InterCloud Systems Inc (NASDAQ:ICLD) Sells Off After Earnings

InterCloud Systems Inc (NASDAQ: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.ICLD is well-positioned going forward. The Software Defined Networking market is expected to surpass $35 billion in the next five years far higher than previously reported almost by an order of magnitude. Adoption of SDN technology has accelerated in recent years from sales of $10 million in 2007 to $252 million last year.In looking at the latest earnings report, shares sold off hard after earnings. This came as the company reported FY2015 revenues of $77.7 million, which was below ONE analyst's estimate of $88.9 million. On the surface, this headline number looks bad, but this analyst failed to take into account the sale of the data storage business, which would have added $9.9 million in revenues. We find it sad that the market chose to focus on this ONE analyst's coverage of the company. Some momentum players used this as an excuse to book profits and from a technical standpoint, ICLD ran into resistance on the charts just above $1.We, on the other hand, thought it was a solid earnings report. 2015 revenues increased 5% from $73.8 million in 2014. Gross profit increased by 7% to $19.3 million, compared to $18.0 million in 2014. The gross profit percentage increased to 25% for the year ended December 31, 2015, compared to 24% for the comparable period in 2014. The company also significantly improved liquidity with the sale of data storage assets in February 2016 for approximately $24 Million. CEO Mark Munro said:

“We are very pleased to report that InterCloud’s revenue for 2015 grew substantially over the same period in 2014. In addition to revenue growth, and equally important, we have increased our gross profit margins from the same period in 2014. After the sale of our data storage assets in February 2016, we have greater liquidity than the Company has ever had, and a business that still generated approximately $77.5 Million in revenue during 2015. The data storage assets accounted for $9.9 million in gross revenues during 2015 for an adjusted total of $87.5 million. Our goal is to take advantage of our cash liquidity to grow our cloud revenues with a focus on Dpod private cloud solutions, our Virtual Network Function (VNF) validation services, and drive sales of our NFVgrid SDN/NFV Orchestration platform. Our exciting new cloud products and services will help us achieve those goals in the near term. We continue to be bullish about our near term and long term outlooks. InterCloud is well positioned competitively with a disruptive portfolio of cloud orchestration products, an industry leading software development team, and an aggressive sales and engineering group. In the past three months we have seen a increase in demand for our cloud portfolio of services in both the enterprise and carrier markets.”

Last month, ICLD announced that it was recently awarded over $3.6 million in new contracts for professional services in connection with next generation network upgrades for new and existing customers; including over $800,000 for NYS Government Offices. A majority of the work is expected to begin immediately. CEO Mark Munro said:

“Our company continues to execute on new business opportunities from our sales pipeline. The influx of purchase orders and contracts continue to grow in number and scale. The company remains well capitalized to seize upon new opportunities for organic growth and strategic partnerships."

Currently trading with a market cap of just $19 million, we see ICLD as being quite undervalued. Shares are trading at just 0.2x sales and 0.6x book value. With strong growth prospects in the SDN and NFV markets, we see better days ahead for ICLD. We will be updating Insider Financial as soon as we know more. For continuing coverage on ICLD, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in ICLD and have not been compensated for this article.