InterCloud Systems Inc (OTCMKTS:ICLD) Must Turn Around Soon

InterCloud Systems Inc (OTCMKTS:ICLD) is still struggling. We looked at the company on a couple of occasions during the latter half of 2016, suggesting that – fundamentally at least – there should be some long-term growth potential to its market capitalization. Over the last couple of months, however, the company has done nothing but decline, as capital structure issues weigh on both sentiment and valuation. We are going to hold our bias firm, however. Specifically, for us, we think that there remains some upside potential on a long-term exposure, and that – as the company continues to decline – exposure to this potential is becoming increasingly discounted.In each of our previous coverages, we have noted that the InterCloud blurb is pretty technical in nature, and in turn, and doesn't offer too much clarity into the company's day-to-day operations. Look under the hood, however, and it's not really all that complicated. InterCloud is essentially a hosting company, which also provides data management and software as a service through the cloud that underpins its hosting technology. Its clients can move their data from a physical, on site, server, to the cloud, by way of InterCloud's offerings. It can also analyze the data that runs to and from its server, and optimize it or package it in any way, again through InterCloud. The company also allows its clients to sign up to certain software products (the SaaS element of the technical blurb), with the company offering said clients access to various applications (Microsoft Exchange, Sharepoint etc.) via the cloud, without having to buy their own licenses.Towards the end of last year, InterCloud reported first that it had been awarded new contracts worth more than $2 million, and shortly after that it has been awarded an extra $1 million worth of contracts, both of which were reported as set to materialize throughout early 2017. Despite having these contracts in place however, and even when taken into consideration against the company's then-market capitalization of a little over $3.5 million, the announcements did nothing to boost InterCloud's share price.A more recent announcement, detailing $200,000 worth of new contracts to kick off the New Year, followed a similar pattern (i.e., announced, but had no material impact on market capitalization).So what is the problem? It all comes down to capital structure. There have been some pretty high volume debt-equity conversions. These, naturally, are weighing on sentiment, and serving up (what we see as) a bit of a distorted valuation. Here's what management has to say on the matter:

"The pressure on the stock from the conversions of debt into equity is not a reflection on the operations of the Company. As we have previously disclosed, the Company is working very aggressively to secure more conventional asset based financing to help reduce these conversions."

According to the latest release, the company is trying to sell some of its non-core assets as part of an effort to offset some of the convertible debt. Exactly what these assets are remains to be seen, but that management is recognizing the impact that these conversions is having on shareholders, and pushing to do something about it, is a plus point for us. We have seen many companies that show no interest in how things like debt conversions are affecting the exposures of their common shareholders, and that this one is different, suggests that there is some degree of near term reprieve to the pressure. It doesn’t guarantee reprieve, but it hints at it.So what is next? Well, it's all about how effectively management can offset the debt equity pressure. Operationally, InterCloud is making progress, and weighed against its current market capitalization of just $1.2 million, we should be looking at some degree of upside revaluation as early as the latter half of this quarter.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.