Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 07, 2018 | |
Proceeds from the sale of preferred stock and warrants, net of expenses, Amount | ||
Entity Registrant Name | Fusion Connect, Inc. | |
Entity Central Index Key | 1,071,411 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 82,112,970 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 15,426 | $ 5,757 |
Accounts receivable, net of allowance for doubtful accounts of $5,558 and $2,652, respectively | 52,597 | 25,372 |
Accounts receivable - stockholders/employees | 103 | 920 |
Prepaid expenses | 11,276 | 6,290 |
Inventory, net | 2,367 | 1,142 |
Other assets | 4,483 | 2,505 |
Current assets of discontinued operations | 0 | 40,038 |
Total current assets | 86,252 | 82,024 |
Long-term assets: | ||
Property and equipment, net | 120,612 | 106,557 |
Goodwill | 218,151 | 89,806 |
Intangible assets, net | 176,465 | 68,834 |
Other non-current assets | 32,518 | 877 |
Total long-term assets | 547,746 | 266,074 |
Total assets | 633,998 | 348,098 |
Current liabilities: | ||
Accounts payable | 75,500 | 40,315 |
Accrued telecommunications costs | 4,812 | 11,048 |
Deferred customer revenue | 16,440 | 10,226 |
Other accrued liabilities | 41,706 | 23,948 |
Current portion of capital leases | 2,525 | 3,003 |
Current portion of long-term debt | 30,779 | 26,500 |
Current liabilities from discontinued operations | 0 | 34,864 |
Total current liabilities | 171,762 | 149,904 |
Long-term liabilities: | ||
Non-current portion of long-term debt | 589,433 | 410,736 |
Non-current portion of capital lease | 2,830 | 3,823 |
Other non-current liabilities | 6,149 | 12,847 |
Total non-current liabilities | 598,412 | 427,406 |
Stockholders' deficit: | ||
Preferred stock, $0.01 par value, 10,000 shares authorized, 15 and 0 shares issued and outstanding, respectively | 0 | 0 |
Common stock, $0.01 par value; 150,000 shares authorized, 78,501 and 25,161 shares issued and outstanding | 785 | 252 |
Additional paid-in capital | 145,638 | 5,824 |
Accumulated deficit | (282,383) | (236,477) |
Accumulated other comprehensive (loss) income | (216) | 1,189 |
Total stockholders' deficit | (136,176) | (229,212) |
Total liabilities and stockholders' deficit | $ 633,998 | $ 348,098 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Allowance for doubtful accounts | $ 5,558 | $ 2,652 |
Stockholders' deficit: | ||
Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Authorized | 10,000 | 10,000 |
Preferred Stock, Shares Issued | 15 | 0 |
Preferred Stock, Shares Outstanding | 15 | 0 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 150,000 | 150,000 |
Common Stock, Shares Issued | 78,501 | 25,161 |
Common Stock, Shares Outstanding | 78,501 | 25,161 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Income Statement [Abstract] | ||||
Revenues | $ 143,428 | $ 112,424 | $ 367,142 | $ 344,167 |
Cost of revenue (exclusive of depreciation and amortization, shown below) | 72,981 | 58,552 | 194,297 | 184,451 |
Gross profit | 70,447 | 53,872 | 172,845 | 159,716 |
Operating expenses: | ||||
Selling, general and administrative expenses | 46,788 | 26,830 | 113,555 | 88,164 |
Depreciation and amortization | 19,946 | 16,824 | 51,387 | 50,466 |
Impairment losses on intangible assets | 0 | 0 | 2,314 | 0 |
Foreign currency (gain) loss | (248) | (295) | 263 | (461) |
Total operating expenses | 66,486 | 43,359 | 167,519 | 138,169 |
Operating income | 3,961 | 10,513 | 5,326 | 21,547 |
Other (expense) income: | ||||
Interest expense, net | (21,647) | (11,405) | (51,017) | (32,886) |
Loss on debt extinguishment | 0 | 0 | (14,414) | 0 |
Other (expense) income | 203 | 1 | 35 | 51 |
Total other expense | (21,444) | (11,404) | (65,396) | (32,835) |
Loss before income taxes | (17,483) | (891) | (60,070) | (11,288) |
Income tax (expense) benefit | (148) | (654) | 4,721 | (2,008) |
Net loss from continuing operations | (17,631) | (1,545) | (55,349) | (13,296) |
Net income (loss) from discontinued operations | 0 | (5,160) | 6,218 | (13,293) |
Net loss | (17,631) | (6,705) | (49,131) | (26,589) |
Other comprehensive income (loss): | ||||
Cumulative translation adjustment | 46 | 1,923 | (1,405) | 1,667 |
Comprehensive loss | (17,585) | (4,782) | (50,536) | (24,922) |
Net loss from continuing operations | (17,631) | (1,545) | (55,349) | (13,296) |
Preferred stock dividends (Note 5) | (467) | 0 | (1,254) | 0 |
Net loss attributable to common stockholders | $ (18,098) | $ (1,545) | $ (56,603) | $ (13,296) |
Basic and diluted loss per common share from continuing operations | $ (0.23) | $ (0.06) | $ (1.05) | $ (0.53) |
Basic and diluted (loss) income per common share from discontinued operations | $ 0 | $ (0.21) | $ 0.11 | $ (0.53) |
Basic and diluted weighted average common shares outstanding | 78,435 | 25,161 | 54,143 | 25,161 |
Condensed Consolidated Statem_2
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands | Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2017 | 0 | 25,161 | ||||
Beginning Balance, Amount at Dec. 31, 2017 | $ 0 | $ 252 | $ 5,824 | $ 1,189 | $ (236,477) | $ (229,212) |
Cumulative effect of change in accounting principle | 3,725 | |||||
Adjusted Beginning Balance, Shares | 0 | 25,161 | ||||
Adjusted Beginning Balance, Amount | $ 0 | $ 252 | 5,824 | 1,189 | (232,752) | (225,487) |
Preferred Series D issued (note 16), Shares | 15 | |||||
Preferred Series D issued (note 16), Amount | 15,000 | 15,000 | ||||
Payment of Preferred Series D dividend | (500) | (500) | ||||
Distribution of the Birch Consumer Segment (Note 3) | (21,503) | (21,503) | ||||
Common stock issued in Birch reverse acquisition (Note 4), Shares | 49,896 | |||||
Common stock issued in Birch reverse acquisition (Note 4), Amount | $ 499 | 131,468 | 131,967 | |||
Common stock issued in MegaPath acquisition (Note 4), Shares | 1,679 | |||||
Common stock issued in MegaPath acquisition (Note 4), Amount | $ 17 | 6,431 | 6,448 | |||
Common stock issued in a previous acquisition by the legacy Fusion company, Shares | 129 | |||||
Common stock issued in a previous acquisition by the legacy Fusion company, Amount | $ 1 | 499 | 500 | |||
Proceeds from the sale of common stock, net of costs, Shares | 1,524 | |||||
Proceeds from the sale of common stock, net of costs, Amount | $ 15 | 7,493 | 7,508 | |||
Net loss | (49,131) | (49,131) | ||||
Cumulative translation adjustment | (1,405) | (1,405) | ||||
Proceeds from exercise of stock options, Shares | 84 | |||||
Proceeds from exercise of stock options, Amount | $ 1 | 134 | 135 | |||
Exercise of common stock purchase warrants, Shares | 28 | |||||
Exercise of common stock purchase warrants, Amount | 35 | 35 | ||||
Stock based compensation | 257 | 257 | ||||
Ending Balance, Shares at Sep. 30, 2018 | 15 | 78,501 | ||||
Ending Balance, Amount at Sep. 30, 2018 | $ 0 | $ 785 | $ 145,638 | $ (216) | $ (282,383) | $ (136,176) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash flows from operating activities: | ||
Net loss from continuing operations | $ (55,349) | $ (13,296) |
Net loss from discontinued operations | 6,218 | (13,293) |
Net loss | (49,131) | (26,589) |
Adjustments to reconcile net loss to net cash provided by operating activities | ||
Depreciation and amortization | 51,387 | 50,466 |
Deferred financing amortization | 3,283 | 2,953 |
OID Interest | 3,748 | 1,336 |
Deferred taxes | (2,612) | 0 |
Gain on disposal of fixed assets | (76) | (26) |
Loss on impairment of property, plant and equipment | 2,314 | 0 |
Loss on extinguishment of debt | 14,414 | 0 |
Non-cash share-based compensation | 257 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (16,284) | 4,589 |
Inventory, net | (922) | (228) |
Prepaid expenses and other current assets | 688 | (90) |
Other assets | (3,829) | 296 |
Accounts payable | 25,209 | 14,628 |
Other liabilities | (9,965) | (12,170) |
Net cash provided by operating activities - continuing operations | 12,263 | 48,458 |
Net cash used in operating activities - discontinued operations | (9,373) | (2,485) |
Net cash provided by operating activities | 2,890 | 45,973 |
Cash flows from investing activities: | ||
Acquisitions | (20,565) | 0 |
Purchase of property and equipment | (26,235) | (27,870) |
Proceeds from disposal of fixed assets | 168 | 26 |
Net cash used in investing activities - continuing operations | (46,632) | (27,844) |
Net cash used in investing activities - discontinued operations | (1,571) | (7,316) |
Net cash used in investing activities | (48,203) | (35,160) |
Cash flows from financing activities: | ||
Proceeds from notes payable and long-term debt | 669,500 | 15,000 |
Repayment of debt obligation | (558,432) | (17,125) |
Payment of capital lease obligations | (2,830) | (2,379) |
Deferred financing costs and discounts | (50,383) | (4,603) |
Issuance of Note Receivable | (25,000) | 0 |
Issuance of preferred stock | 14,500 | 0 |
Proceeds from the sale of common stock | 7,508 | 0 |
Proceeds from stock options | 170 | 0 |
Net cash provided by (used in) financing activities - continuing operations | 55,033 | (9,107) |
Net cash provided by (used in) financing activities - discontinued operations | 0 | 0 |
Net cash provided by (used in) financing activities | 55,033 | (9,107) |
Net increase in cash and cash equivalents - continuing operations | 20,664 | 11,507 |
Net (decrease) in cash and cash equivalents - discontinued operations | (10,944) | (9,801) |
Net increase in cash and cash equivalents | 9,720 | 1,706 |
Cash and cash equivalents at beginning of period | 5,757 | 8,208 |
Foreign currency translation effect on cash | (51) | 155 |
Cash and cash equivalents at end of period | 15,426 | 10,069 |
Supplemental Disclosure of Cash Flow Information: | ||
Interest paid | 36,285 | 18,064 |
Income tax paid | 0 | 217 |
Non-cash purchases of property and equipment | 1,157 | 0 |
Non-cash issuance of stock for acquisition | 138,915 | 0 |
Non-cash dividend | $ 500 | $ 0 |
Organization and Business
Organization and Business | 9 Months Ended |
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Business | Fusion Connect, Inc. is a Delaware corporation incorporated in September 1997 (“Fusion”). The Company (as defined below) is a provider of integrated cloud solutions, including cloud communications, cloud connectivity, cloud computing, and business services to small, medium and large businesses. We are focused on becoming our business customers’ single source for leveraging the increasing power of the cloud, providing a robust package of what we believe to be the essential services that form the foundation for their successful migration to, and efficient use of, the cloud. Our products and services include cloud voice, Unified Communications-as-a-Service, and Contact Center services, improving communication and collaboration on virtually any device, virtually anywhere; and cloud connectivity services, securely and reliably connecting customers to the cloud with managed network solutions that are designed to increase quality and optimize network efficiency. Our cloud computing and Infrastructure-as-a-Service solutions are designed to provide our larger enterprise customers with a platform on which additional cloud services can be layered. Complemented by our Software-as-a-Service solutions, such as security and business continuity, our advanced cloud offerings include private and hybrid cloud, storage, backup and recovery and secure file sharing that allow our customers to experience the increased efficiencies and agility delivered by the cloud. On May 4, 2018 (the “Birch Closing Date”), Fusion completed the previously announced merger (the “Birch Merger”) of its wholly-owned subsidiary, Fusion BCHI Acquisition LLC (“BCHI Merger Sub”), with and into Birch Communications Holding, Inc., a Georgia corporation (“Birch”), in accordance with the terms of the Agreement and Plan of Merger, dated as of August 26, 2017, as amended, among Fusion, Birch Merger Sub and Birch (the “Birch Merger Agreement”). As a result of the Birch Merger, each then existing subsidiary of Birch became an indirect, wholly-owned subsidiary of Fusion. On May 4, 2018, Fusion also changed its corporate name from Fusion Telecommunications International, Inc. to Fusion Connect, Inc. For accounting purposes, the Birch Merger is treated as a “reverse acquisition” under generally acceptable accounting principles in the United States (“U.S. GAAP”) and Birch is considered the accounting acquirer. Birch was determined to be the accounting acquirer based on the terms of the Birch Merger Agreement and other factors, such as relative stock ownership following the Birch Closing Date. Accordingly, Birch’s historical results of operations replace Fusion’s historical results of operations for all periods prior to the Birch Merger and, for all periods following the Birch Merger, the results of operations of the combined company will be included in the Fusion’s financial statements. In addition, as previously disclosed, on June 15, 2018 (the “MegaPath Closing Date”), the Company completed its acquisition of MegaPath Holding Corp., a Delaware corporation (“MegaPath”) through a merger (the “MegaPath Merger”) of Fusion MPHC Acquisition Corp. (“MegaPath Merger Sub”), with and into MegaPath, in accordance with the terms of the Agreement and Plan of Merger, dated as of May 4, 2018, among the Company, MegaPath, MegaPath Merger Sub and Shareholder Representative Services, LLC, as stockholder representative (the “MegaPath Merger Agreement”). This quarterly report on Form 10-Q relates to the Company’s three and nine-month periods ended September 30, 2018, which nine-month period includes the date of the completion of the Birch Merger and the MegaPath Merger. Unless the context otherwise requires, references to the “Company,” the “combined company” “we,” “our” or “us” in this report refer to Fusion and its subsidiaries following the completion of the Birch Merger and the MegaPath Merger, as applicable, and references to “Fusion” refers to the Company prior to the completion of the Birch Merger and the MegaPath Merger. Except as otherwise noted, references to “common stock” in this report refers to common stock, par value $0.01 per share, of Fusion. On May 4, 2018, Fusion effected a 1-for-1.5 reverse split of its common stock (the “Reverse Split”). Unless noted otherwise, all share or per share amounts in this report, the accompanying unaudited condensed consolidated financial statements and related notes give retroactive effect to the Reverse Split. See Note 4 for additional information on the reverse acquisition and the MegaPath Merger. |
Basis of Presentation and Summa
Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation The accompanying unaudited condensed consolidated financial statements should be read in conjunction with Birch’s audited financial statements and notes thereto included in the Form 8-K filed by Fusion with the Securities and Exchange Commission (“SEC”) on May 10, 2018. The December 31, 2017 balance sheet information included herein was derived from the audited financial statements of Birch as of that date. The accompanying condensed consolidated financial statements have been prepared in accordance with US GAAP for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by US GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. Reclassifications for the transfer of certain assets from intangibles to property and equipment have been made to the prior period consolidated financial statements to conform to the current presentation Principles of Consolidation The financial statements include the accounts of the Company and each of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results may differ substantially from these estimates. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other future periods. Segment Reporting Operating segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by a company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company has only one reportable segment – Business Services. Notes Receivable The Company recorded a notes receivable of $25.0 million in conjunction with the Vector Facility (as herein defined) and is classified as other non-current assets on its balance sheet as of September 30, 2018. See note 13 for additional information relating to the Vector Facility. Fair Value of Financial Instruments The carrying value of certain financial instruments such as accounts receivable, accounts payable and accrued expenses, approximates their fair values due to their short term nature. Income Taxes The accounting and reporting requirements with respect to accounting for income taxes require an asset and liability approach. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Stock-Based Compensation The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards on the date of grant. The fair values of stock options are estimated on the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more readily determinable. Revenue Recognition Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and represents the unit of account in applying the new revenue recognition guidance. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are satisfied over time as services are rendered or at a point in time depending on when the customer obtains control of the promised goods or services. Revenue is recognized when obligations under the terms of a contract with the customer are satisfied; generally, this occurs when services are rendered. Customer revenue includes revenue received from the sale of integrated cloud solutions and business services and is comprised of monthly recurring charges, usage charges and initial nonrecurring charges. Monthly recurring charges include the fees paid by customers for services. Monthly recurring charges are recognized over the period that the corresponding services are rendered to the customers. Usage charges consist of per-use sensitive fees paid for calls made. Additionally, access charges are comprised of charges paid primarily by interexchange carriers for the origination and termination of interexchange toll and toll-free calls. Usage and access charges are recognized monthly as the services are provided. Initial nonrecurring charges consist primarily of installation charges and revenue derived from sales of communications equipment such as IP phones. The Company recognizes installation and equipment revenue when the installation and setup is complete. Deferred Commissions Direct incremental costs of obtaining a contract, consisting of sales commissions, are deferred and amortized over the estimated life of the customer, which is currently 36 months. The Company calculates the estimated life of the customer on an annual basis. The Company classifies deferred commissions as prepaid expenses or other noncurrent assets based on the timing of when it expects to recognize the expense. Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Recent Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated balance sheets or statements of operations. In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. Under this ASU, a customer in a cloud computing arrangement that is a service contract would look to existing guidance for internal-use software under ASC 350-40 to determine whether implementation costs incurred under such arrangement may be capitalized and subsequently amortized over the periods covered under any applicable renewal options that are reasonably certain to be exercised. In addition, the guidance in this ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect that this new guidance will have on its financial statements and related disclosures. In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting In February 2016, the FASB issued ASU No. 2016-02, Leases In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers In March 2016, April 2016 and December 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts with Customers Principal Versus Agent Considerations Revenue From Contracts with Customers Identifying Performance Obligations and Licensing Technical Corrections and Improvements to Topic 606 Revenue From Contracts with Customers Revenue from Contracts with Customers |
Discontinued Operations
Discontinued Operations | 9 Months Ended |
Sep. 30, 2018 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | As a condition to closing the transactions contemplated by the Birch Merger Agreement (see Note 4), Birch was required to spin-off its U.S.-based consumer customers, wireless customers and its small business customer-base (which include those business customers with $111 per month or less of monthly revenue) and assets associated with the support of those customers (collectively, the “Birch Consumer Segment”). Accordingly, prior to closing the Birch Merger on the Birch Closing Date, Birch distributed the assets and liabilities associated with the Birch Consumer Segment to the pre-merger Birch shareholders. At the time of the distribution, the Birch Consumer Segment met the criteria in ASC 205-20-45 for discontinued operations and, as a result, the assets, liabilities and results of operations associated with the Birch Consumer Segment have been classified as discontinued operations for all periods presented in the accompanying unaudited condensed consolidated balance sheet, statements of operations and statements of cash flows. Summarized results for discontinued operations are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Revenues $ - $ 24,650 $ 30,768 $ 76,405 Cost of revenues, exclusive of depreciation and amortization, shown separately below - 17,407 20,482 51,606 Gross profit 7,243 10,286 24,799 Selling, general and administrative expenses - 6,788 11,809 22,526 Depreciation and amortization - 4,158 2,008 11,031 Impairment losses on intangible assets - - 5,379 - Total operating expenses - 10,946 19,196 33,557 Operating loss on discontinued operations - (3,703 ) (8,910 ) (8,758 ) Other (expenses) income: Interest expense - (1,457 ) (2,169 ) (4,535 ) Gain on extinguishment of debt - - 17,297 - Net (loss) income on discontinued operations $ - $ (5,160 ) $ 6,218 $ (13,293 ) The carrying amounts of assets and liabilities associated with discontinued operations are as follows (in thousands): December 31, 2017 Accounts receivable, net of allowance for doubtful accounts of approximately $1,917, respectively $ 9,549 Prepaid expenses 1,259 Inventory 37 Property and equipment, net 1,708 Goodwill 3,550 Intangible assets 23,935 Total current assets of discontinued operations $ 40,038 Accounts payable and accrued expenses $ 8,469 Deferred customer revenue 2,375 Other accrued liabilities 10,320 Debt 13,700 Total current liabilities of discontinued operations $ 34,864 |
Acquisitions
Acquisitions | 9 Months Ended |
Sep. 30, 2018 | |
Business Combinations [Abstract] | |
Acquisitions | Birch On the Birch Closing Date, Birch merged with and into BCHI Merger Sub, with BCHI Merger Sub surviving the merger as a wholly-owned subsidiary of Fusion. For accounting purposes, the Birch Merger is treated as a “reverse acquisition” under U.S. GAAP and Birch is considered the accounting acquirer. Birch was determined to be the accounting acquirer based on the terms of the Birch Merger Agreement and other factors, such as relative stock ownership of the Company following the Birch Merger. Accordingly, Birch’s historical results of operations replace Fusion’s historical results of operations for all periods prior to the Birch Merger and, for all periods following the Birch Merger, the results of operations of the combined company will be included in the Fusion’s financial statements. All share numbers and other information about equity securities prior to the acquisition of Birch in this report relate to legacy Fusion. On the Birch Closing Date, all of the outstanding shares of common stock, par value $0.01 per share, of Birch (other than treasury shares or shares owned of record by any Birch subsidiary) were cancelled and converted into the right to receive, in the aggregate, 49,896,310 shares (the “Merger Shares”) of Fusion common stock, which constituted approximately 65.5% of the then issued and outstanding shares of Fusion common stock on that date. Pursuant to subscription agreements executed by each of the former shareholders of Birch, the Merger Shares were issued in the name of, and are held by, BCHI Holdings, LLC, a Georgia limited liability company (“BCHI Holdings”). The fair value of assets acquired and liabilities assumed as a result of the Birch and Fusion combination is based upon management’s estimates which have been derived, in part, from an analysis provided by an independent third-party valuation firm. The assumptions are subject to change for a period of up to one year from date of the Birch Merger. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and the trade name, present value and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from those estimates. During the three months ended September 30, 2018, an adjustment to Birch’s Goodwill in the amount of $0.4 million was recognized due to changes in the estimated fair value of liabilities assumed. The preliminary purchase price allocation is as follows (in thousands): Useful life (in years) Purchase consideration for invested capital $ 221,172 Less: debt (89,205 ) Total purchase consideration for equity $ 131,967 Cash $ 28,176 Accounts receivable 8,684 Other current assets 2,444 Property and equipment 13,008 Other noncurrent assets 1,220 Intangible assets: Developed technology 4,710 3 Trademark 49,500 10 Customer relationships 41,100 15 Goodwill 99,590 Deferred revenue (1,200 ) Other liabilities, including debt (115,265 ) $ 131,967 The excess of the purchase price over the assets acquired and liabilities assumed represents goodwill. The goodwill is primarily attributable to the synergies expected to arise from the combination and is not expected to be deductible for tax purposes. MegaPath Holding Corporation On June 15, 2018, the MegaPath Closing Date, the Company completed its acquisition of MegaPath. As required by the terms of the MegaPath Merger Agreement, the Company paid approximately $61.5 million of the $71.5 million purchase price in cash, with approximately $10.0 million of the purchase price paid in 1,679,144 shares of Fusion’s common stock, at an agreed upon price of $5.775 per share. As a result of the fixed price at which the Fusion shares were issued, from an accounting standpoint, the total purchase price actually paid by Fusion was $68.3 million. Of the cash consideration, $2.5 million was deposited into an escrow account to be held for one year to secure the indemnification obligations in favor of the Company under the MegaPath Merger Agreement. The cash consideration, as well as certain expenses associated with the acquisition of MegaPath, were funded from approximately $62.0 million of borrowings under the First Lien Credit Agreement (as defined in Note 13). See Note 13 for additional information regarding the First Lien Credit Agreement. The preliminary purchase price allocation is as follows (in thousands): Useful life (in years) Purchase consideration for invested capital $ 68,251 Working capital 3,779 Debt (12,181 ) Total purchase consideration for equity $ 59,849 Cash $ 4,660 Accounts receivable 2,539 Other current assets 1,347 Property and equipment 6,319 Other noncurrent assets 1,602 Intangible assets: Developed technology 10,610 3 Trademark 7,100 10 Customer relationships 17,800 15 Goodwill 28,755 Deferred revenue (1,400 ) Other liabilities, including debt (19,483 ) $ 59,849 The following summarized unaudited consolidated pro forma information presents the results of operations of the Company had each of the Birch Merger and the MegaPath Merger occurred on January 1, 2017 (in thousands except per share information): Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Revenues $ 143,428 $ 159,893 $ 439,477 $ 487,281 Net loss (17,631 ) (12,261 ) (64,550 ) (41,776 ) Basic and diluted net loss per share (0.23 ) (0.49 ) (1.19 ) (1.66 ) The summarized unaudited consolidated pro forma results set forth in this Note are not necessarily indicative of results that would have occurred if the Birch Merger and the MegaPath Merger had been in effect for the periods presented. Further, these pro forma results are not intended to be a projection of future results. During the three and nine months ended September 30, 2018, total acquisition costs related to the Birch Merger and the MegaPath Merger were $0.1 million and $10.7 million, respectively. These costs are included in selling, general and administrative (“SG&A”) expenses on the accompanying unaudited condensed consolidated statement of operations. |
Loss per share
Loss per share | 9 Months Ended |
Sep. 30, 2018 | |
Earnings Per Share [Abstract] | |
Loss per share | Basic and diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Numerator Net loss from continuing operations $ (17,631 ) $ (1,545 ) $ (55,349 ) $ (13,296 ) Net (loss) income from discontinued operations - (5,160 ) 6,218 (13,293 ) Total net loss (17,631 ) (6,705 ) (49,131 ) (26,589 ) Undeclared dividends on Preferred Series D (467 ) - (754 ) - Dividends paid on Preferred Series D - - (500 ) - Total net loss less Preferred Series D dividends $ (18,098 ) $ (6,705 ) $ (50,385 ) $ (26,589 ) Denominator Basic and diluted weighted average common shares outstanding 78,435 25,161 54,143 25,161 (Loss) income per share basic and diluted From continuing operations $ (0.23 ) $ (0.06 ) $ (1.05 ) $ (0.53 ) From discontinued operations $ - $ (0.21 ) $ 0.11 $ (0.53 ) From the Birch Closing Date through September 30, 2018, dilutive securities excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects were as follows (in thousands): Warrants 838 Stock Options 1,903 |
Prepaid Expenses
Prepaid Expenses | 9 Months Ended |
Sep. 30, 2018 | |
Prepaid Expense and Other Assets [Abstract] | |
Prepaid Expenses | Prepaid expenses are as follows (in thousands): September 30, 2018 December 31, 2017 Insurance and benefits $ 1,276 $ 252 Rent 416 907 Software subscriptions 2,393 1,448 Hardware maintenance 802 1,517 Commissions 3,833 - Line costs 1,108 706 Taxes 514 883 Other 934 577 $ 11,276 $ 6,290 |
Property and Equipment
Property and Equipment | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Property and equipment consist of the following (in thousands): September 30, 2018 December 31, 2017 Telecommunications equipment $ 102,384 $ 85,472 Leasehold improvements 11,087 10,591 Office equipment 1,851 1,731 Buildings and building improvements 1,540 1,540 Furniture and fixtures 5,604 5,160 Computer Software 37,945 32,663 Land 470 470 Automobiles 53 56 Onboarding 29,049 15,727 Network transition 52,513 45,863 Construction-in-progress 6,005 3,680 Total owned assets 248,501 202,953 Less: accumulated depreciation (151,527 ) (120,761 ) Net owned assets 96,974 82,192 Capital lease assets 39,844 38,123 Less: accumulated depreciation (16,206 ) (13,758 ) Net capital lease assets 23,638 24,365 Property and equipment, net $ 120,612 $ 106,557 For the three months ended September 30, 2018 and 2017, depreciation expense was $12.8 million and $10.8 million, respectively. For the nine months ended September 30, 2018 and 2017, depreciation expense was $33.4 million and $32.9 million, respectively. |
Goodwill
Goodwill | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill | During the nine months ended September 30, 2018, goodwill activity is as follows (in thousands): Balance, January 1, 2018 $ 89,806 Acquisitions (Note 4): Birch 99,590 MegaPath 28,755 Balance, September 30, 2018 $ 218,151 |
Intangible Assets
Intangible Assets | 9 Months Ended |
Sep. 30, 2018 | |
Intangible Assets, Net (Excluding Goodwill) [Abstract] | |
Intangible Assets | Intangible assets are as follows (in thousands): September 30, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Subscriber acquisition costs $ 135,321 $ (28,024 ) $ 107,297 $ 77,189 $ (20,918 ) $ 56,271 Tradenames and trademarks 65,600 (10,079 ) 55,521 13,146 (6,174 ) 6,972 Proprietary technology 15,320 (1,673 ) 13,647 - - - Noncompete agreement - 3,000 (3,000 ) - Commissions - 7,683 (2,092 ) 5,591 Total acquired intangibles $ 216,241 $ (39,776 ) $ 176,465 $ 101,018 $ (32,184 ) $ 68,834 During the three months ended September 30, 2018 and 2017, the Company recorded no impairment charges. During the nine months ended September 30, 2018 and 2017, the Company recorded impairment charges on certain intangible assets of $2.3 million and $0, respectively. For the three months ended September 30, 2018 and 2017, amortization expense was $7.1 million and $6.0 million, respectively. For the nine months ended September 30, 2018 and 2017, amortization expense was $18.0 million and $17.6 million, respectively. As of September 30, 2018, estimated future aggregate amortization expense is expected to be as follows (in thousands): remainder of 2018 $ 7,072 2019 23,737 2020 23,737 2021 20,787 2022 18,630 Thereafter 82,502 $ 176,465 |
Other Accrued Liabilities
Other Accrued Liabilities | 9 Months Ended |
Sep. 30, 2018 | |
Accrued Liabilities [Abstract] | |
Other Accrued Liabilities | Other accrued expenses are as follows (in thousands): September 30, 2018 December 31, 2017 Compensation and benefits $ 7,575 $ 2,462 Bonus 3,219 729 Taxes 6,411 169 Interest 10,838 8,219 Facility restructuring (Note 11) 1,734 3,131 Legal settlements 9,730 13,360 Professional fees 3,579 1,389 Deferred tax 322 2,934 Sales commissions 896 965 Customer deposits 1,056 429 Other 2,495 3,008 47,855 36,795 Less noncurrent portion: Legal settlements (4,890 ) (8,520 ) Deferred tax (322 ) (2,934 ) Other (937 ) (1,393 ) Total other non-current liabilities (6,149 ) (12,847 ) Current portion of other accrued liabilities $ 41,706 $ 23,948 |
Restructuring Event
Restructuring Event | 9 Months Ended |
Sep. 30, 2018 | |
Restructuring and Related Activities [Abstract] | |
Restructuring Event | During April 2017, the Company implemented a strategic realignment that included reductions in headcount and the closing or downsizing of market branches and certain corporate offices. The Company has incurred cumulative restructuring costs of $9.0 million related to this event. In May 2018, the Company implemented a strategic integration plan resulting from the Birch Merger and MegaPath Merger. This restructuring plan includes a workforce reduction to rebalance the Company’s resources, closing or consolidation of certain offices and reductions in other operating expenses. The Company has incurred cumulative restructuring costs of $3.7 million related to this event. For the three months ended September 30, 2018 and 2017, the Company incurred restructuring costs in selling and general administrative expense of $1.5 million and $2.3 million, respectively. For the nine months ended September 30, 2018 and 2017, the Company incurred restructuring costs in selling and general administrative expense of $5.2 million and $5.5 million, respectively. The restructuring costs primarily relate to employee severances and benefits, facility exit costs, and revisions to certain sublease assumptions underlying existing accruals. The total additional expense expected to be incurred from the 2018 restructuring event for additional employee severances, benefits and bonuses and facility exit costs is approximately $5.0 million over the next twelve months. The following table summarizes changes to the accrued liability associated with the restructuring for the nine months ended September 30, 2018 and 2017 (in thousands): Employee Costs(1) Facility Exit Costs(2) Other Costs Total Balance, January 1, 2018 $ 107 $ 3,131 $ 24 $ 3,262 Expenses 4,081 772 316 5,169 Payments (3,655 ) (2,169 ) (340 ) (6,164 ) Balance, September 30, 2018 $ 533 $ 1,734 $ - $ 2,267 Balance, January 1, 2017 $ - $ - $ - $ - Expenses 1,047 4,499 - 5,546 Payments (370 ) (1,012 ) - (1,382 ) Balance, September 30, 2017 $ 677 $ 3,487 $ - $ 4,164 __________ (1) As of September 30, 2018, the remaining employee-related liability approximates fair value due to the short discount period. (2) These charges represent the present value of expected lease payments and direct costs to obtain a sublease, reduced by estimated sublease rental income. The timing and amount of estimated cash flows will continue to be evaluated each reporting period. |
Equipment and Network Infrastru
Equipment and Network Infrastructure Financing Obligations | 9 Months Ended |
Sep. 30, 2018 | |
Capital Lease Obligations [Abstract] | |
Equipment and Network Infrastructure Financing Obligations | From time to time, the Company enters into capital lease arrangements to finance the purchase of network hardware and software utilized in its operations. These arrangements require monthly payments over a period of 2 to 20 years with interest rates ranging between 2.0% and 8.3% per annum. The Company’s equipment and network infrastructure financing obligations are as follows (in thousands): September 30, December 31, 2018 2017 Equipment financing obligations $ 1,910 $ 1,292 IRU(1) 4,208 6,415 Amount representing interest (763 ) (881 ) Present value of minimum lease payments 5,355 6,826 Less current portion (2,525 ) (3,003 ) Non-current portion $ 2,830 $ 3,823 __________ (1) Purchase of an indefeasible right to use (“IRU”) fiber network infrastructure owned by others. As of September 30, 2018, t he payment obligations under capital leases are as follows (in thousands): remainder of 2018 $ 953 2019 2,212 2020 813 2021 443 2022 245 Thereafter 1,452 $ 6,118 |
Long-Term Debt
Long-Term Debt | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | Debt consists of the following (in thousands): September 30, 2018 First Lien Credit Agreement: Tranche A Term Loan $ 44,438 Tranche B Term Loan 503,625 Revolving Facility 19,500 Second Lien Credit Agreement – Term Loan 85,000 Subordinated Note 10,000 Bircan Notes Payable 3,276 665,839 Less: Discounts 45,627 Current portion 30,779 Non-current portion $ 589,433 On the Birch Closing Date, the Company entered into a First Lien Credit and Guaranty Agreement (the “First Lien Credit Agreement”) with Wilmington Trust, National Association, as Administrative Agent and Collateral Agent (in such capacities, the “First Lien Agent”), the lenders party thereto (the “First Lien Lenders”), and all of the U.S.-based subsidiaries of the Company, as guarantors thereunder (the “Guarantors”), pursuant to which the First Lien Lenders extended (a) term loans to the Company in an aggregate principal amount of $555.0 million, consisting of the “Tranche A Term Loan” and “Tranche B Term Loan,” in an aggregate principal amount of $45.0 million and $510.0 million, respectively (collectively, the “First Lien Term Loan”), and (b) a revolving facility in an aggregate principal amount of $40.0 million (the “Revolving Facility”, and together with the First Lien Term Loan, the “First Lien Facility”). Borrowings under the First Lien Credit Agreement are computed based upon either the then current “base rate” of interest or “LIBOR” rate of interest, as selected by the Company at the time of its borrowings. Interest on borrowings that the Company designates as “base rate” loans bear interest per annum at the greatest of (a) the prime rate published by the Wall Street Journal, (b) the federal funds effective rate as published by the Federal Reserve Bank of New York plus 0.5%, (c) the Adjusted LIBOR Rate (as defined below) with an interest period of one month plus 1%, or (d)(i) 1% (for the Revolving Facility) or (ii) 2% (for the First Lien Term Loan) (collectively, the “Base Rate”); plus plus In addition, the Company simultaneously entered into a Second Lien Credit and Guaranty Agreement (the “Second Lien Credit Agreement”, and with the First Lien Credit Agreement, the “Credit Agreements”), by and among the Company, the Guarantors, Wilmington Trust, National Association, as Administrative Agent and Collateral Agent (in such capacities, the “Second Lien Agent”, and together with the First Lien Agent, collectively the “Agents”), and the lenders party thereto (the “Second Lien Lenders”, and together with the First Lien Lenders, the “Lenders”), pursuant to which the Second Lien Lenders extended a term loan in the aggregate principal amount of $85.0 million (the “Second Lien Term Loan”, and collectively with the First Lien Term Loan, the “Term Loans”, and collectively with the First Lien Facility, the “Credit Facilities”). Borrowings under the Second Lien Credit Agreement are computed based upon either the then current “base” rate of interest or “LIBOR” rate of interest, as selected by the Company at the time of its borrowings. The interest on borrowings, under the Second Lien Term Loan that the Company designates as “base rate” loans, bear interest per annum at Base Rate plus As of September 30, 2018, the Credit Facilities (including the Revolving Facility) bear interest at a weighted-average rate of approximately LIBOR plus 7.7%. Excluding the Revolving Facility, the Credit Facilities bear interest at a weighted-average rate of approximately LIBOR plus 7.8%. In connection with the Credit Facilities, the Company entered into (i) a First Lien Pledge and Security Agreement with the First Lien Agent and (ii) a Second Lien Pledge and Security Agreement with the Second Lien Agent, pursuant to which the Company and the Guarantors pledged substantially all of their owned and after acquired property as security for the obligations under the Credit Agreements, including the capital stock of the Guarantors and other direct and indirect subsidiaries of the Company (subject to certain limitations and restrictions set forth in these agreements). Under the Credit Agreements, the Company is subject to a number of affirmative and negative covenants, including but not limited to, restrictions on paying indebtedness subordinate to its obligations to the Lenders, incurring additional indebtedness, making capital expenditures, dividend payments and cash distributions by subsidiaries. Furthermore, the Company is required to comply with various financial covenants, including net leverage ratio, fixed charge coverage ratio and maximum levels of consolidated capital expenditures; and its failure to comply with any of the restrictive or financial covenants could result in an event of default and accelerated demand for repayment of its indebtedness. As of September 30, 2018, the Company was in compliance with these financial covenants. The proceeds of the Term Loans were used, in part, to refinance all of the existing indebtedness of Fusion and its subsidiaries (including Birch), under (i) the Credit Agreement, dated as of November 14, 2016, as amended, among Fusion NBS Acquisition Corp., a subsidiary of Fusion (“FNBS”), East West Bank (“EWB”), as Administrative Agent, Swingline Lender, an Issuing Bank and a Lender, and the other lenders party thereto; (ii) the Fifth Amended and Restated Securities Purchase Agreement and Security Agreement, dated as of November 14, 2016, as amended, among FNBS, Fusion, the subsidiaries of Fusion guarantors thereto, Praesidian Capital Opportunity Fund III, LP, as Agent, and the lenders party thereto; and (iii) the Credit Agreement, dated as of July 18, 2014, among Birch, Birch Communications, Inc., Cbeyond, Inc., the other guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as Administrative Agent. In addition, the Term Loans were used to repay, in full, approximately $0.9 million of indebtedness under that certain Second Amended and Restated Unsecured Promissory Note, dated November 14, 2016, payable by Fusion to Marvin Rosen. The proceeds were also used to pay the fees and expenses associated with the Birch merger and related transactions, including fees and expenses in connection with the Credit Facilities. The pay-off of the previous credit facilities, including the expensing of the related remaining unamortized debt costs, resulted in a debt extinguishment for accounting purposes. For the nine months ended September 30, 2018, the Company recorded a loss on debt extinguishment of $14.4 million. For additional information on the previous credit facilities, see Birch's audited financial statements and notes thereto included in the Form 8-K filed by Fusion with the SEC on May 10, 2018 and Fusion’s prior Form 10-K filed with the SEC on March 22, 2018. The Term Loans were also used to make a prepayment of an aggregate of approximately $3.0 million of indebtedness of Birch under related party subordinated notes each dated October 28, 2016, in favor of Holcombe T. Green, Jr., R. Kirby Godsey and the Holcombe T. Green, Jr. 2013 Five-Year Annuity Trust. The remaining balance of $3.3 million was brought forward and is now evidenced by three Amended and Restated Subordinated Notes, each dated as of the Birch Closing Date (the “Bircan Notes”). The Bircan Notes accrue interest at the rate of 12% per annum, with interest due in quarterly installments. The Bircan Notes are being amortized in three equal installments and will be paid off in March 2019. The Bircan Notes are unsecured and the Company’s obligations thereunder are subordinated to amounts borrowed under the Credit Facilities. In addition, $62.0 million of the Tranche B Term Loan was used by the Company to pay the cash portion of the purchase price for MegaPath and certain expenses incurred in connection with that transaction. See Note 4 for additional information on the MegaPath Merger. Green Subordinated Note On the Birch Closing Date, Holcombe T. Green, Jr. loaned the Company an additional $10 million, which is evidenced by a subordinated promissory note (the “Green Note”). The Green Note accrues interest at a rate of 13% per annum, was issued with an original issue discount of 4% and matures on the date which is 91 days after the maturity date of the Second Lien Term Loan. Prior to maturity, only interest is payable on the Green Note. The Green Note is unsecured, and obligations thereunder are subordinated to amounts borrowed under the Credit Facilities. Vector Facility In connection with its participation in the Tranche B Term Loan under the First Lien Credit Agreement, Vector Fusion Holdings (Cayman), Ltd. (“Vector”) entered into a separate credit agreement (the “Vector Credit Agreement”) with Goldman Sachs Lending Partners LLC, as administrative agent and lender (“Goldman Sachs”), and U.S. Bank National Association, as collateral agent and collateral custodian, pursuant to which Vector borrowed funds from Goldman Sachs, the proceeds of which were used to purchase Tranche B Term Loans under the First Lien Credit Agreement. In connection therewith, Vector issued to the Company, and the Company purchased from Vector, a $25 million unsecured subordinated note (the “Vector Note”). The Vector Note bears interest at the rate earned by the bank account in which the proceeds of the Vector Note have been deposited and matures on May 3, 2024. The Vector Note is subordinate in right of payment to Vector’s loan from Goldman Sachs. Except in limited circumstances, the Company is not entitled to any distribution on account of the principal, premium or interest or any other amount in respect of the Vector Note until all amounts owed by Vector under the Vector Credit Agreement are paid in full. Similarly, while the Company has the right to declare obligations under the Vector Note to be immediately due and payable upon the occurrence of an event of default (including, without limitation, in the event of any insolvency, bankruptcy or liquidation of Vector), the Company is not entitled to receive any payment on account of the Vector Note until Vector’s obligations under the Vector Credit Agreement are paid in full. The Vector Note is pledged as security for the Company’s obligations under the Credit Facilities. In addition, in connection with its participation in the Tranche B Term Loan, Vector and certain of its affiliates entered into a side letter with the Company pursuant to which Vector is entitled to certain non-voting board observation rights, including the receipt of materials provided to the Company’s board and attendance at regularly scheduled quarterly Company board meetings. Such board observation rights are not transferrable to any assignee of the Tranche B Term Loans. As of September 30, 2018, estimated future aggregate payments for long-term debt are expected to be as follows (in thousands): remainder of 2018 $ 16,059 2019 28,842 2020 38,156 2021 41,625 2022 72,844 Thereafter 468,313 $ 665,839 |
Obligations Under Asset Purchas
Obligations Under Asset Purchase Agreements | 9 Months Ended |
Sep. 30, 2018 | |
Obligations Under Asset Purchase Agreements | |
Obligations Under Asset Purchase Agreements | In connection with certain historical acquisitions completed by Fusion, the Company has various obligations to the sellers, mainly for payments of portions of the purchase price that have been deferred under the terms of the respective agreements. Such obligations to sellers or other parties associated with these transactions are as follows (in thousands): September 30, December 31, 2018 2017 Customer base acquisitions $ 2 $ - IQMax 447 - 449 Less current portion(1) (449 ) - Long-term portion $ - $ - __________ (1) Included in "other accrued liabilities" on the accompanying condensed consolidated balance sheets as of September 30, 2018. |
Revenues from Contracts with Cu
Revenues from Contracts with Customers | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Revenues from Contracts with Customers | The Company adopted ASC 606 using the modified retrospective method by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of stockholders’ equity at January 1, 2018. Under the new guidance, these service revenues continue to be recognized when the services are provided. However, the new requirement to defer incremental contract acquisition and fulfillment costs, including sales commissions and installation costs, and recognize such costs over the period where control of goods and services are transferred resulted in the recognition of additional deferred contract costs in the consolidated balance sheet at the date of adoption. The following table presents the cumulative effect of the changes made to the consolidated balance sheet at January 1, 2018 (in thousands): Balance as of ASC 606 Balance as of December 31, 2017 Transition Adjustment January 1, 2018 Assets Prepaid expenses $ 6,290 $ 2,203 $ 8,493 Intangible assets, net 68,834 (3,304 ) 65,530 Other non-current assets 877 4,826 5,703 $ 76,001 $ 3,725 $ 79,726 Stockholders' Equity Accumulated deficit $ (236,477 ) $ 3,725 $ (232,752 ) The following table summarizes the current impacts associated with the adoption of ASC 606 on the accompanying condensed consolidated balance sheet and statement of operations and comprehensive loss (in thousands): September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Assets Prepaid expenses $ 11,276 $ 7,443 $ 3,833 Intangible assets, net 176,465 177,810 (1,345 ) Other non-current assets 32,518 30,204 2,314 Liabilities Deferred customer revenue 16,440 15,804 636 Stockholders' Equity Accumulated deficit $ (282,383 ) $ (276,945 ) $ (5,438 ) Amortization of deferred commissions was $1.7 million and $5.1 million for the three and nine months ended September 30, 2018, respectively. For the three months ended September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Revenues $ 143,428 $ 143,899 $ (471 ) Selling, general and administrative 46,788 47,731 (943 ) Depreciation and amortization 19,946 20,231 (285 ) Net Impact $ 76,694 $ 75,937 $ 757 For the nine months ended September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Revenues $ 367,142 $ 367,778 $ (636 ) Selling, general and administrative 113,555 114,953 (1,398 ) Depreciation and amortization 51,387 52,059 (672 ) Net Impact $ 202,200 $ 200,766 $ 1,434 The impact associated with the adoption of ASC 606 on net income, basic and diluted net loss per share, consolidated statement of operations and the consolidated statement of cash flows were not material for the three and nine months ended September 30, 2018. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands): Deferred installation Deferred installation revenue costs Net remaining 2018 $ 47 $ (910 ) $ (863 ) 2019 185 (2,633 ) (2,448 ) 2020 185 (1,887 ) (1,702 ) 2021 169 (653 ) (484 ) 2022 and thereafter 50 (64 ) (14 ) $ 636 $ (6,147 ) $ (5,511 ) Summary of disaggregated revenue is as follows (in thousands): For the three months ended September 30, 2018 2017 Monthly recurring $ 129,567 $ 94,283 Usage and other 13,422 17,721 Installation 439 420 Total revenue $ 143,428 $ 112,424 For the nine months ended September 30, 2018 2017 Monthly recurring $ 320,129 $ 294,882 Usage and other 45,977 48,065 Installation 1,036 1,220 Total revenue $ 367,142 $ 344,167 Summary of revenue by country is as follows (in thousands): For the three months ended September 30, 2018 2017 United States $ 121,208 $ 86,917 Canada 22,220 25,507 Total revenue $ 143,428 $ 112,424 For the nine months ended September 30, 2018 2017 United States $ 298,353 $ 271,336 Canada 68,789 72,831 Total revenue $ 367,142 $ 344,167 |
Equity Transactions
Equity Transactions | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Equity Transactions | Private Placements of Common Stock Immediately prior to the closing of the Birch Merger, Fusion entered into three separate common stock purchase agreements and simultaneously consummated the sale of shares of Fusion common stock thereunder. Specifically, Fusion issued and sold (i) 952,382 shares of its common stock, for an aggregate purchase price of approximately $5.0 million, to North Haven Credit Partners II L.P., one of the Second Lien Lenders, which is managed by Morgan Stanley Credit Partners; (ii) 380,953 shares of its common stock, for an aggregate purchase price of approximately $2.0 million, to Aetna Life Insurance Company; and (iii) 190,477 shares of its common stock, for an aggregate purchase price of approximately $1.0 million to Backcast Credit Opportunities Fund I, L.P. In connection with these private placements, Fusion paid approximately $0.5 million of fees. Private Placement of Series D Preferred Stock Immediately prior to the closing of the Birch Merger, Fusion entered into a preferred stock purchase agreement with Holcombe T. Green, Jr. pursuant to which it issued and sold to Mr. Green 15,000 shares of its Series D Cumulative Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”), for an aggregate purchase price of $14.7 million, and Fusion paid a $200,000 closing fee to Mr. Green. The Series D Preferred Stock has a stated value of $15.0 million. The Series D Preferred Stock accrues dividends when, as and if declared by the Company’s board at an annual rate of 12% per annum, payable monthly in arrears on a cumulative basis. From the Birch Closing Date through September 30, 2018, undeclared dividends were $0.8 million. Stock Options The Company’s The Company recognized compensation expense of $0.2 million and $0.3 million for the three and nine months ended September 30, 2018, respectively. This amount is included in SG&A in the unaudited condensed consolidated statements of operations. The following table summarizes stock option activity for the nine months ended September 30, 2018 (number of options in thousands): Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2017 - $ - - Acquired in reverse acquisition 1,996 3.48 - Granted - - - Exercised (52 ) 2.67 - Forfeited (26 ) 2.15 - Expired (15 ) 4.28 - Outstanding at September 30, 2018 1,903 3.50 7.58 Exercisable at September 30, 2018 1,428 3.99 7.44 As of September 30, 2018, the Company had approximately $0.5 million of unrecognized compensation expense related to stock options granted under its stock-based compensation plans. This amount is expected to be recognized over a weighted-average period of 16 months. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | From time to time, the Company is involved in legal proceedings arising in the ordinary course of business, . In addition, from time to time the Company is involved in various investigations and proceedings relating to its compliance with various federal and state laws, including those relating to its provision of cloud and business services. Defending such proceedings can be costly and can impose a significant burden on the Company’s management and employees. The Company establishes a liability with respect to contingencies when a loss is probable and it is able to reasonably estimate such loss. At September 30, 2018, we believe we have adequate reserves for these liabilities, when taking into account contractual indemnitees that have been provided to the Company. For certain matters in which the Company is involved, for which a loss is reasonably possible, we are not currently able to reasonably estimate the potential loss. While the ultimate resolution of, and costs associated with, these litigation and regulatory matters are uncertain, the Company does not currently believe that any of these pending matters will have a material adverse effect on the Company’s results of operations, financial condition or liquidity. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | During the nine months ended September 30, 2018, the Company recorded an income tax benefit of $4.7 million, resulting in an effective tax rate for the same period of approximately 7.86%. The difference between the effective tax rate and the federal statutory rate primarily relates to changes in the valuation allowance on net deferred tax assets and certain discrete items. For the nine months ended September 30, 2018, the income tax benefit includes certain refundable credits of which $4.2 million was recorded as a discrete benefit, partially offset by foreign and state taxes and amortization of intangibles with indefinite useful lives. As of September 30, 2018, the Company had a full valuation allowance recorded against all of its net deferred tax assets, exclusive of its deferred tax liabilities with indefinite useful lives. The Company continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized. As of September 30, 2018, the Company does not believe it is more likely than not that the remaining net deferred tax assets will be realized. Should the Company’s assessment change in a future period it may release all or a portion of the valuation allowance at such time, which would result in a deferred tax benefit in the period of adjustment. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. We recognized some provisional tax impacts related to the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017, as we did not have all the information regarding the changes of the 2017 Tax Act to determine any impact. The nine months ended September 30, 2018 includes $2.3 million of tax benefit related to tax reform for certain refundable credits and the release of the valuation against our indefinite lived intangibles. The ultimate impact may differ from those provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the 2017 Tax Act. Any adjustments made to the provisional amounts under SAB 118 will be recorded as discrete adjustments in the period identified (not to extend beyond the one-year measurement provided in SAB118). In addition, the Company is continuing to evaluate whether Global Intangible Low Tax Income taxes (“GILTI”) are recorded as a current period expense when incurred or whether such amounts should be factored into the Company's measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax impacts related to GILTI in the third quarter of 2018. The Company has not elected a method and will only do so after completing their analysis of the GILTI provisions. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | New Employment Agreement with Matthew D. Rosen On November 7, 2018, the Company entered into a new employment agreement with Matthew D. Rosen, the Company’s Chief Executive Officer and Chairman of the Board (the “Employment Agreement”). The Employment Agreement, which is effective as of November 6, 2018, replaces the Company’s existing employment agreement with Mr. Rosen dated November 5, 2015. The Employment Agreement has an initial term that ends on October 31, 2021; however, the initial term shall automatically extend for an additional two year period unless the Company or Mr. Rosen provides the other with written notice of its/his intent to terminate the Employment Agreement no less than ninety (90) days prior to the expiration of the initial term. Under the terms of the Employment Agreement, effective December 31, 2018, Mr. Rosen’s base salary will be increased to $1,000,000 per year, subject to annual reviews and increases at the discretion of the Board. The Employment Agreement also provides that Mr. Rosen will be eligible for an annual bonus or incentive compensation ranging from 50% and up to 200% of his base salary, based upon the achievement of corporate and individual performance targets determined by the Board. In addition, Mr. Rosen will receive a one-time special cash bonus in the amount of $2,383,333.28, subject to applicable withholdings, paid in six installments specified in the Employment Agreement. Within five (5) business days of the execution of the Employment Agreement, the Company has agreed to grant Mr. Rosen 3,961,934 shares of common stock of which shares 657,682 are vested on the date of grant and the remaining 3,304,249 shares vest in equal quarterly installments over 2.5 years from the effective date of the Employment Agreement (the “Restricted Shares”). In the event of a change of control of the Company, a termination of Mr. Rosen’s employment without cause, a departure by Mr. Rosen for good reason (each as described in the Employment Agreement), or a non-renewal of Mr. Rosen’s employment, the Restricted Shares and any other equity-based grants held by Mr. Rosen automatically vest in full. Further, the Employment Agreement provides that if the Company sells all or substantially all of its consolidated assets or it sells more than 50% of the equity securities of the Company during the term of the Employment Agreement, Mr. Rosen will be entitled to a one-time cash bonus equal to 3% of the aggregate consideration paid/distributed to stockholders of the Company. If Mr. Rosen is terminated due to his disability or death, he (or his estate) will receive his base pay for the remaining term of the Employment Agreement, with a minimum of six months of pay, as well as any other accrued obligations owed to Mr. Rosen. If the Company terminates Mr. Rosen without cause or if Mr. Rosen voluntary departs for good reason (each as described in the Employment Agreement), the Company is obligated to pay Mr. Rosen any amounts that have accrued and are owed to him, as well as a cash payment, in twelve (12) equal monthly installments after the date of termination, of (a) 200% of (i) his base salary and (ii) the highest annual bonus paid to Mr. Rosen during the three preceding years, and (b) any pro-rata bonus that would have otherwise been payable to Mr. Rosen had he completed the full year of employment and as if the performance metrics, if any, were met. The Employment Agreement further provides that Mr. Rosen is entitled to participate in all benefit plans provided to key executives of the Company. The Employment Agreement provides that Mr. Rosen may not engage in or profit from a competitive business (as defined in the Employment Agreement) while the Employment Agreement is in effect. In the event that the Employment Agreement is not renewed following expiration of the initial term or any extension, the non-compete clause will apply for a period of twelve months following Mr. Rosen’s departure only if the Company elects to pay severance to Mr. Rosen in an amount equivalent to that which he would be entitled as if he was terminated without Cause. |
Basis of Presentation and Sum_2
Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements should be read in conjunction with Birch’s audited financial statements and notes thereto included in the Form 8-K filed by Fusion with the Securities and Exchange Commission (“SEC”) on May 10, 2018. The December 31, 2017 balance sheet information included herein was derived from the audited financial statements of Birch as of that date. The accompanying condensed consolidated financial statements have been prepared in accordance with US GAAP for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by US GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. Reclassifications for the transfer of certain assets from intangibles to property and equipment have been made to the prior period consolidated financial statements to conform to the current presentation |
Principles of Consolidation | The financial statements include the accounts of the Company and each of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. |
Use of Estimates | The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Actual results may differ substantially from these estimates. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other future periods. |
Segment Reporting | Operating segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by a company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company has only one reportable segment – Business Services. |
Notes Receivable | The Company recorded a notes receivable of $25.0 million in conjunction with the Vector Facility (as herein defined) and is classified as other non-current assets on its balance sheet as of September 30, 2018. See note 13 for additional information relating to the Vector Facility. |
Fair Value of Financial Instruments | The carrying value of certain financial instruments such as accounts receivable, accounts payable and accrued expenses, approximates their fair values due to their short term nature. |
Income Taxes | The accounting and reporting requirements with respect to accounting for income taxes require an asset and liability approach. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. |
Stock-Based Compensation | The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards on the date of grant. The fair values of stock options are estimated on the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more readily determinable. |
Revenue Recognition | Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and represents the unit of account in applying the new revenue recognition guidance. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are satisfied over time as services are rendered or at a point in time depending on when the customer obtains control of the promised goods or services. Revenue is recognized when obligations under the terms of a contract with the customer are satisfied; generally, this occurs when services are rendered. Customer revenue includes revenue received from the sale of integrated cloud solutions and business services and is comprised of monthly recurring charges, usage charges and initial nonrecurring charges. Monthly recurring charges include the fees paid by customers for services. Monthly recurring charges are recognized over the period that the corresponding services are rendered to the customers. Usage charges consist of per-use sensitive fees paid for calls made. Additionally, access charges are comprised of charges paid primarily by interexchange carriers for the origination and termination of interexchange toll and toll-free calls. Usage and access charges are recognized monthly as the services are provided. Initial nonrecurring charges consist primarily of installation charges and revenue derived from sales of communications equipment such as IP phones. The Company recognizes installation and equipment revenue when the installation and setup is complete. Deferred Commissions Direct incremental costs of obtaining a contract, consisting of sales commissions, are deferred and amortized over the estimated life of the customer, which is currently 36 months. The Company calculates the estimated life of the customer on an annual basis. The Company classifies deferred commissions as prepaid expenses or other noncurrent assets based on the timing of when it expects to recognize the expense. Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. |
Recent Accounting Pronouncements | The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated balance sheets or statements of operations. In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. Under this ASU, a customer in a cloud computing arrangement that is a service contract would look to existing guidance for internal-use software under ASC 350-40 to determine whether implementation costs incurred under such arrangement may be capitalized and subsequently amortized over the periods covered under any applicable renewal options that are reasonably certain to be exercised. In addition, the guidance in this ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect that this new guidance will have on its financial statements and related disclosures. In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting In February 2016, the FASB issued ASU No. 2016-02, Leases In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers In March 2016, April 2016 and December 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts with Customers Principal Versus Agent Considerations Revenue From Contracts with Customers Identifying Performance Obligations and Licensing Technical Corrections and Improvements to Topic 606 Revenue From Contracts with Customers Revenue from Contracts with Customers |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Summarized operating results for discontinued operations | Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Revenues $ - $ 24,650 $ 30,768 $ 76,405 Cost of revenues, exclusive of depreciation and amortization, shown separately below - 17,407 20,482 51,606 Gross profit 7,243 10,286 24,799 Selling, general and administrative expenses - 6,788 11,809 22,526 Depreciation and amortization - 4,158 2,008 11,031 Impairment losses on intangible assets - - 5,379 - Total operating expenses - 10,946 19,196 33,557 Operating loss on discontinued operations - (3,703 ) (8,910 ) (8,758 ) Other (expenses) income: Interest expense - (1,457 ) (2,169 ) (4,535 ) Gain on extinguishment of debt - - 17,297 - Net (loss) income on discontinued operations $ - $ (5,160 ) $ 6,218 $ (13,293 ) December 31, 2017 Accounts receivable, net of allowance for doubtful accounts of approximately $1,917, respectively $ 9,549 Prepaid expenses 1,259 Inventory 37 Property and equipment, net 1,708 Goodwill 3,550 Intangible assets 23,935 Total current assets of discontinued operations $ 40,038 Accounts payable and accrued expenses $ 8,469 Deferred customer revenue 2,375 Other accrued liabilities 10,320 Debt 13,700 Total current liabilities of discontinued operations $ 34,864 |
Acquisitions (Tables)
Acquisitions (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Business Combinations [Abstract] | |
Purchase price allocation | Useful life (in years) Purchase consideration for invested capital $ 221,172 Less: debt (89,205 ) Total purchase consideration for equity $ 131,967 Cash $ 28,176 Accounts receivable 8,684 Other current assets 2,444 Property and equipment 13,008 Other noncurrent assets 1,220 Intangible assets: Developed technology 4,710 3 Trademark 49,500 10 Customer relationships 41,100 15 Goodwill 99,590 Deferred revenue (1,200 ) Other liabilities, including debt (115,265 ) $ 131,967 Useful life (in years) Purchase consideration for invested capital $ 68,251 Working capital 3,779 Debt (12,181 ) Total purchase consideration for equity $ 59,849 Cash $ 4,660 Accounts receivable 2,539 Other current assets 1,347 Property and equipment 6,319 Other noncurrent assets 1,602 Intangible assets: Developed technology 10,610 3 Trademark 7,100 10 Customer relationships 17,800 15 Goodwill 28,755 Deferred revenue (1,400 ) Other liabilities, including debt (19,483 ) $ 59,849 |
Pro forma results | Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Revenues $ 143,428 $ 159,893 $ 439,477 $ 487,281 Net loss (17,631 ) (12,261 ) (64,550 ) (41,776 ) Basic and diluted net loss per share (0.23 ) (0.49 ) (1.19 ) (1.66 ) |
Loss per share (Tables)
Loss per share (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Earnings Per Share [Abstract] | |
Computation for basic and diluted net income (loss) per share | Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Numerator Net loss from continuing operations $ (17,631 ) $ (1,545 ) $ (55,349 ) $ (13,296 ) Net (loss) income from discontinued operations - (5,160 ) 6,218 (13,293 ) Total net loss (17,631 ) (6,705 ) (49,131 ) (26,589 ) Undeclared dividends on Preferred Series D (467 ) - (754 ) - Dividends paid on Preferred Series D - - (500 ) - Total net loss less Preferred Series D dividends $ (18,098 ) $ (6,705 ) $ (50,385 ) $ (26,589 ) Denominator Basic and diluted weighted average common shares outstanding 78,435 25,161 54,143 25,161 (Loss) income per share basic and diluted From continuing operations $ (0.23 ) $ (0.06 ) $ (1.05 ) $ (0.53 ) From discontinued operations $ - $ (0.21 ) $ 0.11 $ (0.53 ) |
Excluded from calculation of diluted earnings per common share | Warrants 838 Stock Options 1,903 |
Prepaid Expenses (Tables)
Prepaid Expenses (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Prepaid Expense and Other Assets [Abstract] | |
Prepaid expenses | September 30, 2018 December 31, 2017 Insurance and benefits $ 1,276 $ 252 Rent 416 907 Software subscriptions 2,393 1,448 Hardware maintenance 802 1,517 Commissions 3,833 - Line costs 1,108 706 Taxes 514 883 Other 934 577 $ 11,276 $ 6,290 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | September 30, 2018 December 31, 2017 Telecommunications equipment $ 102,384 $ 85,472 Leasehold improvements 11,087 10,591 Office equipment 1,851 1,731 Buildings and building improvements 1,540 1,540 Furniture and fixtures 5,604 5,160 Computer Software 37,945 32,663 Land 470 470 Automobiles 53 56 Onboarding 29,049 15,727 Network transition 52,513 45,863 Construction-in-progress 6,005 3,680 Total owned assets 248,501 202,953 Less: accumulated depreciation (151,527 ) (120,761 ) Net owned assets 96,974 82,192 Capital lease assets 39,844 38,123 Less: accumulated depreciation (16,206 ) (13,758 ) Net capital lease assets 23,638 24,365 Property and equipment, net $ 120,612 $ 106,557 |
Goodwill (Tables)
Goodwill (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill | Balance, January 1, 2018 $ 89,806 Acquisitions (Note 4): Birch 99,590 MegaPath 28,755 Balance, September 30, 2018 $ 218,151 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Intangible Assets, Net (Excluding Goodwill) [Abstract] | |
Identifiable intangible assets | September 30, 2018 December 31, 2017 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Subscriber acquisition costs $ 135,321 $ (28,024 ) $ 107,297 $ 77,189 $ (20,918 ) $ 56,271 Tradenames and trademarks 65,600 (10,079 ) 55,521 13,146 (6,174 ) 6,972 Proprietary technology 15,320 (1,673 ) 13,647 - - - Noncompete agreement - 3,000 (3,000 ) - Commissions - 7,683 (2,092 ) 5,591 Total acquired intangibles $ 216,241 $ (39,776 ) $ 176,465 $ 101,018 $ (32,184 ) $ 68,834 |
Estimated future aggregate amortization expense | remainder of 2018 $ 7,072 2019 23,737 2020 23,737 2021 20,787 2022 18,630 Thereafter 82,502 $ 176,465 |
Other Accrued Liabilities (Tabl
Other Accrued Liabilities (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Accrued Liabilities [Abstract] | |
Other accrued expenses | September 30, 2018 December 31, 2017 Compensation and benefits $ 7,575 $ 2,462 Bonus 3,219 729 Taxes 6,411 169 Interest 10,838 8,219 Facility restructuring (Note 11) 1,734 3,131 Legal settlements 9,730 13,360 Professional fees 3,579 1,389 Deferred tax 322 2,934 Sales commissions 896 965 Customer deposits 1,056 429 Other 2,495 3,008 47,855 36,795 Less noncurrent portion: Legal settlements (4,890 ) (8,520 ) Deferred tax (322 ) (2,934 ) Other (937 ) (1,393 ) Total other non-current liabilities (6,149 ) (12,847 ) Current portion of other accrued liabilities $ 41,706 $ 23,948 |
Restructuring Event (Tables)
Restructuring Event (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Restructuring and Related Activities [Abstract] | |
Restructuring events | Employee Costs(1) Facility Exit Costs(2) Other Costs Total Balance, January 1, 2018 $ 107 $ 3,131 $ 24 $ 3,262 Expenses 4,081 772 316 5,169 Payments (3,655 ) (2,169 ) (340 ) (6,164 ) Balance, September 30, 2018 $ 533 $ 1,734 $ - $ 2,267 Balance, January 1, 2017 $ - $ - $ - $ - Expenses 1,047 4,499 - 5,546 Payments (370 ) (1,012 ) - (1,382 ) Balance, September 30, 2017 $ 677 $ 3,487 $ - $ 4,164 |
Equipment and Network Infrast_2
Equipment and Network Infrastructure Financing Obligations (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Capital Lease Obligations [Abstract] | |
Equipment financing obligations | September 30, December 31, 2018 2017 Equipment financing obligations $ 1,910 $ 1,292 IRU(1) 4,208 6,415 Amount representing interest (763 ) (881 ) Present value of minimum lease payments 5,355 6,826 Less current portion (2,525 ) (3,003 ) Non-current portion $ 2,830 $ 3,823 |
Principal payment under the capital lease agreements | remainder of 2018 $ 953 2019 2,212 2020 813 2021 443 2022 245 Thereafter 1,452 $ 6,118 |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Debt | September 30, 2018 First Lien Credit Agreement: Tranche A Term Loan $ 44,438 Tranche B Term Loan 503,625 Revolving Facility 19,500 Second Lien Credit Agreement – Term Loan 85,000 Subordinated Note 10,000 Bircan Notes Payable 3,276 665,839 Less: Discounts 45,627 Current portion 30,779 Non-current portion $ 589,433 |
Estimated future aggregate payments for long-term debt | remainder of 2018 $ 16,059 2019 28,842 2020 38,156 2021 41,625 2022 72,844 Thereafter 468,313 $ 665,839 |
Obligations Under Asset Purch_2
Obligations Under Asset Purchase Agreements (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Obligations Under Asset Purchase Agreements | |
Obligations under asset purchase agreements | September 30, December 31, 2018 2017 Customer base acquisitions $ 2 $ - IQMax 447 - 449 Less current portion(1) (449 ) - Long-term portion $ - $ - |
Revenues from Contracts with _2
Revenues from Contracts with Customers (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Impact of adoption of new accounting principle | Balance as of ASC 606 Balance as of December 31, 2017 Transition Adjustment January 1, 2018 Assets Prepaid expenses $ 6,290 $ 2,203 $ 8,493 Intangible assets, net 68,834 (3,304 ) 65,530 Other non-current assets 877 4,826 5,703 $ 76,001 $ 3,725 $ 79,726 Stockholders' Equity Accumulated deficit $ (236,477 ) $ 3,725 $ (232,752 ) September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Assets Prepaid expenses $ 11,276 $ 7,443 $ 3,833 Intangible assets, net 176,465 177,810 (1,345 ) Other non-current assets 32,518 30,204 2,314 Liabilities Deferred customer revenue 16,440 15,804 636 Stockholders' Equity Accumulated deficit $ (282,383 ) $ (276,945 ) $ (5,438 ) For the three months ended September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Revenues $ 143,428 $ 143,899 $ (471 ) Selling, general and administrative 46,788 47,731 (943 ) Depreciation and amortization 19,946 20,231 (285 ) Net Impact $ 76,694 $ 75,937 $ 757 For the nine months ended September 30, 2018 Impact of As reported Previous guidance Adoption of ASC 606 Revenues $ 367,142 $ 367,778 $ (636 ) Selling, general and administrative 113,555 114,953 (1,398 ) Depreciation and amortization 51,387 52,059 (672 ) Net Impact $ 202,200 $ 200,766 $ 1,434 |
Estimated revenue expected to be recognized in the future related to performance obligations | Deferred installation Deferred installation revenue costs Net remaining 2018 $ 47 $ (910 ) $ (863 ) 2019 185 (2,633 ) (2,448 ) 2020 185 (1,887 ) (1,702 ) 2021 169 (653 ) (484 ) 2022 and thereafter 50 (64 ) (14 ) $ 636 $ (6,147 ) $ (5,511 ) |
Disaggregation of revenue | For the three months ended September 30, 2018 2017 Monthly recurring $ 129,567 $ 94,283 Usage and other 13,422 17,721 Installation 439 420 Total revenue $ 143,428 $ 112,424 For the nine months ended September 30, 2018 2017 Monthly recurring $ 320,129 $ 294,882 Usage and other 45,977 48,065 Installation 1,036 1,220 Total revenue $ 367,142 $ 344,167 For the three months ended September 30, 2018 2017 United States $ 121,208 $ 86,917 Canada 22,220 25,507 Total revenue $ 143,428 $ 112,424 For the nine months ended September 30, 2018 2017 United States $ 298,353 $ 271,336 Canada 68,789 72,831 Total revenue $ 367,142 $ 344,167 |
Equity Transactions (Tables)
Equity Transactions (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Equity [Abstract] | |
Stock option activity | Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2017 - $ - - Acquired in reverse acquisition 1,996 3.48 - Granted - - - Exercised (52 ) 2.67 - Forfeited (26 ) 2.15 - Expired (15 ) 4.28 - Outstanding at September 30, 2018 1,903 3.50 7.58 Exercisable at September 30, 2018 1,428 3.99 7.44 |
Basis of Presentation and Sum_3
Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) $ in Thousands | Sep. 30, 2018USD ($) |
Accounting Policies [Abstract] | |
Notes receivable | $ 25,000,000 |
Discontinued Operations (Detail
Discontinued Operations (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | ||||
Revenues | $ 0 | $ 24,650 | $ 30,768 | $ 76,405 |
Cost of revenues, exclusive of depreciation and amortization, shown separately below | 0 | 17,407 | 20,482 | 51,606 |
Gross profit | 0 | 7,243 | 10,286 | 24,799 |
Selling, general and administrative expenses | 0 | 6,788 | 11,809 | 22,526 |
Depreciation and amortization | 0 | 4,158 | 2,008 | 11,031 |
Impairment losses on intangible assets | 0 | 0 | 5,379 | 0 |
Total operating expenses | 0 | 10,946 | 19,196 | 33,557 |
Operating loss on discontinued operations | 0 | (3,703) | (8,910) | (8,758) |
Other (expenses) income: | ||||
Interest expense | 0 | (1,457) | (2,169) | (4,535) |
Gain on extinguishment of debt | 0 | 0 | 17,297 | 0 |
Net income (loss) on discontinued operations | $ 0 | $ (5,160) | $ 6,218 | $ (13,293) |
Discontinued Operations (Deta_2
Discontinued Operations (Details 1) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Discontinued Operations and Disposal Groups [Abstract] | ||
Accounts receivable, net of allowance for doubtful accounts of approximately $1,917, respectively | $ 9,549 | |
Prepaid expenses | 1,259 | |
Inventory | 37 | |
Property and equipment, net | 1,708 | |
Goodwill | 3,550 | |
Intangible assets | 23,935 | |
Total current assets of discontinued operations | $ 0 | 40,038 |
Accounts payable and accrued expenses | 8,469 | |
Deferred customer revenue | 2,375 | |
Other accrued liabilities | 10,320 | |
Debt | 13,700 | |
Total current liabilities of discontinued operations | $ 0 | $ 34,864 |
Acquisitions (Details)
Acquisitions (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Dec. 31, 2017 | |
Goodwill | $ 218,151 | $ 89,806 |
Birch | ||
Purchase consideration for invested capital | 221,172 | |
Debt | (89,205) | |
Total purchase consideration for equity | 131,967 | |
Cash | 28,176 | |
Accounts receivable | 8,684 | |
Other current assets | 2,444 | |
Property and equipment | 13,008 | |
Other noncurrent assets | 1,220 | |
Developed technology | 4,710 | |
Trademark | 49,500 | |
Customer relationships | 41,100 | |
Goodwill | 99,590 | |
Deferred revenue | (1,200) | |
Other liabilities, including debt | (115,265) | |
Total | 131,967 | |
MegaPath | ||
Purchase consideration for invested capital | 68,251 | |
Working capital | 3,779 | |
Debt | (12,181) | |
Total purchase consideration for equity | 59,849 | |
Cash | 4,660 | |
Accounts receivable | 2,539 | |
Other current assets | 1,347 | |
Property and equipment | 6,319 | |
Other noncurrent assets | 1,602 | |
Developed technology | 10,610 | |
Trademark | 7,100 | |
Customer relationships | 17,800 | |
Goodwill | 28,755 | |
Deferred revenue | (1,400) | |
Other liabilities, including debt | (19,483) | |
Total | $ 59,849 |
Acquisitions (Details 1)
Acquisitions (Details 1) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Business Combinations [Abstract] | ||||
Revenues | $ 143,428 | $ 159,893 | $ 439,477 | $ 487,281 |
Net loss | $ (17,631) | $ (12,261) | $ (64,550) | $ (41,776) |
Basic net loss per share | $ (0.23) | $ (0.49) | $ (1.19) | $ (1.66) |
Diluted net loss per share | $ (0.23) | $ (0.49) | $ (1.19) | $ (1.66) |
Loss per share (Details)
Loss per share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Numerator | ||||
Net loss from continuing operations | $ (17,631) | $ (1,545) | $ (55,349) | $ (13,296) |
Net loss from discontinued operations | 0 | (5,160) | 6,218 | (13,293) |
Net loss | (17,631) | (6,705) | (49,131) | (26,589) |
Undeclared dividends on Preferred Series D | $ (467) | $ 0 | $ (754) | $ 0 |
Dividends paid on Preferred Series D | $ 0 | $ 0 | $ (500) | $ 0 |
Total net loss less Preferred Series D dividends | $ (18,098) | $ (6,705) | $ (50,385) | $ (26,589) |
Denominator | ||||
Basic and diluted weighted average common shares outstanding | 78,435 | 25,161 | 54,143 | 25,161 |
(Loss) income per share basic and diluted | ||||
From continuing operations | $ (0.23) | $ (0.06) | $ (1.05) | $ (0.53) |
From discontinued operations | $ 0 | $ (0.21) | $ 0.11 | $ (0.53) |
Loss per share (Details 1)
Loss per share (Details 1) | 9 Months Ended |
Sep. 30, 2018shares | |
Warrants [Member] | |
Antidilutive securities excluded from the calculation of diluted earnings per common share | 838 |
Stock options [Member] | |
Antidilutive securities excluded from the calculation of diluted earnings per common share | 1,903 |
Prepaid Expenses and Other Curr
Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Prepaid Expense and Other Assets [Abstract] | ||
Insurance and benefits | $ 1,276 | $ 252 |
Rent | 416 | 907 |
Software subscriptions | 2,393 | 1,448 |
Hardware maintenance | 802 | 1,517 |
Commissions | 3,833 | 0 |
Line costs | 1,108 | 706 |
Taxes | 514 | 883 |
Other | 934 | 577 |
Total | $ 11,276 | $ 6,290 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Owned assets, gross | $ 248,501 | $ 202,953 |
Less: accumulated depreciation | (151,527) | (120,761) |
Owned assets, net | 96,974 | 82,192 |
Capital lease assets, gross | 39,844 | 38,123 |
Less: accumulated depreciation | (16,206) | (13,758) |
Capital lease assets, net | 23,638 | 24,365 |
Property and equipment, net | 120,612 | 106,557 |
Telecommunications equipment | ||
Owned assets, gross | 102,384 | 85,472 |
Leasehold improvements | ||
Owned assets, gross | 11,087 | 10,591 |
Office equipment | ||
Owned assets, gross | 1,851 | 1,731 |
Buildings and building improvements | ||
Owned assets, gross | 1,540 | 1,540 |
Furniture and fixtures | ||
Owned assets, gross | 5,604 | 5,160 |
Computer Software | ||
Owned assets, gross | 37,945 | 32,663 |
Land | ||
Owned assets, gross | 470 | 470 |
Automobiles | ||
Owned assets, gross | 53 | 56 |
Onboarding | ||
Owned assets, gross | 29,049 | 15,727 |
Network transition | ||
Owned assets, gross | 52,513 | 45,863 |
Construction-in-progress | ||
Owned assets, gross | $ 6,005 | $ 3,680 |
Property and Equipment (Detai_2
Property and Equipment (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ 12,800 | $ 10,800 | $ 33,400 | $ 32,900 |
Goodwill (Details)
Goodwill (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2018USD ($) | |
Balance at December 31, 2017 | $ 89,806 |
Increase in goodwill associated with a business acquisition | |
Balance at September 30, 2018 | 218,151 |
Birch | |
Increase in goodwill associated with a business acquisition | 99,590 |
Balance at September 30, 2018 | 99,590 |
MegaPath | |
Increase in goodwill associated with a business acquisition | 28,755 |
Balance at September 30, 2018 | $ 28,755 |
Intangible Assets (Details)
Intangible Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Gross intangible assets | $ 216,241 | $ 101,018 |
Less: accumulated amortization | (39,776) | (32,184) |
Intangible assets, net | 176,465 | 68,834 |
Subscriber acquisition costs [Member] | ||
Gross intangible assets | 135,321 | 77,189 |
Less: accumulated amortization | (28,024) | (20,918) |
Intangible assets, net | 107,297 | 56,271 |
Trademarks and tradename [Member] | ||
Gross intangible assets | 65,600 | 13,146 |
Less: accumulated amortization | (10,079) | (6,174) |
Intangible assets, net | 55,521 | 6,972 |
Proprietary technology [Member] | ||
Gross intangible assets | 15,320 | 0 |
Less: accumulated amortization | (1,673) | 0 |
Intangible assets, net | 13,647 | 0 |
Non-compete agreement [Member] | ||
Gross intangible assets | 0 | 3,000 |
Less: accumulated amortization | (3,000) | |
Intangible assets, net | 0 | |
Commissions [Member] | ||
Gross intangible assets | $ 0 | 7,683 |
Less: accumulated amortization | (2,092) | |
Intangible assets, net | $ 5,591 |
Intangible Assets (Details 1)
Intangible Assets (Details 1) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Intangible Assets, Net (Excluding Goodwill) [Abstract] | ||
Remainder of 2018 | $ 7,072 | |
2,019 | 23,737 | |
2,020 | 23,737 | |
2,021 | 20,787 | |
2,022 | 18,630 | |
Thereafter | 82,502 | |
Total | $ 176,465 | $ 68,834 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Intangible Assets, Net (Excluding Goodwill) [Abstract] | ||||
Impairment expense | $ 0 | $ 0 | $ 2,314 | $ 0 |
Amortization expense | $ 7,100 | $ 6,000 | $ 18,000 | $ 17,600 |
Other Accrued Liabilities (Deta
Other Accrued Liabilities (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Accrued Liabilities [Abstract] | ||
Compensation and benefits | $ 7,575 | $ 2,462 |
Bonus | 3,219 | 729 |
Taxes | 6,411 | 169 |
Interest | 10,838 | 8,219 |
Facility restructuring (note 11) | 1,734 | 3,131 |
Legal settlements | 9,730 | 13,360 |
Professional fees | 3,579 | 1,389 |
Deferred tax | 322 | 2,934 |
Sales commissions | 896 | 965 |
Customer deposits | 1,056 | 429 |
Other | 2,495 | 3,008 |
Total | 47,855 | 36,795 |
Less noncurrent portion: | ||
Legal settlements | (4,890) | (8,520) |
Deferred tax | (322) | (2,934) |
Other | (937) | (1,393) |
Total other non-current liabilities | (6,149) | (12,847) |
Current portion of other accrued liabilities | $ 41,706 | $ 23,948 |
Restructuring Event (Details)
Restructuring Event (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Beginning balance | $ 3,262 | $ 0 |
Expenses | 5,169 | 5,546 |
Payments | (6,164) | (1,382) |
Ending balance | 2,267 | 4,164 |
Employee Costs | ||
Beginning balance | 107 | 0 |
Expenses | 4,081 | 1,047 |
Payments | (3,655) | (370) |
Ending balance | 533 | 677 |
Facility Exit Costs | ||
Beginning balance | 3,131 | 0 |
Expenses | 772 | 4,499 |
Payments | (2,169) | (1,012) |
Ending balance | 1,734 | 3,487 |
Other Costs | ||
Beginning balance | 24 | 0 |
Expenses | 316 | 0 |
Payments | (340) | 0 |
Ending balance | $ 0 | $ 0 |
Equipment and Network Infrast_3
Equipment and Network Infrastructure Financing Obligations (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Capital Lease Obligations [Abstract] | ||
Equipment financing obligations | $ 1,910 | $ 1,292 |
IRU | 4,208 | 6,415 |
Amount representing interest | (763) | (881) |
Present value of minimum lease payments | 5,355 | 6,826 |
Less: current portion | (2,525) | (3,003) |
Non-current portion | $ 2,830 | $ 3,823 |
Equipment and Network Infrast_4
Equipment and Network Infrastructure Financing Obligations (Details 1) $ in Thousands | Sep. 30, 2018USD ($) |
Capital Lease Obligations [Abstract] | |
Remainder of 2018 | $ 953 |
2,019 | 2,212 |
2,020 | 813 |
2,021 | 443 |
2,022 | 245 |
Thereafter | 1,452 |
Total | $ 6,118 |
Long-Term Debt (Details)
Long-Term Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Debt | $ 665,839 | |
Discounts | (45,627) | |
Current portion | (30,779) | $ (26,500) |
Non-current portion | 589,433 | $ 410,736 |
Tranche A Term Loan | ||
Debt | 44,438 | |
Tranche B Term Loan | ||
Debt | 503,625 | |
Revolving Facility | ||
Debt | 19,500 | |
Second Lien Credit Agreement - Term Loan | ||
Debt | 85,000 | |
Subordinated Note | ||
Debt | 10,000 | |
Bircan Notes Payable | ||
Debt | $ 3,276 |
Long-Term Debt (Details 1)
Long-Term Debt (Details 1) $ in Thousands | Sep. 30, 2018USD ($) |
Debt Disclosure [Abstract] | |
remainder of 2018 | $ 16,059 |
2,019 | 28,842 |
2,020 | 38,156 |
2,021 | 41,625 |
2,022 | 72,844 |
Thereafter | 468,313 |
Total | $ 665,839 |
Obligations Under Asset Purch_3
Obligations Under Asset Purchase Agreements (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Obligations Under Asset Purchase Agreements | ||
Customer base acquisitions | $ 2 | $ 0 |
IQMax | 447 | 0 |
Total | 449 | 0 |
Less: current portion | (449) | 0 |
Long-term portion | $ 0 | $ 0 |
Revenues from Contracts with _3
Revenues from Contracts with Customers (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Assets | ||
Prepaid expenses | $ 11,276 | $ 6,290 |
Intangible assets, net | 176,465 | 68,834 |
Other non-current assets | 32,518 | 877 |
Liabilities | ||
Deferred customer revenue | 16,440 | |
Stockholders' Equity | ||
Accumulated deficit | (282,383) | (236,477) |
Previous guidance | ||
Assets | ||
Prepaid expenses | 7,443 | |
Intangible assets, net | 177,810 | |
Other non-current assets | 30,204 | |
Liabilities | ||
Deferred customer revenue | 15,804 | |
Stockholders' Equity | ||
Accumulated deficit | (276,945) | |
Impact of Adoption of ASC 606 | ||
Assets | ||
Prepaid expenses | 3,833 | |
Intangible assets, net | (1,345) | |
Other non-current assets | 2,314 | |
Liabilities | ||
Deferred customer revenue | 636 | |
Stockholders' Equity | ||
Accumulated deficit | $ (5,438) | |
ASC 606 Transition Adjustment | ||
Assets | ||
Prepaid expenses | 2,203 | |
Intangible assets, net | (3,304) | |
Other non-current assets | 4,826 | |
Stockholders' Equity | ||
Accumulated deficit | 3,725 | |
Balance After Adjustment | ||
Assets | ||
Prepaid expenses | 8,493 | |
Intangible assets, net | 65,530 | |
Other non-current assets | 5,703 | |
Stockholders' Equity | ||
Accumulated deficit | $ (232,752) |
Revenues from Contracts with _4
Revenues from Contracts with Customers (Details 1) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenues | $ 143,428 | $ 112,424 | $ 367,142 | $ 344,167 |
Selling, general and administrative | 46,788 | 26,830 | 113,555 | 88,164 |
Depreciation and amortization | 19,946 | $ 16,824 | 51,387 | $ 50,466 |
Net Impact | 76,694 | 202,200 | ||
Previous guidance | ||||
Revenues | 143,899 | 367,778 | ||
Selling, general and administrative | 47,731 | 114,953 | ||
Depreciation and amortization | 20,231 | 52,059 | ||
Net Impact | 75,937 | 200,766 | ||
Impact of Adoption of ASC 606 | ||||
Revenues | (471) | (636) | ||
Selling, general and administrative | (943) | (1,398) | ||
Depreciation and amortization | (285) | (672) | ||
Net Impact | $ 757 | $ 1,434 |
Revenues from Contracts with _5
Revenues from Contracts with Customers (Details 2) $ in Thousands | Sep. 30, 2018USD ($) |
Deferred installation revenue | $ 636 |
Deferred instalation costs | (6,147) |
Net | (5,511) |
2,018 | |
Deferred installation revenue | 47 |
Deferred instalation costs | (910) |
Net | (863) |
2,019 | |
Deferred installation revenue | 185 |
Deferred instalation costs | (2,633) |
Net | (2,448) |
2,020 | |
Deferred installation revenue | 185 |
Deferred instalation costs | (1,887) |
Net | (1,702) |
2,021 | |
Deferred installation revenue | 169 |
Deferred instalation costs | (653) |
Net | (484) |
2022 and Thereafter | |
Deferred installation revenue | 50 |
Deferred instalation costs | (64) |
Net | $ (14) |
Revenues from Contracts with _6
Revenues from Contracts with Customers (Details 3) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Total revenue | $ 143,428 | $ 112,424 | $ 367,142 | $ 344,167 |
Monthly recurring | ||||
Total revenue | 129,567 | 94,283 | 320,129 | 294,882 |
Usage and other | ||||
Total revenue | 13,422 | 17,721 | 45,977 | 48,065 |
Installation | ||||
Total revenue | 439 | 420 | 1,036 | 1,220 |
United States | ||||
Total revenue | 121,208 | 86,917 | 298,353 | 271,336 |
Canada | ||||
Total revenue | $ 22,220 | $ 25,507 | $ 68,789 | $ 72,831 |
Equity Transactions (Details)
Equity Transactions (Details) | 9 Months Ended |
Sep. 30, 2018$ / sharesshares | |
Number of Options | |
Balance at December 31, 2017 | shares | 0 |
Shares acquired in reverse acquisition | shares | 1,996 |
Shares granted during the period | shares | 0 |
Shares exercised during the period | shares | (52) |
Shares forfeited during the period | shares | (26) |
Shares expired during the period | shares | (15) |
Shares outstanding at September 30, 2018 | shares | 1,903 |
Shares exercisable at September 30, 2018 | shares | 1,428 |
Weighted Average Exercise Price | |
Balance at December 31, 2017 | $ / shares | $ 0 |
Shares acquired in reverse acquisition | $ / shares | 3.48 |
Shares granted during the period | $ / shares | 0 |
Shares exercised during the period | $ / shares | 2.67 |
Shares forfeited during the period | $ / shares | 2.15 |
Shares expired during the period | $ / shares | 4.28 |
Shares outstanding at September 30, 2018 | $ / shares | 3.50 |
Shares exercisable at September 30, 2018 | $ / shares | $ 3.99 |
Weighted Average Remaining Contract Term | |
Outstanding at September 30, 2018 | 7 years 6 months 29 days |
Exercisable at September 30, 2018 | 7 years 5 months 8 days |