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Sunday, October 25, 2020

InterCloud Systems Inc (OTCMKTS:ICLD) Soars on Growing Optimism

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InterCloud Systems Inc (OTCMKTS:ICLD), it would appear, may have finally shifted gears in terms of the tone of the tape for ICLD shares. The key issue for the long-suffering shareholders of ICLD has been the company’s failure to convince the market that it is capable of some combination of growth and debt reduction – sufficiently potent enough to pull its, hypothetical implied, future balance sheet out of a bottomless hole of assumed convertible debt dilution around every corner. However, a series of recent announcements out of the company have apparently managed to finally crack the safe.

There are really three ingredients that go into this new cake recipe for the company: diversification of revenues, debt reduction, and accelerating earnings growth. If you’re thinking, “Well, duh. Not exactly rocket science there!”, we would have to agree. But there you are. The hardest things in business, as in life, are rarely mysterious. Let’s get a basic sense of this company, and then look at each of the ingredients of that process in turn as they have been manifested by the company in recent weeks.

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

As the company tells 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.”

The company 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.

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In essence, what we have in ICLD right now is a company presently worth just under $3M in the market, but fundamentally composed of a wealth of expertise and a huge range of potential services to offer. So, why has it been so hard for the stock to get traction?

What you see when you look at a chart of ICLD is something like a state-of-the-art spaceship being sucked into a black hole. This is exactly why we always make a point of including a basic snapshot of the balance sheet. When the gravity of existing liabilities grows too great, the market is faced with a confidence question: Can this company grow fast enough to overcome the implied burden of the financing obligations that are embedded in its financial future?

There are several ways to address this question. As we see it, with ICLD’s most recent announcement, they have done all of them over the past 3 months.

First, the company convinced the market it could expand its contracted customer base qualitatively and rapidly, when it announced that it was awarded over $400,000 in new contracts in just about three weeks in January.

Second, they convinced the market that they can and will meaningfully attack the debt dilution problem when they announced the sale of the High Wire Networks division of ADEX Corporation, an asset for which InterCloud Systems received $4.0 million in cash and an expected additional working capital adjustment of approximately $0.9 million, to be paid by September – a sale the proceeds from which were used to directly reduce secured outstanding debt (to stave off the next wrecking ball debt-to-equity conversion).

Finally, the company convinced the market that it can experience accelerating growth by announcing this week that it was recently awarded approximately $2.4 million in new contracts for professional services for new and existing customers.

That combination seems to be the magic formula at the moment. ICLD stock took off on this last announcement. We feel confident that this level of lift-off was driven by a combination of all of these announcements. In other words, the final announcement was like the final number being dialed up in the opening of a combination lock: diversify the customer base, shed the dilutive liability weight, and demonstrate second derivative top line growth.

At present, ICLD still has a troubled balance sheet, to be sure, with just $2.6M in cash on the books against about $17.1M in total current liabilities. That said, InterCloud Systems is pulling in trailing 12-month revenues of $71.4M, and seems to us to be inflecting from revenue contraction to accelerated growth. Of course, the most important step will be the next one. They have a second chance at a first impression right now, which guarantees nothing. 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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