Market Data Fiscal Year December 31 Industry IT Services Market Cap $142.4 Price/Earnings (ttm) N/A Price/Book (mrq) 9.6x Price/Sales (ttm) 2.6x ROE (ttm) N/A Institutional Ownership 4.6% Insider Ownership 20.2% Shares Outstanding 10.9M Float 3.9M Avg. Daily Vol. (3 mos.) 722,749 As of March 12, 2014 Income Snapshot TTM Revenue $85.0M EBITDA $8.2M *ProForma following acquisitions Balance Sheet Snapshot MRQ Cash $3.4M Debt* $20.2M *Debt following recent company acquisitions and elimination of $12.6 million of MidMarket debt March 13, 2014 Target Price: $47.10 Recent Price: $13.10 InterCloud Systems, Inc. (NASDAQCM: ICLD) Company Overview InterCloud Systems is a single-source provider of end-to-end IT technology solutions to the enterprise, service provider, and Government markets through “Cloud Platforms” and professional services. “Cloud Computing” is defined as the use of computing resources that are delivered as a managed service over a network. InterCloud offers its service provider customers the ability to utilize “cloud” solutions inside their existing network footprint as well as in a “white label environment” so they can offer a suite of cloud products under their own brand, delivered over the broadband services they presently sell. ICLD’s cloud services include infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). Valuation We are valuing ICLD using a forward multiple EV/S of 5.4x (equal to the average EV/S of our peer group). We apply this multiple to our FY14E revenue per share projection of $9.14 and derive a price target of $47.10. Investment Highlights Explosive growth: 423% YoY revenue growth and 13% QoQ revenue growth in 3Q13. Longstanding customer relationships provide strong, recurring revenue base and in-depth understanding of customer networks. ICLD is uniquely positioned to provide managed services that efficiently transition clients to SDDC. Announced RentVM acquisition expands ICLD’s technology portfolio and service offerings. Acquisitions build customer/revenue base and provide client specific network expertise necessary to transition to cloud-based infrastructure. The cloud services industry is still in its infancy and is currently growing at 20% - 40% per year. Managed Services industry projected to grow to $256.1 billion by 2018.
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InterCloud Systems, Inc. (NASDAQCM: ICLD) Company Overviewauto, on demand provisioning of cloud assets through a hierarchy system supported by enterprise-level security, providing
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Market Data
Fiscal Year December 31
Industry IT Services
Market Cap $142.4
Price/Earnings (ttm) N/A
Price/Book (mrq) 9.6x
Price/Sales (ttm) 2.6x
ROE (ttm) N/A
Institutional Ownership 4.6%
Insider Ownership 20.2%
Shares Outstanding 10.9M
Float 3.9M
Avg. Daily Vol. (3 mos.) 722,749
As of March 12, 2014
Income Snapshot
TTM
Revenue $85.0M
EBITDA $8.2M
*ProForma following acquisitions
Balance Sheet Snapshot
MRQ
Cash $3.4M
Debt* $20.2M
*Debt following recent company acquisitions and elimination of $12.6 million of MidMarket debt
March 13, 2014 Target Price: $47.10 Recent Price: $13.10
InterCloud Systems, Inc. (NASDAQCM: ICLD)
Company Overview
InterCloud Systems is a single-source provider of end-to-end IT technology
solutions to the enterprise, service provider, and Government markets
through “Cloud Platforms” and professional services. “Cloud Computing” is
defined as the use of computing resources that are delivered as a managed
service over a network. InterCloud offers its service provider customers the
ability to utilize “cloud” solutions inside their existing network footprint as
well as in a “white label environment” so they can offer a suite of cloud
products under their own brand, delivered over the broadband services they
presently sell. ICLD’s cloud services include infrastructure as a service
(IaaS), platform as a service (PaaS), and software as a service (SaaS).
Valuation
We are valuing ICLD using a forward multiple EV/S of 5.4x (equal to the
average EV/S of our peer group). We apply this multiple to our FY14E
revenue per share projection of $9.14 and derive a price target of $47.10.
Investment Highlights
Explosive growth: 423% YoY revenue growth and 13% QoQ revenue
growth in 3Q13.
Longstanding customer relationships provide strong, recurring revenue
base and in-depth understanding of customer networks.
ICLD is uniquely positioned to provide managed services that efficiently
transition clients to SDDC.
Announced RentVM acquisition expands ICLD’s technology portfolio
and service offerings.
Acquisitions build customer/revenue base and provide client specific
network expertise necessary to transition to cloud-based infrastructure.
The cloud services industry is still in its infancy and is currently growing
at 20% - 40% per year.
Managed Services industry projected to grow to $256.1 billion by 2018.
Investment Highlights
Explosive growth: 423% YoY revenue growth and 13% QoQ revenue
growth in 3Q13. For 9M13, ICLD reported $42.9 million in revenue, an
increase of approximately 630% YoY. Primarily through acquisitions, the
Company has grown its proforma revenue and adjusted EBITDA to
approximately $85.0 million and $8.2 million, respectively. These figures
provide a strong base of recurring business and cash flow for ICLD.
Longstanding customer relationships provide strong, recurring revenue
base and in-depth understanding of customer networks. ICLD has long-
term relationships (10+ years) with many of its clients. The Company’s
existing service provider relationships and its in-depth understanding of their
networks (from onsite engineering by ICLD’s professional services group)
gives ICLD a distinct competitive advantage.
The Company’s in-depth understanding of networks in the telecom and cable
industry gives ICLD the knowledge needed to easily transition a client from a
hardware-based infrastructure to a cloud-based infrastructure. According to
Nicolas Fischbach, director of network and IT platform strategy and
architecture at Colt, an international IT services company, upgrading a client
to a cloud-based infrastructure “starts with the understanding of customer
requirements and how to translate them into a system and a commercial and
technical service wrap. Executives need experience across networks, systems
and applications to operate software defined data centers (SDDC) and there
cannot be single skills/operations team silos.”
We believe more companies will switch to services like ICLD’s due to ease
of service (deal with only one vendor) and the growing trend for companies
to shift from hardware-based network and apps to software-based network
and apps.
ICLD is uniquely positioned to provide managed services that efficiently
transition clients to SDDC. With a large number of enterprises currently
experiencing rapid increases in data growth, driving high demands for a well-
structured cloud services, ICLD is positioned to be in the foreground of one
of the next major advancements in technology. We believe ICLD’s advanced
lead time in the enterprise market will help it procure clients during the
market’s early stages, allowing the Company to grow with its clients as IT
infrastructure continues to shift to the cloud.
We believe ICLD’s understanding of its clients’ networks, gained through
years of onsite engineering work for major carriers, is unrivaled and gives the
Company the necessary expertise to transition businesses from hardware to
cloud-based infrastructures.
An example of this expertise was seen recently when ICLD helped a global
retailer, who owns eight top brands, integrate and consolidate its IT
infrastructure into a private cloud architecture. By providing elastic, highly-
scalable resources, ICLD enabled the retailer to realize millions of dollars in
savings.
Similar to IBM’s onsite engineering strategy, ICLD’s longstanding client
relationships also strongly position the Company to sell new products to its
clients. The similarity to IBM’s strategy serves as an ideal business model for
ICLD. IBM is currently in the process of expanding its cloud computing
business, having invested $2 billion in acquiring SoftLayer Technologies and
committing to spend an additional $1.2 billion for 15 new data centers.
IBM’s growing focus on the cloud is another indicator of the ongoing shift in
IT from hardware to cloud-based infrastructure.
Co-located in the biggest carrier hotels (NYC, San Francisco, and Santa
Clara; along with planned expansion to Atlanta, Chicago, Ireland, Asia,
Dubai, and Europe), ICLD’s cloud services provide highly customizable,
replicable, and scalable architecture to meet a customer’s unique
requirements. Carrier hotels are colocation facilities where many carriers are
present, resulting in economies of scale and increased value to customers.
ICLD compliments this framework with extensive professional services,
providing the building blocks that enable its customers to reduce costs
(scalable, virtualized, low-cost software offered on a pay-per-use basis),
increase efficiencies (data center is transformed into an on-demand service
rather than a rigid, complex, and resource draining set of technology silos)
and take advantage of emerging cloud applications (ICLD’s 100% open-
source architecture ensures an increasing and superior set of apps). ICLD’s
cloud infrastructure is built on Tier 1 technology from vendors such as HP,
Brocade, Intel and more, ensuring that ICLD will provide top-notch service
to its clients.
Announced RentVM acquisition expands ICLD’s technology portfolio
and service offerings. Following a recent run of acquisitions that expanded
ICLD’s revenues and client base, the Company has also begun to add to its
cloud technology. RentVM, which delivers Infrastructure-as-a-Service
technology, expands ICLD’s cloud and managed services capabilities
through its SDDC platform, which offers a self-service portal that allows for
auto, on demand provisioning of cloud assets through a hierarchy system
supported by enterprise-level security, providing clients a streamlined
process to virtualize existing infrastructure and integrate cloud solutions. The
proposed price for the acquisition is 400,000 ICLD common shares.
We anticipate ICLD will continue to expand its SDDC offering, both through
internal development and other potential acquisitions, driving increased
cloud-based recurring revenue, while improving the Company’s technology
offerings.
Acquisitions build customer/revenue base and provide client specific
network expertise necessary to transition to cloud-based infrastructure.
ICLD’s acquisitions include: IPC-NY, an outsourced infrastructure service
provider who provides comprehensive, single-source solutions to design,
construct, implement, operate, and maintain wireless, wireline, fiber optic,
and DAS multi-site networks as well as providing services to IT networks for
enterprise and service provider networks; ADEX, a leading provider of
permanently-outsourced network infrastructure services to Original
Equipment Manufacturers and wireless and wireline carriers, offering
customers a broad portfolio of services that encompass the major elements of
any network buildout; Rives-Monteiro Engineering, a telecommunications
company who provides specialized maintenance, consultation, and project
management; TNS, an integrator of commercial communication system
infrastructure specializing in the design, installation, and maintenance of
structured cabling systems; and Tropical Communications, a licensed
electrical and underground utility contractor who specializes in all types of
communications wiring, low-voltage and underground utility contracting, as
well as fiber optic systems, splicing, testing and wireless capabilities. Each
acquisition has provided ICLD customers with on-going services while
increasing revenue for the Company. The acquisition of IPC-NY expanded
the Company’s customer base into large Fortune 100 and 500 enterprises. We
expect large enterprises to shift more of their IT infrastructure to the cloud
and drive organic revenue growth for ICLD over the next few years.
Revenues 2011 2012 2013
RME 2,651,711
Tropical 2,284,321
ERFS 146,036
TNS 1,042,367
ADEX 10,577,197
IPC-NY 25,000,000
Acquisitions
The companies that ICLD acquired all specialize in having an understanding
of a part or all of a client’s networks and infrastructure. This is crucial when
transitioning a client to an SDDC. Cross-selling and upselling of this client
base can substantially increase revenue growth for ICLD. Additionally,
increased scalability will allow the Company to manage larger contracts
which should drive further growth in operating results.
InterCloud awarded up to $7 million in new professional services
contracts. The Company’s Professional Services Group has signed multiple
contracts that are projected to generate revenue of $3.5 million to $7.0
million in 2014. One of the contracts is for the management of a 4G/LTE
wireless network upgrade and expansion, as well as maintenance services, for
a wireless original equipment manufacturer. A second contract award allows
ICLD to provide professional services for network engineering, project
management, and other various senior technical classifications required to
support a major carrier’s network expansions. According to Jake Saunders,
VP at ABI Research, "In 2013, mobile capital expenditure is likely to surge
4.9% to $10.5 billion as North American operators continue upgrading their
networks."
ICLD is expected to see higher demand for its services as wireless carriers
continue to upgrade their cloud infrastructure and increase virtualization as
part of their expansion strategies. Telecom companies are continuing to
heavily invest in wireless networks, providing large advantages for
experienced companies like ICLD.
Market
The cloud services industry is still in its infancy and is currently growing
at 20% - 40% per year. The global market for the cloud in 2011 was $40.7
billion (Forrester), and is forecasted to reach $130 billion by 2015 (Gartner)
and $241 billion by 2020 (Forrester). “Approximately 59% of all new
spending on cloud computing services originates from North American
enterprises, a trend projected to accelerate through 2016” (Gartner).
Managed Services industry projected to grow to $256.1 billion by 2018.
Managed services provide enterprises with data center architecture, servers,
networks, mobility, infrastructure, communications, and security. The
importance of managed services is its ability to reduce costs and manage
complex infrastructure. Managed services allow companies to scale their
resources as needed, rather than buying and maintaining similar resources,
thus providing flexibility while saving money. According to Scott Samborn,
chief business development officer for Vantage Point Solutions Group LLC,
“businesses can save 30 to 40 percent on their IT costs by switching to a
managed service provider, which is especially significant for small
businesses.”
CRN, the top news source for solution providers and the IT channel, believes
the size of the managed services industry is expected to grow from $142.75
billion in 2013 to $256.05 billion in 2018, while Philbert Shih of Structure
Research expects managed services to grow at 23% - 27% per year.
Infrastructure as a Service is projected to be the fastest growing segment
of cloud computing. Infrastructure as a Service (IaaS) is a standardized,
highly-automated offering, where computer resources, complemented by
storage and networking capabilities, are owned and hosted by a service
provider and offered to customers on-demand. Customers are able to self-
provision this infrastructure through web-based user interfaces that serve as
IT operations management consoles.
With more enterprises shifting focus towards cloud-based platforms, aiming
to utilize years’ worth of stored data, the importance of integrating legacy
systems of record to cloud-based platforms is now vital to a company’s
success. Small and medium-sized businesses are benefiting greatly from the
cheaper costs and increased security. A recent study from Gartner estimates
that IaaS will be the fastest growing area of public cloud computing,
projecting a 41.3% CAGR with the total market expected to reach $24 billion
in 2016.
Platform as a Service is projected to grow at a 26.6% CAGR to $6.45
billion in 2016. Platform as a service (PaaS) offers a cloud computing
platform and a solution stack as a service by providing a broad collection of
application infrastructure services. This unique method to utilize hardware,
operating systems, storage and network capacity over the Internet allows
businesses to develop and run applications at a lower cost. Enterprises adopt
PaaS because of its efficiency, scalability, secure multi-tenancy, and
comprehensive solution. A large number of businesses are adopting PaaS at
high rates, and Gartner estimates a 26.6% CAGR for the market, reaching
$6.45 billion in 2016. Companies like Amazon, Google, IBM, etc. have
already adopted PaaS to further strengthen their businesses. Even Netflix has
shifted to PaaS to sustain a faster data center for its customers, due to high