InterCloud Systems Inc (OTCMKTS:ICLD) Battles The Debt Demons

InterCloud Systems Inc (OTCMKTS:ICLD) Battles The Debt Demons

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InterCloud Systems Inc (OTCMKTS:ICLD) has been one of our bear picks over the past year, given the company’s balance sheet issues. The stock has been as beaten down as anything we have ever come across, down now from a reverse-split adjusted $20,000/share in 2007 to its present level of $0.00635/share. And debt has clearly been the issue. However, at some point, in a dilution and debt spiral, enough ends up being enough. It is our job to try to get a sense of where to draw that line.

The latest from the company is its announcement that it entered into an Exchange Agreement with the holder of certain term notes issued by the Company, exchanging the debt for preferred equity. According to the release, pursuant to the Agreement with our former president, the Company exchanged over $5.4 million of Convertible Debt and eliminated over $1.8 million of accrued interest in exchange for approximately $2.3 million of Preferred Equity. The Preferred Equity may be exchanged for Common Stock over a five (5) year period. The Company is also negotiating with other convertible noteholders to exchange their debt into preferred equity.

InterCloud Systems Inc (OTCMKTS:ICLD) offers cloud data and network management and security to telecommunications companies. That’s the gist here.

As ICLD the story, it provides “end-to-end IT and network solutions to the telecommunications service provider and corporate enterprise markets through cloud platforms and professional services in the United States and internationally.”

InterCloud operates through four segments: Applications and Infrastructure, Professional Services, Managed Services, and Cloud Services.

ICLD 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.

According to company materials, “ICLD 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. InterCloud’s cloud solutions offer enterprise and service-provider customers the opportunity to adopt an operational expense model by outsourcing cloud deployment and management to InterCloud rather than the capital expense model that has dominated in recent decades in IT infrastructure management.”

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As noted above, the company just entered into an exchange agreement. According to the release, the effect of the Agreement is to eliminate all debt service and interest accrual on the debt and create $2.3 Million of new Shareholder Equity in the process.

As we understand it, the Exchange immediately increased the Company’s common book value per share.  Full details of the impact on the Company’s financials will be discussed in the Company’s regularly scheduled quarterly earnings release.

InterCloud Systems CEO, Mark Munro stated, “This is our first step in creating new shareholder equity as we push forward with our plans to eliminate costly subordinated debt and interest accruals. Our goal is to continue to restructure all debt and create an entity with no debt. We can then focus on rebuilding shareholder value through revenue growth and profitability. This was a major step in the right direction.”

Earning a current market cap value of $2.9M, ICLD has a bankroll ($407K) of cash on the books, which must be weighed relative to about $34.8M in total current liabilities. One should also note that debt has been growing over recent quarters. ICLD is pulling in trailing 12-month revenues of $59.8M. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -64.1%. You can bet we will update this one again as new information comes into view. Sign-up for continuing coverage on shares of $ICLD stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $ICLD, either long or short, and we have not been compensated for this article.

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