Insider Financial Article March 2017:
InterCloud Systems Inc (OTCMKTS:ICLD) Could Be A Winner Based On Latest Update
By Chris Sandburg / in Momentum & Growth, Momentum Stocks, Stocks, Tech / 02 Mar 2017
https://www.insiderfinancial.com/intercloud-s...te/119875/
InterCloud Systems Inc (OTCMKTS:ICLD) is a real runner this week, with the company having announced that it has reduced a bunch of its convertible debt. The news is a positive step forward from a shareholder perspective – a shareholder base that has had to suffer some pretty sever losses over the last twelve months – and the move seems to have brought with it a degree of sentiment re-evaluation.
InterCloud currently trades for $0.02 a share, mid session on Wednesday, having closed out Tuesday’s session for around $0.01. That’s a nice run, but it very much flies against the grain of longer term momentum, and it raises the question: what’s next?
Let’s try and figure out an answer.
For those new to this company, InterCloud is one of those tech companies that isn’t particularly good at getting its story across to non-technical investors. We’ve said it before, and we’ll likely say it again – this is a problem that plagues the tech space.
Here’s how InterCloud bills itself:
“… a leading provider of networking orchestration and automation, for Software Defined Networking (SDN) and Network Function Virtualization (NFV) cloud environments to the telecommunications service provider”
Jargon.
Forget that for now. It’s basically a cloud company for the telecoms space. Telecoms companies have two options – control and manage data and networks in house (with physical servers) or outsource it to a cloud company like InterCloud. The latter negates the need for in house server storage, and (in most cases) increases reliability, security etc. while removing the cost of server space rental and maintenance. What just happened to Amazon.com, Inc. (NASDAQ:AMZN) and its AWS service kind of flies against some of these positives, but that’s an anomaly – generally, they ring true.
So, InterCloud goes to a company and pitches the following – forget your own servers, outsource it to us and pay us a fee. We’ll provide network security, backups, data lockup, all that good stuff.
And the company has done pretty well with this pitch. This is a crowded space, and it’s all about reputation. Cloud System’s reputation is strong, and it plays into the company’s ability to pick up new clients. In January, the company announced it was beginning 2017 with more than $200K in new contracts. A month later, InterCloud announced that it was recently awarded over $400,000 in new contracts. Reportedly, these new contracts came within just the three weeks previous to their reporting in the release. That’s more than half a million dollars of contracts a month at an extended run rate. Couple that with the fact that this sort of industry is all about economies of scale – the more contracts the company gets, the cheaper it becomes to fulfill them as the infrastructure is, to a large degree already in place – and there’s a great value thesis.
So why is the company valued at less than a million on the open market?
In a word, dilution. Here’s an excerpt from the early January release:
“We have seen higher volume in our stock as of late, as lenders exercise their rights to convert their debt into equity. The pressure on the stock from the conversions of debt into equity is not a reflection on the operations of the Company.”
That’s Mark Munro, the company’s CEO. The issue is that there is so much outstanding convertible debt, and that this debt is converting thick and fast, that investors just don’t want to pick up an exposure.
And this is where the above mentioned conversion announcement comes in to the picture. The link to the release is here, but to sum it up, the company has basically sold off one of its operational units for a $4 million upfront payment and up to $0.9 million in additional working capital. This is a unit that generated $11 million revenue in 2016, so for us, $4 million is an undersell. That’s the downside. The upside is that the $4 million has been used to write off secured outstanding debt, and we think this reduction is worth more than $4 million in value to the company. In other words, the $4 million price tag was too low, but it doesn’t matter – the company just became a lot more attractive as a value asset, and that’s more important.
So, to answer our question – what’s next – we think there’s some run room in this one. The operational value is there, and it’s fundamentally a strong company, so if management can continue to work on the capital structure issues (which the recent write off suggests is something they are focused on) this could be a real winner long term.
We will be updating our subscribers as soon as we know more. For the latest updates on ICLD, sign up below!
Sign up for next microcap runner ahead of the crowd.
InterCloud Systems Inc (OTCMKTS:ICLD) Could Be A Winner Based On Latest Update
By Chris Sandburg / in Momentum & Growth, Momentum Stocks, Stocks, Tech / 02 Mar 2017
https://www.insiderfinancial.com/intercloud-s...te/119875/
InterCloud Systems Inc (OTCMKTS:ICLD) is a real runner this week, with the company having announced that it has reduced a bunch of its convertible debt. The news is a positive step forward from a shareholder perspective – a shareholder base that has had to suffer some pretty sever losses over the last twelve months – and the move seems to have brought with it a degree of sentiment re-evaluation.
InterCloud currently trades for $0.02 a share, mid session on Wednesday, having closed out Tuesday’s session for around $0.01. That’s a nice run, but it very much flies against the grain of longer term momentum, and it raises the question: what’s next?
Let’s try and figure out an answer.
For those new to this company, InterCloud is one of those tech companies that isn’t particularly good at getting its story across to non-technical investors. We’ve said it before, and we’ll likely say it again – this is a problem that plagues the tech space.
Here’s how InterCloud bills itself:
“… a leading provider of networking orchestration and automation, for Software Defined Networking (SDN) and Network Function Virtualization (NFV) cloud environments to the telecommunications service provider”
Jargon.
Forget that for now. It’s basically a cloud company for the telecoms space. Telecoms companies have two options – control and manage data and networks in house (with physical servers) or outsource it to a cloud company like InterCloud. The latter negates the need for in house server storage, and (in most cases) increases reliability, security etc. while removing the cost of server space rental and maintenance. What just happened to Amazon.com, Inc. (NASDAQ:AMZN) and its AWS service kind of flies against some of these positives, but that’s an anomaly – generally, they ring true.
So, InterCloud goes to a company and pitches the following – forget your own servers, outsource it to us and pay us a fee. We’ll provide network security, backups, data lockup, all that good stuff.
And the company has done pretty well with this pitch. This is a crowded space, and it’s all about reputation. Cloud System’s reputation is strong, and it plays into the company’s ability to pick up new clients. In January, the company announced it was beginning 2017 with more than $200K in new contracts. A month later, InterCloud announced that it was recently awarded over $400,000 in new contracts. Reportedly, these new contracts came within just the three weeks previous to their reporting in the release. That’s more than half a million dollars of contracts a month at an extended run rate. Couple that with the fact that this sort of industry is all about economies of scale – the more contracts the company gets, the cheaper it becomes to fulfill them as the infrastructure is, to a large degree already in place – and there’s a great value thesis.
So why is the company valued at less than a million on the open market?
In a word, dilution. Here’s an excerpt from the early January release:
“We have seen higher volume in our stock as of late, as lenders exercise their rights to convert their debt into equity. The pressure on the stock from the conversions of debt into equity is not a reflection on the operations of the Company.”
That’s Mark Munro, the company’s CEO. The issue is that there is so much outstanding convertible debt, and that this debt is converting thick and fast, that investors just don’t want to pick up an exposure.
And this is where the above mentioned conversion announcement comes in to the picture. The link to the release is here, but to sum it up, the company has basically sold off one of its operational units for a $4 million upfront payment and up to $0.9 million in additional working capital. This is a unit that generated $11 million revenue in 2016, so for us, $4 million is an undersell. That’s the downside. The upside is that the $4 million has been used to write off secured outstanding debt, and we think this reduction is worth more than $4 million in value to the company. In other words, the $4 million price tag was too low, but it doesn’t matter – the company just became a lot more attractive as a value asset, and that’s more important.
So, to answer our question – what’s next – we think there’s some run room in this one. The operational value is there, and it’s fundamentally a strong company, so if management can continue to work on the capital structure issues (which the recent write off suggests is something they are focused on) this could be a real winner long term.
We will be updating our subscribers as soon as we know more. For the latest updates on ICLD, sign up below!
Sign up for next microcap runner ahead of the crowd.
1
