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Here's Our Take On The InterCloud Systems Inc (OTCMKTS:ICLD) Numbers

Here's Our Take On The InterCloud Systems Inc (OTCMKTS:ICLD) Numbers
Written by
Chris Sandburg
Published on
May 15, 2017
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InterCloud Systems Inc (OTCMKTS:ICLD) spiked to nearly $0.10 a share back in Mid-March, but across the subsequent eight weeks, declined to circa $0.03 a piece.Management just put out first quarter financials and while it's not a faultless report, the numbers indicate that things are moving in the right direction. If the company can stay its course, we think there's plenty of room for upside revaluation back towards, and potentially in excess of, the March highs.Here is what the numbers show and where they fit into the InterCloud picture.For those new to the stock, InterCloud is a technology play with a core focus on offering network and data solutions to commercial clients. As we noted last time, two core elements of its offerings represent areas of considerable growth potential – software-defined networking (SDN), and network function virtualization (NFV). We aren't going to go into too much detail into these technologies this time around (readers looking to catch up can do so here), but by way of a brief overview, they allow for the separation of main network functions from the software that’s used to run them. This separation is becoming increasingly important as commercial entities shift towards cloud networks and we think InterCloud is well-positioned to capitalize on said shift going forward.Looking at the numbers, the company reported revenues for the first quarter 2017 at $14 million – a 21% decline on the $17.6 million recorded during the first quarter of 2016. Gross profit also declined from $4.4 million in 2016 (first quarter) to $3.4 million during the quarter just gone. Net loss increased from $4.3 million to $14.2 million, but this was primarily attributable to asset impairment charges of $3.9 million and a change in fair value of derivative instruments of $5.3 million; in other words, one-off costs contributed to the difference between the bottom line figures, making the latest number not particularly useful from a forecasting perspective.Looking at the first couple of figures, initial interpretation is not that great. Declining revenues and gross profit wouldn't normally be seen as an indication of strength. In this instance, however, things are a little different. Management has spent the last 12 months trying to implement a restructuring plan, as part of which the company is essentially shrinking towards becoming cash positive. As noted in the latest release, and when compared to this same period a year earlier, salaries and wages have been reduced by 20% and SG&A was cut by approximately 10%. Further, the company reduced senior secured debt by $4.2 million and reduced subordinated debt by $4.1 million. This equates to a total quarterly debt reduction of more than $8.3 million. That's a big deal. The debt element of its balance sheet has long weighed on InterCloud's potential for value appreciation, and the lifting of this weight should translate to increased speculative volume going forward.So what's next?Well, we want to see more of the same. As mentioned, it is all about the company managing to stay its course and management successfully implementing the restructuring efforts that are going to turn the company around. For us, there's much more value in being a cash flow positive company, albeit a smaller one, than there is in being a bloated company that can't meet its own operational expenses. While the topline figures may not make for great reading, therefore, and the headline dip in operational activity might – to some investors – imply a weakening company, we think the opposite is true.We also think that current shareholders would agree with us.As indicative of future strength, therefore, we're actually looking for a continued dip in the headline metrics. Once the foundations are in place, meaning once the company has unloaded non-core assets, trimmed down its staff and is cash flow positive (and we're looking at a timeline of somewhere around early 2018 for this), management can then start working on a controlled expansion.Keep in mind that this is a long-term thesis. This company may well dip near term as markets respond to what seems like a contraction. Any dip, however, could be a nice opportunity to pick up cheap shares.We will be updating our subscribers as soon as we know more. For the latest updates on ICLD, sign up below!Disclosure: We have no position in ICLD and have not been compensated for this article.

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