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Sunday, January 17, 2021

InterCloud Systems Inc (OTCMKTS:ICLD) Looks to Reduce Fears of Dilution with Asset Sale

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InterCloud Systems Inc (OTCMKTS:ICLD) is a ragged penny play that has been beaten down steadily for years due to overwhelming debt issues. ICLD stock has seen some new energy come into shares in recent days after it announced the sale of the High Wire Networks division of ADEX Corporation. ADEX’s High Wire division contracted with telecommunications infrastructure manufacturers to install the manufacturer’s products.

According to the recent release, 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. Under the terms of this asset sale, InterCloud 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.

InterCloud Systems Inc (OTCMKTS:ICLD) frames itself as a company that 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. It operates through four segments: Applications and Infrastructure, Professional Services, Managed Services, and Cloud Services.

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.

In addition, the company 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. Additionally, the company’s engineering, design, installation, and maintenance services support the build-out and operation of enterprise, fiber optic, Ethernet, and wireless networks.

InterCloud Systems, Inc. was founded in 2006 and is based in Shrewsbury, New Jersey.

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As noted above, the death spiral trend in ICLD stock has been driven by an inability to operate in a manner that convinces the market that the company will sustainably “grow out of the hole”. Balance sheet problems are all about confidence and extrapolation.

In this case, the company has found a way to knock out nearly $5 million off the red side of the ledger, but that still leaves a mountain of debt to deal with, and we would assume nothing has improved as far as variable balance sheet impact of normal operations. However, management is looking to spin this as a way to reduce fears of imminent new dilution.

Mark Munro, CEO of InterCloud stated, “The sale of this non-core business asset is a continued realignment of InterCloud’s business strategy and reduction of our outstanding liabilities. This sale has given InterCloud the opportunity to continue to improve our balance sheet and reduce the amount of convertible debt causing shareholder dilution. We are continuing to explore other non-core asset sales as well as a conventional asset based lending solution, to reduce the exposure to remaining convertible debentures.”

We’ve witnessed 9% tacked on to share pricing for InterCloud in the past week, a bounce that has taken root amid largely bearish action over the larger time frame. Furthermore, ICLD stock has seen an influx in interest of late, with the stock’s recent average trading volume running nearly 710% over the long run average.

Now commanding a market cap of $1.3M, InterCloud Systems has a significant war chest ($2.6M) of cash on the books, which is balanced by about $17.1M 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 $71.4M. However, the company is seeing declines on the top line on a quarterly y/y basis, with revenues falling at -3.3%. We will update the story again soon as further details emerge. For continuing coverage on shares of ICLD stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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