xG Technology Inc (NASDAQ:XGTI) Should Run Higher On Operational Strengthening

We've been touting xG Technology Inc (NASDAQ:XGTI) as having the potential to run for a while now. The company has spent the last few months trying to reposition itself in its industry, with the root of this repositioning being the acquisition of an entity called Vislink. Management just put out the company's first quarter financials, and alongside the release, detailed the closing of this acquisition and its impact on operations and balance sheet.With this update came the run we were looking for.At the beginning of May, xG went for $1.37 a share. Subsequent to the release of last week's earnings report, the company ran up to more than $2.00 a share – a close to 50% upside revaluation. Late last week this corrected a little to around $1.75, but the correction bottomed out at this level, and xG currently trades at $1.85.We think this is just the beginning of a longer-term upside reevaluation. Why? Because of the positioning the company now commands in its industry subsequent to the above-noted acquisition.With the Vislink acquisition, the company has now transitioned to a company focused on the provision of comprehensive video, broadband and satellite solutions for broadcast, sports and entertainment, and defense markets. This is a big market and the recent numbers resinforce this size (and by proxy, potential). As per the latest earnings release, the company generated $9.3 million revenue during first quarter of 2017, compared to the $900,000 in revenue generated during the same period a year earlier. Net income for the period came in at $8.3 million, compared to a net loss of $4.4 million during the first quarter of 2016.That's a pretty dramatic turnaround.Operationally, we think the company is well-positioned to capitalize on its industry. The Vislink acquisition is the second of two major acquisitions, with the other one being the acquisition of an entity called Integrated Microwave Technologies (IMT) early last year. With its original core operations, Vislink and IMT aligned, there's substantial opportunity for growth rooted in synergies between these three entities and their respective client bases. In other words, the company has gone from being a relatively small player in the sector to providing what amounts to a 360° offering for clients, and the crossover of the just mentioned client bases provides a base from which the larger entity can now get started on the marketing of said offering.This strategy, and specifically the crossover between the three operations, is already bearing fruit. The company has recently received "a number" of six-figure contracts from both US and international customers and is generating revenues at a run rate of more than $1 million per week. It has also reduced costs considerably, eliminating 46 redundant positions, which amounts to an annual cost saving of $3.8 million.For us, and from here, it is all about two things – cross-selling services between operational departments (i.e. selling Vislink services to IMT clients) and, concurrently, expanding the client list beyond that of the three separate entities combined. That's not a big ask and it's one that we think management has had in mind strategically for a while.Cash at last count wasn't particularly strong – reported at $4.7 million versus the $9.6 million on hand at the end of last year – and this means there is some degree of dilution risk associated with an exposure at this stage. However, management noted in its recent update that the company is seeking debt and equity credit financing, which suggests some potential for alternative financing methods, and which may minimize dilutive impact.Even with some dilution, there's plenty of opportunity for reward on a position here. Sure, the company has shrunk operationally to cut costs, but this is an exercise in efficiency as opposed to indicative of shrinking top line potential. The first quarter numbers reinforce this point and we expect those of the next quarter to do the same.We will be updating our subscribers as soon as we know more. For the latest updates on XGTI, sign up below!Disclosure: We have no position in XGTI and have not been compensated for this article.