EXECUTIVE SUMMARY for new investors
This is directly from the company flyer.
Fusion is an Emerging Leader in Cloud Communications and Cloud Delivered Services, One of the Fastest
Growth Areas in the Telecommunications Market Estimated at $3.2 billion and Growing at 36% per Year.
Shift to Focus on Delivering Unified Communications Services to Business Customers Promises to Grow Recurring Revenue as a Portion of Total Revenues, to Increase Margins and to Bring Multi-Year Service Contracts.
High Industry Valuation Multiples in excess of 30x EBITDA for Cloud-Based Telephony Companies Suggest Strong Increases in Fusion Valuation and Share Appreciation.
GNYHA Agreement Names Fusion as the Exclusive Provider of Cloud-base Communications and Other Cloud Information and Security Services to the Greater New York Hospital Association’s +15,000 Members Throughout the US.
Focus on Delivering Vertically-Oriented Cloud-based Solutions to Large Vertical Markets Including Healthcare, Transportation and Education Provides Competitive Advantage, Large Enterprise Sales and Partnership Opportunities.
Recently Announced Acquisition Expected to Produce Approximately +$5 million in positive EBITDA on $74 million in Consolidated Revenues within 2012 Upon Integration and Bring Expanded Infrastructure.
Acquisition of Other Communications or Cloud Service Companies May Leverage the High Valuation Multiples of Cloud-Based Carriers like Fusion.
Use of Commercial Software and Product Platforms and Partnerships with Established Vertical and System Integration Partners Lowers Need for Capex and Speeds Time to Market.
Unique Reach into Corporations, Institutions and Government through Strong Board of Directors and Management Team.
[6:40:28 PM | Edited 6:41:07 PM] Vickster: The Company
Fusion Telecommunications International, Inc. (OTCBB: FSNN), a Delaware corporation, is a provider of Internet Protocol (“IP”) based digital voice and data communications services and cloud services to carriers and corporations worldwide.
Fusion was formed in 1997 and commenced operations in 1998, as a provider of domestic and international telecommunication service to carriers, corporations and consumers. The Company completed its Initial Public Offering in February 2005. In 2009, Fusion sold its consumer services business segment in order to more fully focus its efforts on its higher volume carrier services and higher margin corporate services business segments.
Our Business
Our business addresses two major segments of the communications market: Carrier Services and Corporate Services.
Our Carrier Services are sold to other communications service providers throughout the world, including U.S. based carriers wishing to terminate transmission of telephone services to international destinations and foreign carriers wishing to terminate in the U.S. and throughout the world. We also purchase domestic and international termination services from many of our carrier customers. We currently have over 270 carrier customers and vendors.
Our Corporate Services segment provides a rapidly growing portfolio of telecommunications’, cloud communications’ and cloud services to small and medium sized businesses and to large enterprises. These services include local, long distance, and international Voice over Internet Protocol (“VoIP”) services; broadband Internet access; private line circuits; virtual private network services; audio and web conference calling; fax services, and other enhanced communications services and features. These communications services are enhanced and sold with a rich array of cloud-based products including Infrastructure-as-a-Service (IaaS); Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS). Our entire offering is provided within a highly secure framework protecting our customers’ service and information. This spectrum of cloud communication and cloud services, called Unified Communication-as-a-Service (UCaaS), allows us to deliver voice, data, applications and Internet access services over a single facility, while providing service quality and reliability comparable to that of the historical circuit-switched service providers. We currently serve corporate users in 30 states.
Fusion’s product offerings are designed to capitalize on the rapid growth of cloud-based voice and information services which replaces on-premise equipment based on traditional circuit switched technology including PBX’s and servers with remote services delivered over the internet. Customers switch from legacy, equipment-based communication and information services to cloud based services to take advantage of lower cost of ownership, lower exposure to obsolescence, materially reducing management responsibility and maintenance responsibility, take advantage of a larger range of services and applications available from the cloud, scale as their businesses grow (or contract) without hardware changeouts, and to achieve greater reliability. We are aggressively introducing a broad suite of cloud services, particularly focusing on select, large vertical markets, which address industry-specific customer needs and are not easily duplicated by competitors. These cloud communications and cloud-based information services are being developed primarily through major partners who seek access to the Company’s expertise and its distribution channels.
The Market Fusion believes that the telecommunications market is at an inflection point as customers ranging from small to enterprise sized switch from premise based equipment to cloud based services. Through this Unified Communications approach, network management and security; voice and telephony; messaging and presence; conferencing; and applications are delivered through a single facility and managed through the cloud. The transformation offers cloud based telephony companies the ability to gain share rapidly as customers choose new vendors in the sector and offer to increase the average revenue per user (ARPU) by offering an expanding number of communications, communications and security “Apps” and to generate higher overall margins. According to a recent research report, cloud-based telephony services are growing at 36% per year and represent a $3.2 billion market. Cloud based information services for one of Fusion’s target markets, healthcare, is projected by BCC to grow to $17.5 billion by 2016 with 50% of that growth coming from cloud computing.
The market for cloud communications and cloud services, Unified Communications as a Service, is significantly more attractive than the traditional model based on hardware sales. Unified Communications offers a financial model based on high margin recurring revenue and large, multi year sales.
Fusion’s Strategy Our strategy is to continue to grow our existing Carrier Services business, which today comprises 95% of our revenue while accelerating the growth of our Corporate Services business to ensure that an increasing portion of our total revenues is derived from the higher margin, more stable and largely recurring Corporate Services business segment. We believe that the Carrier Services business supports the growth of the Corporate Services business by providing enhanced service offerings for our corporate customers, by lowering the overall cost basis of the communication infrastructure shared by the Corporate Services business and by strengthening our relationships with key service providers and carriers throughout the world.
Growth in the Carrier Service business will be driven by expanding the number of international carriers with whom we interconnect; expanding sales to non-traditional carriers, including cable television providers, Internet search engine companies, and large IP telephone companies; and by expanding current carrier relationships to maximize the traffic received from and sent to them.
We intend to generate substantial growth in the Corporate Services segment to make the revenues and margins from this segment a more significant portion of our total revenues and margins. The expansion of the Corporate Services business will come from both organic growth and acquisitions. Organic growth will be delivered from a combination of expanding the number and types of services available and sold to our current customers and by customizing our product and service offerings to address the needs of target large sectors. We believe that there is substantial opportunity to gain market share, to increase the size of our average sale and to sell a broad range of our products by focusing on offering highly targeted product and service solutions to these large sectors including healthcare, transportation and education. Our strong entry into these markets also leverages our experience and relationships to provide a competitive advantage and offers the opportunity to create sector specific partnerships with incumbent cloud service providers in each sector. Such larger sales to enterprise customers typically have lower churn rates and provide substantial opportunities for adding additional services to a core communications offering. Targeted, “bolt-on” acquisitions are also seen as part of our core strategy, expanding our customer base and providing new prospective customers for our growing portfolio of cloud services; potentially adding products and services to our own; and increasing the scale of our operations while leveraging our existing infrastructure and costs. Such acquisitions may be consummated at lower valuation multiples than would be accorded to Fusion, thus effectively lowering the cost of the acquisition.
Recent Events
The growth strategy of Fusion in terms of both large sale organic growth and growth through acquisition has been evidenced by two recent, announced events.
In January, 2012, Fusion announced that it had entered into an exclusive agreement for cloud services and communications solutions with the group purchasing organizations (“GPOs”) of the Greater New York Hospital Association (GNYHA). Fusion and the GPOs will offer the more than +15,000 GPO members in healthcare and other vertical markets a full range of cloud services, including cloud computing, disaster recovery, storage and security. Through this agreement, Fusion may also provide GNYHA members hosted voice and data solutions that include a full complement of advanced service features, unified communications and presence, Internet and other broadband data services, as well as a comprehensive portfolio of leading edge hardware designed to meet the specific needs of the healthcare industry. These services may be offered directly by Fusion or in partnership with major hardware, software and systems integration partners.
In January, 2012, Fusion announced that it had entered into purchase agreements to acquire the business currently operated by Network Billing Systems, LLC and Interconnect Systems Group II LLC (collectively, “NBS”). The aggregate purchase price for the NBS acquisition transaction is $20 million. NBS currently provides voice (including VoIP) and data telecommunications services, as well as a wide variety of managed and cloud-based telecommunications services, to small and medium sized companies. NBS has approximately 5,000 customers and for FY 2011 generated (unaudited) revenues of approximately $26.8 million and over $3 million in net income (unaudited). The Company expects that as a result of the acquisition of NBS, it will, on a consolidated basis, generate positive EBITDA. In addition to the financial benefits which are foreseen to accrue from the acquisition, Fusion believes this acquisition will accelerate its organic growth plans and provide a compelling platform for future acquisitions.
Competition Fusion competes with both larger and more established competitors as well as new market entrants. These include traditional carriers (AT&T, Verizon and Windstream), cable companies (Comcast), focused IP Telephony companies (8x8, West IP Communications, RingCentral, M5/Shoretel) and IP network hardware and software providers (Cisco, Broadview). The market is highly fragmented with no single market participant having more than 5% of the market.
Valuation - Anticipating the growth in the market, valuations for focused IP communications companies have been established at above market and forward looking levels as evidenced in both the public and private market. The Enterprise Value of 8x8 (NASDAQ: EGHT) was recently 2.99x revenue and 26.99x EBITDA. In recent M&A transactions, one of the leading providers of cloud-based telephony, M5 Networks was acquired by Shoretel, a traditional facilities-based telephony provider, for 3.3x revenue and 45.7x EBITDA. Another provider of cloud-based telephony, Smoothstone IP Communications, was acquired by West Communications for 3.1x revenue and 38x EBITDA. The Company believes that should such forward looking valuation levels be accorded to Fusion, the Company may gain the ability to leverage its high valuation in acquiring smaller companies at significantly lower valuations and to arbitrage the difference between its own valuation and that of the acquired company.
THE OFFERING
The Offering - Pursuant to our Private Placement Memorandum dated May 15, 2012, Fusion Telecommunications International, Inc. is offering to Accredited Investors as is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended:
The Offering Up to $15,000,000 representing 15,000 Units of $1,000 with an over-allotment of up to $3,000,000 representing 3,000 Units of $1,000
The Investment Units: (i) one (1) share of Series B-1 Senior Cumulative Convertible Preferred Stock of the Company with a par value $0.01 per share and a Stated Value of $1,000 per share;
(ii) a warrant to purchase shares of Common Stock of the Company; each such warrant will then be exercisable at any time for 5 years after issuance for a number of Common Shares that is equal to fifty (50%) percent of the Stated Value divided by 125% of the Preferred Conversion Price (as adjusted for stock splits, combinations and reclassifications). and
(iii) a warrant to purchase shares of Common Stock subject to certain conditions; each such warrant will be exercisable for a number of Common Shares that is equal to 25% of the Stated Value of the Preferred Shares divided by 125% of the Preferred Conversion Price (as adjusted for stock splits, combinations and reclassifications).
Conversion: Each Preferred Share shall be convertible as defined in the Private Placement Memorandum into such number of shares of Common Stock as shall be equal to the Stated Value of the Preferred Shares divided by the volume-weighted average price for the Common Stock of the Company over the ten (10) trading days immediately prior to the respective closing, as adjusted for stock splits, combinations, and reclassifications.
Minimum Investment: 50 Units ($50,000)
Use of Proceeds: The Company intends to use the proceeds of the Offering for general corporate purposes as detailed below and is an estimate only. The estimate set forth below is not intended to represent the order of priority in which the proceeds may be applied and may be changed at the sole discretion of the Company.
Gross Offering Proceeds $ 15,000,000 $ 18,000,000
Less: Fee to Selling Agents (1,350,000) (1,620,000)
Less: Expense Reimbursements (150,000) (180,000)
Less: Estimated Offering Expense(100,000) (100,000)
____________ ____________
Net Proceeds to Fusion $ 13,400,000 $ 16,100,000
Acquisitions /Related Exp $ 8,100,000 $ 9,100,000
Sales and Marketing 1,850,000 2,850,000
Working Capital 2,050,000 2,750,000
Debt Reduction 1,100,000 1,400,000
____________ _____________
$ 13,400,000 $ 16,100,000
THIS DOCUMENT IS BEING PROVIDED FOR INFORMATION PURPOSES ONLY, AND DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY SECURITIES.
