Fusion (NasdaqCM: FSNN) Acquires Cloud Services Provider Apptix, Reports Q3 Results & Highlights, Vista Partners Maintains $5.50 12-month Target Price
Vista Partners currently has a 12-month target price of $5.50 for Fusion (NasdaqCM: FSNN), a leading cloud services provider based in NYC. To learn more about Fusion visit Vista Partners’ company dedicated page that contains video, commentary, links to financials, filings, news and FREE Report.
Shares of FSNN closed trading at $1.31 up+8.26% today. The 52 week range is $.96-$.5.43.
Fusion (FSNN) announced today that it has acquired Herndon, Virginia-based Apptix, Inc., a wholly-owned subsidiary of Apptix ASA (APP.OL). Apptix provides cloud-based communications, collaboration, virtual desktop, compliance, security and cloud computing solutions to approximately 1,500 business customers throughout the U.S. Total consideration in the transaction was $28.0 million, consisting of $23.0 million in cash and approximately 3.0 million shares of Fusion unregistered common stock priced at $1.68 per share. The acquisition, which closed on November 14, 2016, was financed with a new $70.0 million senior secured credit facility led by East West Bank, which replaces Fusion’s previous $40.0 million senior credit facility. The new credit facility reduces Fusion’s weighted average borrowing cost from 8.0% down to 7.5%.
Reported Highlights Of Acquisition
- Significantly expands Fusion’s scale and scope, adding approximately $25 million in annual revenue and $8 million in post-synergy Adjusted EBITDA (a 30% contribution margin), for a total pro forma annual revenue run-rate of approximately $145 million and Adjusted EBITDA of $16 million
- Adds a growing, high-quality business customer revenue base, over 90% of which is under multi-year contract and recurring, with an existing gross margin of approximately 60%
- Represents a highly attractive acquisition price, equivalent to 3.5x pro forma Adjusted EBITDA and 1.1x revenue
- Extends Fusion’s reach to the desktop and into the customer’s IT infrastructure, allowing for greater service control and increased customer loyalty and “stickiness,” while expanding the services Fusion can sell
- Accelerates Fusion’s growth strategy and advances its leadership position in the rapidly expanding cloud computing market for SMB and Enterprise customers
- Contributes a powerful cloud computing infrastructure with significant available capacity for growth
- Brings engineering and development resources to advance Fusion’s cloud computing infrastructure and service offerings, as well as a team of highly capable sales, implementation and support professionals
- Creates a large cross- and up-sell opportunity into Apptix’s 1,500 customers and into Fusion’s own customer base seeking a broader array of cloud services
- Fusion’s new five-year $70 million senior secured credit facility consists of a $65.0 million term loan and a $5.0 million revolver (undrawn at close), at an interest rate of LIBOR (with no floor) + 5.00%
- Retired the Company’s previous $25.0 million senior term loan and $15.0 million senior revolver
- Fusion also announced today the pricing of a $2.8 million private placement consisting of 2.4 million shares of its common stock at a purchase price of $1.15 per share. The offering included additional commitments from Fusion’s chairman, its chief executive officer, and other members of its board of directors. Fusion will use the net proceeds from this offering, which is expected to close on November 16, 2016, for working capital and general corporate purposes. Craig-Hallum Capital Group acted as the sole placement agent in the offering.
Matthew Rosen, Fusion’s Chief Executive Officer, said, “Fusion’s acquisition of Apptix continues our previously announced strategy to build a market leading portfolio of integrated cloud service offerings and to achieve greater scale through disciplined, targeted acquisitions. The addition of Apptix deepens our comprehensive service portfolio with a focus on extending these services to the desktop and IT infrastructure of our customers. I am particularly pleased to further grow our team of seasoned, highly trained cloud technology professionals. In addition to its significant revenue and EBITDA contribution, we anticipate that the Apptix acquisition will accelerate Fusion’s growth initiatives,” Mr. Rosen continued. “We believe that Fusion’s award-winning UCaaS and Contact Center solutions, as well as our secure and diverse cloud connectivity and security services, will connect well with Apptix’s existing customers, creating substantial cross- and up-selling opportunities into the combined Apptix and Fusion base of more than 13,000 business customers.”
For the three months ended September 30, 2016, Apptix reported, on an unaudited basis, revenue of $6.3 million and Adjusted EBITDA of $0.8 million.
Johan Lindqvist, Chairman of Apptix, said, “For more than a decade, Apptix’s advanced, secure and reliable cloud services have helped businesses of all sizes work more efficiently. It has been our mission to increase our customers’ productivity across the enterprise with high quality, high value communications, collaboration and infrastructure services, and we believe that Fusion’s single source cloud solutions are a perfect complement to our own. We have gotten to know the Fusion team exceedingly well over the past several months, and have been impressed with management, the company’s business, its position in the marketplace, and its commitment to providing the highest level of service to its customers. We have great confidence in Fusion’s growth strategy and its ability to create significant value. Importantly, the two companies share a common vision and culture which provides a great foundation for the integration of our teams. On behalf of the shareholders of Apptix ASA, we are extremely excited to participate in Fusion’s ongoing success as shareholders of this emerging cloud services leader,” Mr. Lindqvist concluded.
Michael Bauer, Fusion’s Chief Financial Officer, stated, “We are extremely pleased to announce our new senior credit facility led by East West Bank. Together with our common share offering, this new facility gives Fusion additional financial strength and flexibility to continue to pursue our growth strategy. This acquisition is a big step forward to achieving our intermediate financial goals of $200 million in revenue, 50% gross margin and 15% Adjusted EBITDA margin.”
Fusion also announced financial results for the quarter ended September 30, 2016.
Third Quarter Highlights
- Consolidated revenue increased 20% year-over-year to $29.5 million driven by a 27% increase in Business Services segment revenue to $20.6 million
- Signed $8.5 million in new Business Services total contract value during the third quarter, up 67% from the year-ago period, demonstrating continued progress in developing the company’s sales growth engine
- Ended the third quarter with approximately $373,000 in Business Services MRR in backlog, representing $12.6 million in total contract value, up 78% over the third quarter of 2015
- Signed several large, multi-year enterprise customers combining multiple cloud service offerings into an integrated solution, including a three year, $1.1 million contract with a leading Southeastern bank connecting 33 of its locations to the Fusion cloud
- Ended the quarter with an average monthly revenue per customer (ARPU) of $568 and a churn rate of 1.1%, compared to $547 and 1.26% at June 30, 2016
- Adjusted EBITDA (a non-GAAP measure) was $1.7 million, reflecting a full quarter of investments in sales and marketing efforts to enhance organic revenue growth
Matthew Rosen, Fusion’s Chief Executive Officer, commented, “Our business during the third quarter demonstrated strong year-over-year revenue growth and continued positive momentum in sales bookings. The contract value of our bookings grew 67% during the quarter and over the last 12 months, indicating the early success of our sales and marketing investments and validating our organic sales strategy. At the same time, our solid performance on key metrics including ARPU and churn illustrates the success of our positioning in the market as the single source for the cloud, delivering multiple services in an integrated solution to capture larger customer orders and create strong customer loyalty.
Third Quarter Results
Fusion reported consolidated revenue of $29.5 million for the third quarter of 2016, which represents an increase of $5.0 million or 20% over consolidated revenue of $24.5 million reported for the third quarter of 2015.
Revenue in the Company’s Business Services segment increased 27% to $20.6 million, as compared to $16.3 million in the third quarter of 2015, driven primarily by the Fidelity acquisition in the fourth quarter of 2015.
Revenue in the Company’s Carrier Services segment was $8.9 million, as compared to $8.3 million in the third 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 third quarter of 2016 was 43.1% as compared to 44.8% in the third quarter of 2015. Business Services had a gross margin of 59.9% for the third quarter of 2016, compared to 63.8% in the third quarter of 2015, due primarily to the integration of the Fidelity acquisition, which carried a lower gross margin.
Carrier Services’ gross margin for the third quarter of 2016 was approximately 4.3%, down from 7.6% 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 $3.4 million, or $0.23 per share on a basic and diluted basis, as compared to a net loss of $5.2 million, or $0.72 per share on a basic and diluted basis for the third quarter of 2015. Adjusted EBITDA was $1.7 million during the third quarter of 2016, as compared to an Adjusted EBITDA of $1.9 million for the third quarter of 2015.
To learn more about Fusion (NasdaqCM: FSNN) visit company dedicated page that contains video, commentary, news and FREE Update Report on Fusion (NasdaqCM: FSNN) is also available at Vista Partners.