- Strong Gross Margin Improvement to 63.6% -
- Operations from Multiple Operating Units Fully Integrated in May 2023 -
SAN ANTONIO, June 16, 2023 (GLOBE NEWSWIRE) -- Digerati Technologies, Inc. (OTCQB: DTGI) (“Digerati” or the “Company”), a provider of cloud services specializing in UCaaS (Unified Communications as a Service) solutions for the small to medium-sized business (“SMB”) market, announced today financial results for the three months ended April 30, 2023, the Company’s third quarter for its Fiscal Year 2023, and nine months ended April 30, 2023.
Key Financial Highlights for the Nine Months Ended April 30, 2023 (Compared to the Nine Months Ended April 30, 2022)
- Revenue increased by 50% to $23.908 million compared to $15.959 million.
- Gross profit increased 56% to $15.210 million compared to $9.756 million.
- Gross margin increased to 63.6% compared to 61.1%.
- Non-GAAP Adjusted EBITDA income increased by 25% to $2.249 million, excluding all non-cash items and one-time transactional expenses, compared to Adjusted EBITDA income of $1.794 million.
- Net loss increased by 48% to $7.012 million, compared to a net loss of $4.726 million.
- Non-GAAP operating EBITDA (OPCO EBITDA) income increased 47% to $3.292 million, excluding corporate expenses, all non-cash items and one-time transactional expenses, compared to a non-GAAP operating EBITDA of $2.451 million.
Key Financial Highlights for the Third Quarter Fiscal Year 2023 Ended April 30, 2023 (Compared to Third Quarter Fiscal Year 2022 Ended April 30, 2022)
- Revenue decreased by 4% to $7.837 million compared to $8.163 million.
- Gross profit remained relatively flat at $4.958 million compared to $5.002 million.
- Gross margin increased to 63.3% compared to 61.3%.
- Non-GAAP Adjusted EBITDA income decreased by 23% to $0.621 million, excluding all non-cash items and one-time transactional expenses, compared to Adjusted EBITDA income of $0.804 million.
- Net loss increased by 158% to $2.244 million, compared to a net income of $3.902 million.
- Non-GAAP operating EBITDA (OPCO EBITDA) income decreased 6% to $0.999 million, excluding corporate expenses, all non-cash items and one-time transactional expenses, compared to a non-GAAP operating EBITDA of $1.059 million.
Arthur L. Smith, CEO of Digerati, commented, “Our nine months year-to-date results were strong even before completing the full integration of multiple operating entities in May 2023. We will end our fiscal year with an integrated platform branded as Verve and optimized for scaling via organic and/or acquisition growth. The full operational integration included combining people, processes, and systems that resulted in single billing, ticketing, CRM, and accounting systems.”
Smith, continued, “As we go into our final quarter, we are back at record levels of sales and new installed revenue. This will help offset revenue loss in the 3rd quarter due to the winding down of legacy revenue streams, closed customer accounts that did not meet our profitability objectives, lost revenue due to Hurricane Ian, and the closing out of legacy cancelled accounts from previous acquisitions.”
Antonio Estrada, CFO of Digerati, stated, “As of May, our plan of integrating the operations of our previously closed acquisitions is now behind us and deemed a success. I commend our team for successfully executing our integration playbook. In addition, we are now hitting our stride on sales and service delivery and look forward to sharing our progress with shareholders over the coming months and quarters.”
Nine Months ended April 30, 2023 Compared to Nine Months ended April 30, 2022
Revenue for the nine months ended April 30, 2023, was $23.908 million, an increase of $7.949 million or 50% compared to $15.959 million for the nine months ended April 30, 2022. The increase in revenue is primarily attributed to the increase in total customers between periods due to the acquisitions of Skynet in December 2021 and NextLevel Internet in February 2022.
Gross profit for the nine months ended April 30, 2023, was $15.210 million, resulting in a gross margin of 63.6%, compared to $9.756 million and 61.1% for the nine months ended April 30, 2022. The increase in gross margin is primarily due to the addition of higher-margin revenue associated with NextLevel Internet’s UCaaS product line and the acquisition of Skynet in December 2021.
Selling, General and Administrative expenses (excluding legal and professional fees) for the nine months ended April 30, 2023, increased by $4.716 million, or 58%, to $12.852 million compared to $8.136 million for the nine months ended April 30, 2022. The increase in SG&A is attributed to the acquisitions of Skynet and NextLevel Internet during FY2022 and subsequent consolidation of the employees from each of the businesses.
Operating loss for the nine months ended April 30, 2023, was $3.040 million, a decrease of $0.485 million or 14%, compared to $3.525 million for the nine months ended April 30, 2022.
Adjusted EBITDA income for the nine months ended April 30, 2023, was $2.249 million, an increase of $0.455 million or 25%, compared to an Adjusted EBITDA income of $1.794 million for the nine months ended April 30, 2022. In accordance with SEC Regulation G, the non-GAAP measurement of Adjusted EBITDA has been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Loss to Adjusted EBITDA” in the financial table included in this press release.
Of note were the following non-cash expenses associated with the nine months ended April 30, 2023. Company recognition of stock-based compensation and warrant expense of $0.069 million and depreciation and amortization expense of $2.912 million. Loss on derivative instruments was $2.893 million for the nine months ended April 30, 2023.
Non-GAAP operating EBITDA (OPCO EBITDA) income for the nine months ended April 30, 2023, was $3.292 million, excluding corporate expenses, and all non-cash items and one-time transactional expenses, an increase of $0.841 million or 34%, compared to a non-GAAP operating EBITDA (OPCO EBITDA) income of $2.451 million for the nine months ended April 30, 2022.
Net loss for the nine months ended April 30, 2023, was $7.012 million, an increase of $2.286 million or 48%, compared to a net loss of $4.726 million, for the nine months ended April 30, 2022. The resulting EPS loss for the nine months ended April 30, 2023, was ($0.05), as compared to EPS loss of ($0.03) for the nine months ended April 30, 2022.
On April 30, 2023, Digerati had $0.997 million in cash.
Three Months ended April 30, 2023 Compared to Three Months ended April 30, 2022
Revenue for the three months ended April 30, 2023, was $7.837 million, a decrease of $0.326 million or 4% compared to $8.163 million for the three months ended April 30, 2022. Our total number of customers increased from 3,963 for the three months ended April 30, 2022, to 4,446 customers for the three months ended April 30, 2023.
Gross profit for the three months ended April 30, 2023, was $4.958 million, resulting in a gross margin of 63.3%, compared to $5.002 million and 61.3% for the three months ended April 30, 2022.
Selling, General and Administrative expenses (excluding legal and professional fees) for the three months ended April 30, 2023, increased by $0.031 million, or 1%, to $4.299 million compared to $4.268 million for the three months ended April 30, 2022.
Operating loss for the three months ended April 30, 2023, was $1.075 million, a decrease of $0.551 million or 34%, compared to $1.626 million for the three months ended April 30, 2022.
Adjusted EBITDA income for the three months ended April 30, 2023, was $0.621 million, a decrease of $0.183 million or 23%, compared to an Adjusted EBITDA income of $0.804 million for the three months ended April 30, 2022. In accordance with SEC Regulation G, the non-GAAP measurement of Adjusted EBITDA has been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Loss to Adjusted EBITDA” in the financial table included in this press release.
Of note were the following non-cash expenses associated with the three months ended April 30, 2023. Company recognition of stock-based compensation and warrant expense of $0.023 million and depreciation and amortization expense of $0.993 million. Loss on derivative instruments was $2.120 million for the three months ended April 30, 2023.
Non-GAAP operating EBITDA (OPCO EBITDA) income for the three months ended April 30, 2023, was $0.999 million, excluding corporate expenses, and all non-cash items and one-time transactional expenses, a decrease of $0.060 million or 6%, compared to a non-GAAP operating EBITDA (OPCO EBITDA) income of $1.059 million for the three months ended April 30, 2022.
Net loss for the three months ended April 30, 2023, was $2.244 million, compared to a net income of $3.902 million, for the three months ended April 30, 2022. The resulting EPS loss for the three months ended April 30, 2023, was ($0.01), as compared to a EPS income of $0.03 for the three months ended April 30, 2022.
Use of Non-GAAP Financial Measurements
The Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used in the cloud communications industry to evaluate companies on the basis of operating performance and leverage. Adjusted EBITDA provides an adjusted view of EBITDA that takes into account certain significant non-recurring transactions, if any, such as impairment losses and expenses associated with pending acquisitions, which vary significantly between periods and are not recurring in nature, as well as certain recurring non-cash charges such as changes in fair value of the Company’s derivative liabilities and stock-based compensation. The Company also believes that Adjusted EBITDA provides investors with a measure of the Company’s operational and financial progress that corresponds with the measurements used by management as a basis for allocating resources and making other operating decisions. Although the Company uses Adjusted EBITDA as one of several financial measures to assess its operating performance, its use is limited as it excludes certain significant operating expenses. Non-GAAP operating EBITDA (OPCO EBITDA) is useful to investors because it reflects EBITDA for the core operation of the business excluding corporate expenses, non-cash expenses and transactional expenses. EBITDA, Adjusted EBITDA, and non-GAAP operating EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with SEC Regulation G, the non-GAAP measurements
in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Loss to Adjusted EBITDA” in the financial table included in this press release.
About Digerati Technologies, Inc.
Digerati Technologies, Inc. (OTCQB: DTGI) is a provider of cloud services specializing in UCaaS (Unified Communications as a Service) solutions for the business market. Through its operating subsidiary Verve Cloud, Inc. (f/k/a T3 Communications, Nexogy, and NextLevel Internet), the Company is meeting the global needs of small businesses seeking simple, flexible, reliable, and cost-effective communication and network solutions including, cloud PBX, cloud telephony, cloud WAN, cloud call center, cloud mobile, and the delivery of digital oxygen on its broadband network. The Company has developed a robust integration platform to fuel mergers and acquisitions in a highly fragmented market. as it delivers business solutions on its carrier-grade network and Only in the Cloud™. For more information, please visit www.digerati-inc.com and follow DTGI on LinkedIn, Twitter and Facebook.
Forward-Looking Statements
The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements related to the future financial performance of the Company. Although the Company believes that the expectations reflected in the forward-looking statements such as achieving record levels of new installed revenue and improved sales and service delivery performance are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, our inability to source suitable acquisition targets, failure to execute growth strategies, lack of product development and related market acceptance, the impact of competitive services and pricing, general economic conditions, and other risks and uncertainties described in the Company’s periodic filings with the Securities and Exchange Commission.
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| Reconciliation of Net Loss to Adjusted EBITDA | ||||||||||||||||||||||||||||||||
| Three months ended April 30, | Nine months ended April 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | Variances | % | 2023 | 2022 | Variances | % | |||||||||||||||||||||||||
| OPERATING REVENUES: | ||||||||||||||||||||||||||||||||
| Cloud-based hosted services | $ | 7,837 | $ | 8,163 | $ | (326 | ) | -4 | % | $ | 23,908 | $ | 15,959 | $ | 7,949 | 50 | % | |||||||||||||||
| Total operating revenues | 7,837 | 8,163 | (326 | ) | -4 | % | 23,908 | 15,959 | 7,949 | 50 | % | |||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization) | 2,879 | 3,161 | (282 | ) | -9 | % | 8,698 | 6,203 | 2,495 | 40 | % | |||||||||||||||||||||
| Selling, general and administrative expense | 4,299 | 4,268 | 31 | 1 | % | 12,852 | 8,136 | 4,716 | 58 | % | ||||||||||||||||||||||
| Stock compensation expense | 23 | 28 | (5 | ) | -18 | % | 69 | 75 | (6 | ) | -8 | % | ||||||||||||||||||||
| Legal and professional fees | 681 | 756 | (75 | ) | -10 | % | 2,311 | 2,505 | (194 | ) | -8 | % | ||||||||||||||||||||
| Bad debt | 37 | 36 | 1 | 3 | % | 106 | 51 | 55 | 108 | % | ||||||||||||||||||||||
| Depreciation and amortization expense | 993 | 1,540 | (547 | ) | -36 | % | 2,912 | 2,514 | 398 | 16 | % | |||||||||||||||||||||
| Total operating expenses | 8,912 | 9,789 | (877 | ) | -9 | % | 26,948 | 19,484 | 7,464 | 38 | % | |||||||||||||||||||||
| OPERATING LOSS | (1,075 | ) | (1,626 | ) | 551 | -34 | % | (3,040 | ) | (3,525 | ) | 485 | -14 | % | ||||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||||||||||
| Gain (loss) on derivative instruments | 2,120 | 6,827 | (4,707 | ) | -69 | % | 2,893 | 7,835 | (4,942 | ) | -63 | % | ||||||||||||||||||||
| Gain (loss) on extinguishment of debt | 55 | - | 55 | 55 | (5,480 | ) | 5,535 | -101 | % | |||||||||||||||||||||||
| Other income (expense) | (1 | ) | 2 | (3 | ) | -150 | % | 455 | - | 455 | ||||||||||||||||||||||
| Interest expense | (3,701 | ) | (1,676 | ) | (2,025 | ) | 121 | % | (8,137 | ) | (4,563 | ) | (3,574 | ) | 78 | % | ||||||||||||||||
| Income tax expense | (51 | ) | (167 | ) | 116 | -69 | % | (128 | ) | (285 | ) | 157 | -55 | % | ||||||||||||||||||
| Total other income (expense) | (1,578 | ) | 4,986 | (6,564 | ) | -132 | % | (4,862 | ) | (2,493 | ) | (2,369 | ) | 95 | % | |||||||||||||||||
| NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST | (2,653 | ) | 3,360 | (6,013 | ) | -179 | % | (7,902 | ) | (6,018 | ) | (1,884 | ) | 31 | % | |||||||||||||||||
| Less: Net loss attributable to the noncontrolling interests | 409 | 546 | (137 | ) | -25 | % | 898 | 1,306 | (408 | ) | -31 | % | ||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S SHAREHOLDERS | $ | (2,244 | ) | $ | 3,906 | $ | (6,150 | ) | -157 | % | $ | (7,004 | ) | $ | (4,712 | ) | $ | (2,292 | ) | 49 | % | |||||||||||
| Deemed dividend on Series A Convertible preferred stock | - | (4 | ) | 4 | -100 | % | (8 | ) | (14 | ) | 6 | -43 | % | |||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S COMMON SHAREHOLDERS | $ | (2,244 | ) | $ | 3,902 | $ | (6,146 | ) | -158 | % | $ | (7,012 | ) | $ | (4,726 | ) | $ | (2,286 | ) | 48 | % | |||||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA - OPCO, Net of Non-Cash Expenses & Transactional Costs. | ||||||||||||||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S SHAREHOLDERS, as reported | $ | (2,244 | ) | $ | 3,906 | $ | (6,150 | ) | -157 | % | $ | (7,004 | ) | $ | (4,712 | ) | $ | (2,292 | ) | 49 | % | |||||||||||
| EXCLUDING NON-CASH ITEMS TRANSACTIONAL COSTS & CORP EXP | ||||||||||||||||||||||||||||||||
| ADJUSTMENTS: | ||||||||||||||||||||||||||||||||
| Stock compensation & warrant expense | 23 | 28 | (5 | ) | -18 | % | 69 | - | 75 | (6 | ) | -8 | % | |||||||||||||||||||
| Corp Expenses (Net of stock compensation, Legal fees & Transactional cost) | 378 | 255 | 123 | 48 | % | 1,043 | 657 | 386 | 59 | % | ||||||||||||||||||||||
| Legal, professional fees & transactional costs | 680 | 862 | (182 | ) | -21 | % | 2,308 | 2,730 | (422 | ) | -15 | % | ||||||||||||||||||||
| Depreciation and amortization expense | 993 | 1,540 | (547 | ) | -36 | % | 2,912 | - | 2,514 | 398 | 16 | % | ||||||||||||||||||||
| OTHER ADJUSTMENTS | ||||||||||||||||||||||||||||||||
| Gain (loss) on derivative instruments | (2,120 | ) | (6,827 | ) | 4,707 | -69 | % | (2,893 | ) | - | (7,835 | ) | 4,942 | -63 | % | |||||||||||||||||
| Gain (loss) on extinguishment of debt | (55 | ) | - | (55 | ) | (55 | ) | - | 5,480 | (5,535 | ) | -101 | % | |||||||||||||||||||
| Other income (expense) | 1 | (2 | ) | 3 | -150 | % | (455 | ) | - | - | (455 | ) | ||||||||||||||||||||
| Interest expense | 3,701 | 1,676 | 2,025 | 121 | % | 8,137 | - | 4,563 | 3,574 | 78 | % | |||||||||||||||||||||
| Income tax expense | 51 | 167 | (116 | ) | -69 | % | 128 | - | 285 | (157 | ) | -55 | % | |||||||||||||||||||
| Less: Net loss attributable to the noncontrolling interests | (409 | ) | (546 | ) | 137 | -25 | % | (898 | ) | - | (1,306 | ) | 408 | -31 | % | |||||||||||||||||
| ADJUSTED EBITDA - OPCO | $ | 999 | $ | 1,059 | $ | (60 | ) | -6 | % | $ | 3,292 | $ | 2,451 | $ | 841 | 34 | % | |||||||||||||||
| ADD-BACKS Expenses | ||||||||||||||||||||||||||||||||
| Corp Expenses (Net of stock compensation & Transactional cost) | 378 | 255 | 123 | 48 | % | 1,043 | 657 | 386 | 59 | % | ||||||||||||||||||||||
| ADJUSTED EBITDA - INCOME | $ | 621 | $ | 804 | $ | (183 | ) | -23 | % | $ | 2,249 | $ | 1,794 | $ | 455 | 25 | % | |||||||||||||||
