Inter Cloud Systems, Inc. (OTCQB: ICLD), is a provider of clouds networking orchestration and automation for software-defined networking (SDN) and network function virtualization (NFV) cloud environments. It operates through four segments: applications and infrastructure, professional services, managed services and cloud services. The company was founded in 2006 and is based in Shrewsbury, New Jersey.
The company recently announced reduction in its outstanding convertible debt through sale of their high wire business division. ICLD sold its non-core business division of one of its wholly owned subsidiaries, ADEX Corporation (ADEX), and used the proceeds to eliminate $3,625,000 of secured convertible debt from its balance sheet.
Despite modest business performance in the past, ICLD suffered substantial dilution in stock, as lenders exercised rights to convert the debt into equity. Therefore, management is continuously focusing on realignment of its business strategy and reduction of debt through conventional asset based financing.
In a separate announcement during January 2017, it disclosed that ICLD has been awarded with $400,000 in new contracts. Given the fact that this industry is driven by scale of operations – such developments lends substantial comfort to the overall business profile and operational efficiency of the entity.
In fact, all these positive news has proven to be encouraging developments from a shareholder perspective. ICLD shareholders have to suffer significant losses in the last one year – and these developments are notable comforting factors. Given its low market cap of sub 1.5 million levels, ICLD is likely to leverage on “low base effect” & could experience a significantly better stock performance during 2017.
For 3rd Quarter, ICLD’s net income was $2.1 million compared to a net loss of $2.9 million & revenue grew by 11% to $19.6 million. It reported the earnings of $-1.11/share, which was lower than the consensus expectations. The company would be reporting its next earnings on Apr 5 – Apr 10 (Est.)
About the company:
InterCloud Systems, Inc. is a leading provider of cloud networking orchestration and automation, for Software Defined Networking (SDN) and Network Function Virtualization (NFV) cloud environments to the telecommunications service provider (carrier) and corporate enterprise markets through cloud solutions and professional services.
Key business rationale:
The company basically serves as a cloud networking orchestration, responsible for the development of automation solutions and services.
ICLD’s cloud solutions offer enterprise and service-provider customers the opportunity to adopt an operational expense model by outsourcing cloud deployment and management to ICLD rather than the capital expense model that has dominated in recent decades in IT infrastructure management.
About Divisions of the Company:
The company offers various services, including platform as a service, infrastructure as a service, database as a service, and software as a service; and network management, 24x7x365 monitoring, security monitoring, and storage and backup services. It also provides software-defined networking (SDN) training, SDN software development and integration, virtualized network functions validation in a multi-vendor environment, unified communications, interactive voice response, and session initiation protocol based call centers, as well as structured cabling and other field installations.
Additionally, it designs, engineers, installs, and maintains various types of Wi-Fi and wide-area, distributed antenna system, and small cell distribution networks for incumbent local exchange carriers, telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators, and enterprise customers, as well as designs, installs, and maintains hardware solutions for the OEMs that support voice, data, and optical networks.
Further, it provides consulting and professional staffing solutions to the service-provider and enterprise market in support of IT and next-generation networks comprising project management, network implementation, network installation, network upgrades, rebuilds, maintenance, and consulting services.
Outlook & recent developments:
ICLD recently reported sale of its High Wire Networks division of ADEX Corporation. ADEX’s High Wire division contracted with telecommunications infrastructure manufacturers to install the manufacturer’s products. The asset was originally acquired by ADEX in 2014 for less than $1.0 million and accounted for approximately $11.0 million in annual revenue in 2016. As a result of this deal, ICLD received $4.0 million in cash and is expected to receive an additional working capital adjustment of approximately $0.9 million, to be paid in six months. The proceeds from this sale were used to reduce secured outstanding debt.
Rationale of non-core asset sale:
The management is working aggressively to secure more conventional asset based financing to help reduce conversion of debt into equity. They are working on sale of non-core assets to eliminate convertible debt to the extent possible.
This sale has given ICLD an opportunity to improve its balance sheet, overall capital structure and reduce the amount of convertible debt, which has caused shareholder dilution in the past.
Outlook over near to medium term:
ICLD continues to explore other non-core asset sales as well as a conventional asset based lending solution, to reduce its exposure to remaining convertible debentures.
It also has plans to mitigate a portion of their debt, through realizations from new contracts as well, which recently were acquired.
The company have positive outlook for 2017 and anticipate a stronger balance sheet, reduced operating expenses and high yielding products and services that would lead to improved shareholder value in the future.
Update on order book position:
In January, ICLD announced that it started 2017 with more than $200K in new contracts. A month later, it further announced that it was awarded over $400,000 in new contracts. Given the fact that this industry is driven by scale of operations – such developments lends substantial comfort to the overall business profile and operational efficiency of the company.
Key Stock Infuences:
Some key influences that might govern future stock price performance include:
• Notwithstanding management’s effort to reduce debt, likely conversion of debt over the near to medium term will continue to impinge the stock prices/performance of the company. ICLD is still carrying large outstanding convertible debt, which is why the investors have remained conservative in the past. Therefore, ICLD’s ability to further reduce its exposure on convertible debt would remain the key.
• ICLD is primarily a cloud company for the telecoms space, which are a fragmented as well as a crowded space. Therefore, its ability to scale up its operations, while focusing on high yielding product and services would remain a major business sensitive factor.
• Also, ICLD’s ability to diversify and expand its clientele and product profile will be guiding factor for the growth in its revenues and profit levels, and will be among the key business sensitivities.
• Also, the company has sustained subdued profitability in the past. Therefore, as it grows market position, management is also focusing on driving down costs and achieves positive cash flow in the near term. The company is moving forward on several cost-cutting fronts to make this a reality. The overall result of these efforts will play a crucial role in its stock performance during 2017.
• The management believes that its available cash balance will not be sufficient to fund its anticipated level of operations for at least the next twelve months. Therefore, timely arrangement of incremental funding would remain a critical liquidity & financial flexibility factor.
ICLD’s third quarter net income was $2.1 million versus $2.9 million net loss in Q3 2015, the revenue grew 11% to $19.6 million. This compared to $17.6 million for the third quarter of 2015.
Reported revenue and margin growth for Q3 2016 and year-to-date results are notable accomplishment given some of the challenges ICLD faced during 2016. As per management, the sales and operations organizations have performed well during the year and they are bullish about a relatively better 2017.
Operating Metrics & profitability:
Gross profit was 29% for the third quarter of 2016 compared to 28% for the comparable period in 2015. The increase in gross profit percentage was due to an increase in the professional services segment, offset by decreases in other segments. The gross profit percentage in professional services segment was 30%.
The company had net income attributable to common stockholders of $2.1 million for the third quarter of 2016 compared to a net loss of $2.9 million for 2015. This increase in net income was due to an increase in the gain from the change in the fair value of derivative instruments of $10.3 million. Additionally, gross profit increased by $700,000. This increase was offset by an increase in salaries and wages of $1.1 million and an increase in the loss of extinguishment of debt of $2.3 million.
Cash Flow & Balance Sheet:
Net loss attributable to common stockholders was $15.7 million for nine months ended September 30, 2016, as compared to net loss attributable to common stockholders of $27.7 million for the nine months ended September 30, 2015.
At September 30, 2016, ICLD had a working capital deficit of $19.9 million, as compared to a working capital deficit of $11.4 million at December 31, 2015.
The management believes that its available cash balance will not be sufficient to fund its anticipated level of operations for at least the next twelve months.
The company has taken several actions to partially mitigate this situation, including reduction of expenses. Additionally, if the future revenues are less than forecasted, ICLD is open for headcount reductions to a level that more appropriately matches then-current revenue and expense levels. Management is also evaluating other measures to further improve liquidity, including, the sale of certain operating assets or businesses, the sale of equity or debt securities and entering into joint ventures with third parties.
On Friday, March 3rd, 17, ICLD shares declined by -12.6% to $0.0166 on an average volume of 22.19M shares exchanging hands. Market capitalization is $1.3 million. The current RSI is 46.3
In the past 52 weeks, shares of ICLD have traded as low as $0.01 and as high as $1.15
At $0.0166, shares of ICLD are trading below its 50-day moving average (MA) at $0.02 and 200-day MA at $0.29.
The present support and resistance levels for the stock are at $0.0144 & $0.0204 respectively.
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