InterCloud Systems Inc (OTCMKTS:ICLD) finds itself in a precarious position, after seeing more than 90% of its market value disappear last year. The plunge has already triggered concerns of whether the company has what it takes to continue operating as a going concern.A sell-off of the stock did not come as a surprise given that the company has been clobbered by the weight of extraordinary debt for more than two years.Amidst the plunge, the management team remains upbeat about the impact of a turnaround plan that came into effect last year.InterCloud faces an uphill task to bounce back, given that it is trading near its all-time lows amidst declining investor confidence. Increasing short interest on the stock is another point of concern that continues to raise serious doubts about the stock’s ability to bounce back. ICLD Daily ChartWith a market cap of about $3.4 million, InterCloud has approximately $827,000 of cash on books compared to current liabilities of $27.4 million. Quarter over quarter decline in revenues is a significant headwind in the company’s push for positive cash flow.As it stands, InterCloud will have to close above the $0.01 mark if it is to stand any chance of picking itself from current trading levels.InterCloud Business Overview InterCloud bills itself as a provider of cloud networking orchestration and automation for software-defined networking and network function virtualization. The company operates through four segments: applications and infrastructure segment which provides engineering and professional consulting services.The professional services segment provides services to the wireless and wireline industry. Managed services segment includes hardware and software products to customers as the cloud segments offer cloud computing and storage services.The company has put out many newsletters in the recent past as it looks to give investors a reason to be bullish about long-term prospects. Recent DevelopmentsA recent letter to shareholders indicates that InterCloud is nearing the end of a restructuring plan that seeks to clean up the balance sheet. While cognizant of the fact that the restructuring plan could have caused losses in the share price, the management team remains confident that 2018 could be a turnaround year.
“After a long, arduous three-year period, the Class Action lawsuit and Derivative Actions that burdened the Company since mid-2014 have finally been settled and terminated as of December 5th, 2017. The Company spent a material amount of time and money throughout the process. This liquidity drain is finally over and we can now be more focused on building our businesses and continuing to restructure,” said CEO Mark Munro.
Toxic Debt Settlement Push In recent months, InterCloud has entered into exchange agreements with holders of specific term notes in a bid to clean up the balance sheet. In November, the company exchanged over $10.4 million of convertible debt, consequently eliminating over $4.7 million of accrued interest in the exchange of $15.1 million of preferred equity.InterCloud senior secured debt stood at about $9.4 million as of December 31, 2016. It is now less than $3.5 million. The company is currently negotiating with other convertible note holders to exchange remaining debt for preferred equity.Also, the company is considering additional non-core asset sales from which it hopes to generate extra money to clear the remaining toxic debt.
“This is our first step in creating new shareholder equity as we push forward with our plans to eliminate costly subordinated debt and interest accruals. Our goal is to continue to restructure all debt and create an entity with no debt. We can then focus on rebuilding shareholder value through revenue growth and profitability. This was a major step in the right direction,” said Mr. Munro.
Amidst the debt restructuring push, InterCloud is also facing another problem in the name of stock dilution. Conversion of debt into equity has significantly diluted the stock. Dilution has dramatically affected investor’s sentiments on the stock.Management in its defense maintains that convertible debt has been reduced to a point where a proposed reverse split will not result in further dilution.Financial Results InterCloud reported revenues of $10 million for the third quarter, representing a 49% decrease from $19.6 million reported in 2016. The drop was because of the divestiture of revenue generating subsidiaries in the first and second quarter.Loss from operations came in at $1.1 million, compared to $3.8 million for the comparable period of 2016. Net loss attributed to shareholders stood at $5.5 million, more than double a net loss of $2.1 million reported in 2016. Bottom Line InterCloud has experienced a pop in investor interest on Wall Street in recent weeks. Transaction volume has started to pick even as the stock continues to trade in a sizeable bearish trend. As it stands, things could go either way, for the stock, given the short interest weight.If investors are to fall in love with InterCloud once more, then the company will have to eliminate its toxic debt and build a stronger balance sheet. The company will also have to detail how it intends to develop and bring to market new cutting-edge products.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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