking the annual Russell Indexes reconstitution. Membership in the Russell Microcap® Index, which remains in place for one year, means automatic inclusion in the appropriate growth and value style indexes.
About the Company
Fusion Telecommunications International, Inc., together with its subsidiaries, provides cloud communications, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based solutions to small, medium, and large businesses worldwide. The company operates in two segments, Business Services, and Carrier Services. The Business Services segment offers cloud voice and unified communications as a service, which enhance communication and collaboration on virtually various devices and places; cloud connectivity services that connect customers to the cloud with managed network solutions; and cloud computing and infrastructure as service solutions that are designed to provide enterprise customers with a platform on which additional cloud services can be layered, as well as SIP trunking solution, which allows a customer to retain and use its existing telephone system. This segment also provides software as a service based solutions, including security and business continuity, as well as offers private and hybrid cloud, storage, backup and recovery, and secure file sharing services. The Carrier Services segment offers voice traffic termination through voice over IP technology. This segment interconnects to approximately 370 carrier customers and vendors; and sells voice services to other communications service providers, including the United States based carriers sending voice traffic to international destinations, and foreign carriers sending voice traffic to the United States and internationally. The company markets and sells its services primarily through distribution partners, direct sales personnel, and sales representatives. Fusion Telecommunications International, Inc. was founded in 1997 and is headquartered in New York, New York.
The Fusion Network
Fusion operates a nationwide next-generation IP/MPLS network designed to maximize reliability, performance, and scalability. Fusion’s robust, carrier-grade network ensures the highest quality, diversity, and redundancy for all your applications, whether located in your network, our infrastructure, or a 3rd party.
The Fusion network is built on a mesh of 10 Gigabit WDM circuits that interconnect 18 Points of Presence throughout the nation. Powered by Cisco’s next-generation ASR 9000 platform, their 100 Gigabit-ready core can achieve terabit scale. Their geographically diverse, fully redundant, carrier-grade network eliminates all single points of failure past the customer’s access port. Intelligence built into the network provides rapid fault isolation and recovery by automatically detecting network events as they happen and optimally rerouting customer traffic.
Two US-based Network Operations Centers (NOCs) provide 24×7 monitoring to ensure that the network exceeds the reliability and performance objectives provided in their aggressive SLAs.
Fusion Services
Cloud Communications: Fusion360, FusionWorks and FusionSIP advance a business’s success with a powerful combination of telephony and unified communications features and functionality that increase productivity and agility, remove end of life and management concerns, and reduce costs.
Cloud Connectivity: Dedicated Internet Access (DIA), MPLS and Integrated Access services help customers connect to the right network at the lowest cost and minimize IT network costs.
Cloud Computing: A comprehensive suite of cloud services designed to increase value and productivity with flexible, scalable, reliable, and secure solutions that gives enterprise customers the agility they need to succeed in today’s demanding business environment. Fusion’s suite of cloud storage, cloud security and cloud computing solutions are managed in our cloud, saving customers space, time, money, and resources.
Carrier Services: Fusion has been providing service to top carriers for over 15 years. More than 270 international carriers count on Fusion for high quality, low cost terminations to global destinations, creating compelling products that meet demanding price point requirements and exceed expectations for ASR in the world’s most challenging destinations.
2017 Operational Highlights
Reduced the Company’s senior debt balance by $4.6 million year to date, as the Company made scheduled principal payments and paid down its revolving credit facility during the quarter.
Announced the formation of Fusion Global Services, which will combine Fusion’s Carrier Services division with XComIP, LLC, enhancing Fusion’s focus on its Business Services segment and reducing operating expense, thereby improving the Company’s consolidated margin profile.
Completed the implementations of a new operations support system (OSS) and unified billing platform.
Launched a new and enhanced customer portal for Fusion’s leading-edge SD-WAN (Software Defined Wide Area Network) cloud network solution.
Added to the Russell Microcap Index, one of the most widely followed equity investment benchmarks for emerging growth companies.
Q2 Financial Review
Fusion’s consolidated revenue grew 23% in Q2 2017 to $38.1 million, compared to $31.0 million in Q2 2016, due to an increase in the Company’s Business Services segment revenue. Business Services revenue grew 40% to $30.0 million, compared to $21.4 million in Q2 2016, primarily due to the acquisition of Apptix which closed in November 2016. Carrier Services segment revenue in Q2 2017 was $8.1 million, compared to $9.6 million in Q2 2016.
Consolidated gross margin in Q2 2017 was 45.1%, an increase of approximately 270 basis points compared to 42.4% in Q2 2016, primarily due to a greater proportion of Business Services revenue in consolidated revenue. Business Services segment gross margin of 56.7% decreased slightly from 59.3% in Q2 2016, primarily due to the addition of lower margin revenue from new customers the Company began servicing during the second quarter. Carrier Services segment gross margin was 2.4% compared to 4.8% in Q2 2016.
Net loss attributable to common shareholders in Q2 2017 was $3.1 million, or $(0.14) per share on a basic and diluted basis, compared to net loss in Q2 2016 of $3.0 million, or $(0.20) per share on a basic and diluted basis.
Adjusted EBITDA grew 66% in Q2 2017 to $3.7 million, compared to $2.2 million in Q2 2016, and grew 13% compared to $3.3 million in Q1 2017, due primarily to revenue growth and the achievement of additional synergies associated with the acquisition of Apptix.
Capital expenditures in Q2 2017 totaled $1.4 million, or 3.6% of revenue. Capital expenditures in the first half of 2017 totaled $2.3 million, or 3.2% of revenue.
Cash at June 30, 2017 totaled $2.4 million, compared to $7.2 million at December 31, 2016. During 2017, the Company made $4.6 million in debt pay downs, reducing its outstanding term loan balance by $1.6 million and completely repaying the $3.0 million outstanding on its revolving credit facility. As of June 30, 2017, the Company’s full $5.0 million revolving credit facility was undrawn and available.
Stock Influences and Risk Factors
Recent acquisitions may be accretive to earnings or otherwise improve results of operations;
Through acquisitions the company may have become a more attractive takeover target;
Failure to comply with the financial and other covenants contained in senior debt facilities;
The cloud services industry is highly competitive and they may be unable to compete effectively;
Changes in technology and service offerings could affect the ability of the Business Services segment to compete in the marketplace for cloud communications services;
Some of their services are dependent upon multiple service platforms, network elements, and back-office systems that are reliant on third party providers.
Stock Chart
In intraday trading on August 30, 2017, FSNN shares are at $3.14 (+8.65%). Trading volume at 2:00 pm was at 2.4 million shares as compared to a daily average of 180 thousand shares. For the week beginning August 25th, 2017, FSNN shares are up 155%.
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