It gets sold because they were still able to get an almost 3x times revenue price despite the business being in decline AND they actually need the money to pay for upcoming debt maturities. But it's still not enough to meet the company's 2016 obligations.
Yes, that does not alter the purchase price at that time.
They are losing an 80% margin business that was cash flow positive quite contrary to the rest of the business. Gross margins will take a further hit. Not that it matters much, the company is doomed anyway.
2015 revenues will actually be closer to $80 mln, so the approximate annual revenue run rate for the Vaultlogix business is closer to $9 mln. The business has been bought for roughly $45 mln just 18 months ago. Moreover large parts of the purchase prices will directly transfer to the senior secured term loan lenders.
So the company's 80% gross margin, EBITDA positive former crown jewel gets sold at a $20 mln loss after 18 months. Investors should short the hype as the stock will give up all of today's gains over the next week.
Despite the recent revenue decline Vaultlogix actually was their crown jewel generating significant positive cash flows - quite contrary to the company's remaining business which can indeed by classified as toxic.
The original purchase price paid 18 months ago consisted of:
1) $16 mln in cash
2) $12.75 mln in restricted common stock
3) $15.5 mln in convertible notes
In connection with the purchase Intercloud entered into a $13.2 mln senior secured debt facilty with White Oak Global Advisors at that time. Expect a large part of the purchase price being used to pay back the loan.
Moreover the Vaultlogix business hasn't exactly thrived after becoming part of the Intercloud empire. Revenues are seemingly down from "over $12 mln" at the time of the purchase to "approximately 11% of the company's annualized revenue" which can be estimated at somewhere between $80-85 mln calculating to a current annual revenue run rate of $9 mln for Vaultlogix - so the Vaultlogix business has suffered a 25% decline in revenues within just 18 months.
So Intercloud will not only have to book a 45% loss on the acquisition, but will moreover have to transfer the majority of the sales proceeds to White Oak. The company remains saddled with penty of additional 2016 debt maturities.
With the high margin Vaultlogix business gone the company's corporate gross margin will move below the 20% mark going foward.
The company remains in dire straits and the remaining cash proceeds from today's sale might not even be enough to cover the company's upcoming 2016 debt obligations.
This makes sense as it is meant to incentify Ocean Rig to find new work for the rig instead of just stacking the unit and pocketing the compensation for the rest of the initial contract time. Should ORIG get a new contract for the rig at similar terms they won't get compensated anymore of course but if work is only available at lower rates they might still get compensated for the difference.
But the discussion seems obsolete here as there won't be a new contract for the rig anytime soon.
What you will get is a sizeable distribution cut or even an outright elimination - the company doesn't get rewarded for its high payout ratio so why should they go on like this ? It would be much more appropriate to cancel the distributions and focus on debt repayments as long as the capital markets remain unavailable. They also have VERY elevated counterparty risk with 5 containerships currently at a sky high TC rate chartered to virtually bankrupt HMM. This will be $1 in no time just like NMM.
Questions about gross margins, pricing pressure, new customer growth decreasing - and management treating analysts like vultures on the call. Expect price targets lowered and perhaps even some downgrades. BAD CALL.
Right - management is really #$%$ off on the call about many tough analyst questions - it will be a field day for IMPV shorts tomorrow
quite similar to last year Q1 guidance is weak with eps under pressure. Full year FY16 revenue guidance is above consensus but eps is below. Product revenue growth has also weakened while subscription is up.
Overall this is not enough to satisfy sky-high expectations - expect a tough call
Put a small short position to work at $4 in after hours. Management will need a BIG conference call to avoid the news getting sold tomorrow.
Despite the large upside revenue guidance gross margins are projected to come down leading to net income to be also lower. Expect analysts to ask questions about the issue on the call. Stock looks pretty expensive...