- Non-GAAP Adjusted Operating EBITDA Income of $1.204 Million -
- Gross Profit of $5.103 Million -
- Company Recorded Gross Margin of 66.7% -
SAN ANTONIO, Dec. 26, 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 October 31, 2023, the Company's first quarter for its Fiscal Year 2024.
Key Financial Highlights for the Three Months Ended October 31, 2023 (Compared to the Three Months Ended October 31, 2022)
- Revenue decreased 6% to $7.654 million compared to $8.130 million.
- Gross profit decreased 3% to $5.103 million compared to $5.279 million.
- Gross margin increased to 66.7% compared to 64.9%.
- Non-GAAP Adjusted EBITDA income decreased 8% to $0.733 million, excluding all non-cash items and one-time transactional expenses, compared to non-GAAP Adjusted EBITDA income of $0.795 million.
- Net loss attributable to Digerati's common shareholders decreased 18% to $4.085 million, compared to a net loss attributable to Digerati's common shareholders of $4.988 million.
- Non-GAAP operating EBITDA ("Non-GAAP Adjusted EBITDA - OPCO") income decreased 6% to $1.204 million, excluding corporate expenses, all non-cash items, and one-time transactional expenses, compared to a Non-GAAP Adjusted EBITDA - OPCO income of $1.275 million.
- Incurred legal, professional fees and transactional costs of $0.837 million mainly related to the restructuring of various notes payables and previously proposed and since terminated transaction with Minority Equality Opportunities Acquisition Inc. during the three months ended October 31, 2023.
Craig K. Clement, Executive Chairman and interim CEO of Digerati, commented, "While our revenue was down slightly, we can report a company record of 66.7% gross margin. This continued improvement of gross margin is up from the 50% level four years ago and demonstrates the strength of our business. Since the acquisitions of Skynet in December 2021 and NextLevel Internet in February 2022, our operational focus has been more on profitable revenue streams and eliminating certain segments of our network that cost more to operate than they earn. The decline in revenue was done purposely and deliberately to optimize the business."
Clement, continued, "With service to nearly 5,000 business customers and approximately 50,000 users, predominantly in Florida, Texas and California, we believe we have built a reliable and valuable platform in which to stack additional acquisitive and organic growth."
Antonio Estrada, CFO of Digerati, stated, "We have really focused on our higher-margin revenue customers and opportunities, as we completed the full integration of our acquisitions from late-2021 and early-2022. Our team successfully streamlined the operations and processes, which have highlighted the efficiencies and resulted in these strong financial results, as we are now at an annualized run-rate of $4.816 million in Non-GAAP Adjusted EBITDA - OPCO. Of note, in the quarter, we incurred legal, professional fees and transactional costs of $0.837 million mainly related to the restructuring of various notes payables and previously proposed and since terminated transaction with Minority Equality Opportunities Acquisition Inc. We look forward to sharing our progress with shareholders over the coming months and quarters."
Three Months ended October 31, 2023, Compared to Three Months ended October 31, 2022
Revenue for the three months ended October 31, 2023, was $7.654 million, a decrease of $0.476 million or 6% compared to $8.130 million for the three months ended October 31, 2022. The decrease in cloud-based hosted service revenue is due to the strategic decision to optimize the business and focus on profitable customers with prospects for further growth potential from the previous acquisitions of Skynet in December 2021 and NextLevel Internet in February 2022.
Gross profit for the three months ended October 31, 2023, was $5.103 million, a decrease of $0.176 million or 3%, resulting in a gross margin of 66.67%, compared to a gross profit of $5.279 million and gross margin of 64.93% for the three months ended October 31, 2022. The increase in gross margin is primarily due to the addition of high-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 three months ended October 31, 2023, increased by $0.059 million, or 1%, to $4.177 million compared to $4.118 million for the three months ended October 31, 2022.
Operating loss for the three months ended October 31, 2023, was $0.799 million, an increase of $0.399 million or 100%, compared to $0.400 million for the three months ended October 31, 2022.
Non-GAAP Adjusted EBITDA income for the three months ended October 31, 2023, was $0.733 million, a decrease of $0.062 million or 8%, compared to non-GAAP Adjusted EBITDA income of $0.795 million for the three months ended October 31, 2022.
Non-GAAP Adjusted EBITDA - OPCO income for the three months ended October 31, 2023, was $1.204 million, excluding corporate expenses, and all non-cash items and one-time transactional expenses, a decrease of $0.071 million or 6%, compared to a non-GAAP Adjusted EBITDA - OPCO income of $1.275 million for the three months ended October 31, 2022.
Net loss attributable to Digerati's common shareholders for the three months ended October 31, 2023, was $4.085 million, a decrease of $0.903 million or 18%, compared to a net loss attributable to Digerati's common shareholders of $4.988 million, for the three months ended October 31, 2022. The resulting Earnings Per Share loss for the three months ended October 31, 2023, was ($0.03), as compared to Earnings Per Share loss of ($0.03) for the three months ended October 31, 2022.
As of October 31, 2023, Digerati had $0.946 million in cash.
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. Non-GAAP Adjusted EBITDA income 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 non-GAAP Adjusted EBITDA income 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 non-GAAP Adjusted EBITDA income as one of several financial measures to assess its operating performance, its use is limited as it excludes certain significant operating expenses. Non-GAAP Adjusted EBITDA - OPCO income 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, non-GAAP Adjusted EBITDA income, and Non-GAAP Adjusted EBITDA - OPCO income 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 ["we believe we have built a reliable and valuable platform in which to stack additional acquisitive and organic growth"] 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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Investors
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| Reconciliation of Net Loss to Adjusted EBITDA | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||
| Three Months ended October 31, | |||||||||||||||||||
| 2023 | 2022 | Variances | % | ||||||||||||||||
| OPERATING REVENUES: | |||||||||||||||||||
| Cloud-based hosted services | $ | 7,654 | $ | 8,130 | $ | (476 | ) | -6 | % | ||||||||||
| Total operating revenues | 7,654 | 8,130 | (476 | ) | -6 | % | |||||||||||||
| Cost of services (exclusive of depreciation and amortization) | 2,551 | 2,851 | (300 | ) | -11 | % | |||||||||||||
| Selling, general and administrative expense | 4,177 | 4,118 | 59 | 1 | % | ||||||||||||||
| Stock compensation expense | 12 | 23 | (11 | ) | -48 | % | |||||||||||||
| Legal and professional fees | 973 | 556 | 417 | 75 | % | ||||||||||||||
| Bad debt | 57 | 29 | 28 | 97 | % | ||||||||||||||
| Depreciation and amortization expense | 683 | 953 | (270 | ) | -28 | % | |||||||||||||
| Total operating expenses | 8,453 | 8,530 | (77 | ) | -1 | % | |||||||||||||
| OPERATING LOSS | (799 | ) | (400 | ) | (399 | ) | 100 | % | |||||||||||
| OTHER INCOME (EXPENSE): | |||||||||||||||||||
| Gain (loss) on derivative instruments | (612 | ) | (3,076 | ) | 2,464 | -80 | % | ||||||||||||
| Other income (expense) | - | 446 | (446 | ) | -100 | % | |||||||||||||
| Interest expense | (3,041 | ) | (2,065 | ) | (976 | ) | 47 | % | |||||||||||
| Income tax expense | (28 | ) | (50 | ) | 22 | -44 | % | ||||||||||||
| Total other income (expense) | (3,681 | ) | (4,745 | ) | 1,064 | -22 | % | ||||||||||||
| NET INCOME (LOSS) | (4,480 | ) | (5,145 | ) | 665 | -13 | % | ||||||||||||
| Less: Net loss attributable to the noncontrolling interests | 395 | 161 | 234 | 145 | % | ||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S SHAREHOLDERS | $ | (4,085 | ) | $ | (4,984 | ) | $ | 899 | -18 | % | |||||||||
| Deemed dividend on Series A Convertible preferred stock | - | (4 | ) | 4 | -100 | % | |||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S COMMON SHAREHOLDERS | $ | (4,085 | ) | $ | (4,988 | ) | $ | 903 | -18 | % | |||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA - OPCO, Net of Non-Cash Expenses & Transactional Costs. | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO DIGERATI'S SHAREHOLDERS, as reported | $ | (4,085 | ) | $ | (4,984 | ) | $ | 899 | -18 | % | |||||||||
| EXCLUDING NON-CASH ITEMS TRANSACTIONAL COSTS & CORP EXP | |||||||||||||||||||
| ADJUSTMENTS: | |||||||||||||||||||
| Stock compensation & warrant expense | 12 | 23 | (11 | ) | -48 | % | |||||||||||||
| Corp Expenses (Net of stock compensation, Legal fees & Transactional cost) | 471 | 480 | (9 | ) | -2 | % | |||||||||||||
| Legal, professional fees & transactional costs | 837 | 219 | 618 | 282 | % | ||||||||||||||
| Depreciation and amortization expense | 683 | 953 | (270 | ) | -28 | % | |||||||||||||
| OTHER ADJUSTMENTS | |||||||||||||||||||
| Gain (loss) on derivative instruments | 612 | 3,076 | (2,464 | ) | -80 | % | |||||||||||||
| Other income (expense) | - | (446 | ) | 446 | -100 | % | |||||||||||||
| Interest expense | 3,041 | 2,065 | 976 | 47 | % | ||||||||||||||
| Income tax expense | 28 | 50 | (22 | ) | -44 | % | |||||||||||||
| Less: Net loss attributable to the noncontrolling interests | (395 | ) | (161 | ) | (234 | ) | 145 | % | |||||||||||
| ADJUSTED EBITDA - OPCO | $ | 1,204 | $ | 1,275 | $ | (71 | ) | -6 | % | ||||||||||
| ADD-BACKS Expenses | |||||||||||||||||||
| Corp Expenses (Net of stock compensation, Legal fees & Transactional cost) | 471 | 480 | (9 | ) | -2 | % | |||||||||||||
| ADJUSTED EBITDA - INCOME | $ | 733 | $ | 795 | $ | (62 | ) | -8 | % | ||||||||||
