Integrated Cloud Solutions Provider Fusion Reports Progress in Q3 2018
NYC-based 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 their customers’ cost of ownership and deliver new levels of security, flexibility, scalability, and speed of deployment.
Fusion (FSNN), a leading cloud services provider, today announced financial results for the three and nine months ended September 30, 2018.
Third Quarter 2018 Highlights
- Revenue was $143.4 million, up 19% compared to $120.8 million in Q2 2018 and up 28% compared to $112.4 million in Q3 2017
- Gross margin was 49.1%, compared to 45.2% in Q2 2018 and 47.9% in Q3 2017
- Net loss attributable to common stockholders was $18.1 million, or $0.23 per share, compared to a net loss of $34.5 million, or $0.59 per share in
- Q2 2018 and a net loss of $1.5 million, or $0.06 per share in Q3 2017
- Excluding transaction and integration-related expenses, non-GAAP net loss attributable to common stockholders was $11.3 million, or $0.14 per share
- Adjusted EBITDA (a non-GAAP measure) was $30.6 million, or 21.3% of revenue, compared to $26.6 million in Q2 2018 and $30.1 million in Q3 2017
- Capital expenditures were 7.6% of revenue, compared to 8.8% of revenue in Q3 2017
- Unlevered Free Cash Flow (a non-GAAP measure), defined as Adjusted EBITDA less capital expenditures, was $19.7 million, or 13.7% of revenue
- Achieved integration-related cost synergies with an annualized run-rate of approximately $27 million exiting Q3 2018, representing 77% of the $35 million of targeted acquisition-related synergies within 12 months following the closings
- Fusion has identified additional integration-related synergy savings that were not part of its original estimate, and now expects to exceed its targeted synergies by at least 30%
- Average monthly revenue per customer (ARPU) was $303, compared to $309 in Q2 2018 and $298 in Q3 2017. Excluding Fusion’s customer base in Canada, ARPU was $628
- Monthly Recurring Revenue (MRR) bookings were $2.1 million, up sequentially from $2.0 million in Q2 2018 (inclusive of the full Q2 2018 results)
- More than 80% of Fusion’s total bookings in September consisted of higher-margin services, while approximately 40% of these sales had an MRR over $1,000
- Approximately 55% of the MRR of all new bookings represented sales of multi-product solutions
- Strong progress in cross-selling and upselling, with nearly 30% growth in bookings to existing customers in Q3 2018 compared to Q2 2018
- Churn was 1.3%, compared to 1.5% in Q2 2018 and 2.3% in Q3 2017
- Significant improvement in the customer experience, as reflected in higher first call resolution rates, shorter call wait times, and higher CSAT (customer satisfaction) scores
Matthew Rosen, Fusion’s Chairman, and Chief Executive Officer stated, “The third quarter marked an important milestone for Fusion, as we are reporting our first full quarter of consolidated results following the closing of the Birch and MegaPath acquisitions, and our strong performance is beginning to demonstrate the power of our combined platform. Our revenue trend has now largely been stabilized, and we showed sequential, month-over-month growth in MRR in September. Our churn rate improved materially, while bookings, backlog and ARPU were all solid. We exited the quarter having achieved 77% of our pre-merger synergy target, and since we have uncovered a substantial amount of additional integration-related cost savings, we now expect to outperform our original synergy target by at least 30%. We have a lot of exciting opportunities ahead of us thanks to our strong positioning in the market. Our unique Single Source for the Cloud approach, combined with the benefits of our greater scale, has significantly enhanced our competitive advantage. The investments we’re making in our sales channels, service delivery, and customer care are paying dividends. We are seeing more sales opportunities than ever before, especially for larger, higher ARPU deals for multiple services. Our cross-selling and upselling efforts have gotten off to a fantastic start, and we have the right strategy in place to gain a much larger share of our existing customers’ spend. Finally, we are advancing our technology leadership and innovation to launch new, disruptive software solutions in 2019, keeping Fusion ahead of the curve in the marketplace.”
Keith Soldan, Fusion’s Chief Financial Officer, said, “The strength of the third quarter results clearly illustrates execution of our strategic plan through enhanced distribution, selling multiple products as an integrated solution, with continued investment in high-ROI customer care initiatives, all while maximizing synergies and shareholder value. The continued successful execution of our plan, with growing Adjusted EBITDA and low capital expenditures, positions Fusion to deliver increasing levels of free cash flow in the quarters to come. We continue to expect an annualized revenue run rate of at least $575 million and an Adjusted EBITDA margin of 25% exiting the second quarter of 2019, with potential for upside to the margin.
Third Quarter 2018 Financial Results
- Revenue was $143.4 million, up 28% compared to $112.4 million in Q3 2017. The increase was primarily due to the contribution of revenue from Fusion and MegaPath.
- Gross margin was 49.1% for the three months ended September 30, 2018, compared to 47.9% in the year-ago period. The increase is primarily due to the realization of cost of revenue synergies within the quarter through network consolidation and network grooming throughout Fusion’s footprint, along with a slight shift in revenue mix due to accelerating sales of higher-margin cloud services.
- Selling, General and Administrative expense was $46.8 million, compared to $26.8 million in Q3 2017. The increase was primarily due to the contribution from Fusion and MegaPath, and included $6.8 million of acquisition transaction and restructuring costs.
- Net loss attributable to common stockholders was $18.1 million, or $0.23 per share on a basic and diluted basis, compared to net loss to common stockholders in Q3 2017 of $1.5 million, or $0.06 per share on a basic and diluted basis. Excluding acquisition transaction and restructuring costs, net loss attributable to common stockholders was $11.3 million, or $0.14 per share.
- Adjusted EBITDA was $30.6 million, compared to $30.1 million in Q3 2017 (see definition and further discussion about the presentation of adjusted EBITDA, a non-GAAP term, below). Capital expenditures totaled $10.9 million, or 7.6% of revenue, compared to $9.9 million, or 8.8% of revenue in Q3 2017. Unlevered Free Cash Flow, defined as Adjusted EBITDA less capital expenditures, was $19.7 million, or 13.7% of revenue.
- Total cash and equivalents at September 30, 2018, were $15.4 million, compared to $5.8 million at December 31, 2017. Fusion paid $6.9 million in principal amortization payments on its credit facilities during Q3 2018.
Further details about the Company’s financial results are available in its quarterly report on Form 10-Q, which will be available in the investor relations section of the Company’s website at ir.fusionconnect.com.
Shares of FSNN closed trading today at $2.62/share up 6.07% and are up in the aftermarket at $2.90/share.