– Non-GAAP Operating EBITDA of $0.591 Million –
– Gross Profit of $2.466 Million –
– Strong Gross Margin Improvement to 61.4% –
SAN ANTONIO, March 18, 2022 (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 January 31, 2022, the Company’s second quarter for its Fiscal Year 2022.
Key Financial Highlights for the Second Quarter Fiscal Year 2022 (Ended January 31, 2022)
- Revenue increased by 21% to $4.019 million compared to $3.326 million for Q2 FY2021.
- Gross profit increased 30% to $2.466 million compared to $1.892 million for Q2 FY2021.
- Gross margin increased to 61.4% compared to 56.9% for Q2 FY2021.
- Non-GAAP Adjusted EBITDA income was $0.209 million, excluding all non-cash items and one-time transactional expenses, compared to Adjusted EBITDA income of $0.251 million for Q2 FY2021.
- Non-GAAP operating EBITDA (OPCO EBITDA) improved to income of $0.591 million, excluding corporate expenses, all non-cash items and one-time transactional expenses, compared to a non-GAAP operating EBITDA of $0.451 million for Q1 FY2022.
Arthur L. Smith, CEO of Digerati, commented, “We had a very active quarter highlighted by our closing of the SkyNet Telecom acquisition, which expands our footprint in Texas for our cloud communication and broadband solutions for businesses. During the first week of February and immediately following our second quarter, we closed our acquisition of NextLevel Internet, which expands our cloud communications and broadband solutions to the west coast, specifically California. We now serve over 4,000 business customers and approximately 45,000 users, predominantly in Florida, Texas and California.”
Smith continued, “We’d like to give a special acknowledgement and thanks to our acquisition financing partner, Post Road Group, who has shared in our vision of strategic accretive acquisitions, as we capitalize on opportunities in a very fragmented market. We have our sights set on increased profitability and enhanced shareholder value as we continue working towards our corporate goal of listing our common stock on a national securities exchange.”
Antonio Estrada, CFO of Digerati, stated, “Our team continues to execute on plan, as we integrate these acquisitions and streamline operations and costs more efficiently. This is evident with our 30% increase in gross profit that outpaced our revenue growth for the quarter. Another key financial metric trending in a favorable direction is our SG&A as a percentage of revenue that decreased from 59% to 53% and demonstrated the improved scalability of our platform. Of note, our increase in operating loss was due to one-time legal and professional fees associated with the acquisitions of Skynet Telecom and NextLevel Internet. Additionally, our increase in net loss was primarily due to the non-cash increase in derivative loss and non-cash increase in loss on extinguishment of debt.”
Estrada continued, “It is important to be clear that our acquisition strategy has in fact increased our profitability, which is demonstrated in our reporting Non-GAAP Adjusted EBITDA and Non-GAAP Operating EBITDA. Currently, our operating subsidiaries in the aggregate are expected to generate approximately $31.5 million in annual revenue, and our latest and largest acquisition to-date, NextLevel, is expected to have a positive impact on the consolidated EBITDA and operating income of the Company during FY2022.”
Three Months ended January 31, 2022 Compared to Three Months ended January 31, 2021
Revenue for the three months ended January 31, 2022 was $4.019 million, an increase of $0.693 million or 21% compared to $3.326 million for the three months ended January 31, 2021. 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 the acquisitions of Nexogy and ActivePBX during FY2021. Our total number of customers increased from 2,583 for the three months ended January 31, 2021, to 2,960 customers for the three months ended January 31, 2022.
Gross profit (revenues minus cost of services excluding depreciation and amortization) for the three months ended January 31, 2022 was $2.466 million, resulting in a gross margin of 61.4%, compared to $1.892 million and 56.9% for the three months ended January 31, 2021. The increase in gross margin is primarily due to the addition of high-margin revenue associated with Nexogy’s and ActivePBX’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 January 31, 2022 increased by $0.162 million, or 8%, to $2.127 million compared to $1.965 million for the three months ended January 31, 2021. The increase in SG&A is attributed to the acquisition of Skynet in December 2021 and the acquisitions of Nexogy and ActivePBX during FY2021. As part of the consolidation, the Company absorbed all of the employees responsible for managing the customer base, technical support, sales, customer service, and administration.
Operating loss for the three months ended January 31, 2022, was $1.319 million, an increase of $0.555 million or 73%, compared to $0.764 million for the three months ended January 31, 2021. The increase in operating loss between periods is primarily due to the increase in legal fees of $920,000.
Adjusted EBITDA income for the three months ended January 31, 2022, was $0.209 million, compared to an adjusted EBITDA income of $0.251 million for the three months ended January 31, 2021. 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 January 31, 2022. Company recognition of stock-based compensation and warrant expense of $0.023 million and depreciation and amortization expense of $0.481 million. Loss on derivative instruments was $3.425 million for the three months ended January 31, 2022.
Non-GAAP operating EBITDA (OPCO EBITDA) for the three months ended January 31, 2022 improved to income of $0.591 million, excluding corporate expenses, and all non-cash items and one-time transactional expenses, compared to a Non-GAAP operating EBITDA (OPCO EBITDA) income of $0.451 million for the three months ended January 31, 2021.
Net loss for the three months ended January 31, 2022, was $11.047 million, an increase of $9.092 million, as compared to a net loss of $1.955 million, for the three months ended January 31, 2021. The resulting EPS loss for the three months ended January 31, 2022 was ($0.08), as compared to a loss of ($0.02) for the three months ended January 31, 2021. The increase in net loss is primarily due to the increase in derivative loss of $3.265 million, increase in loss on extinguishment of debt of $5.480 million and the increase of $0.920 million in legal and professional fees.
On January 31, 2022, Digerati had $2.844 million of 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. 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 subsidiaries T3 Communications (T3com.com), Nexogy (Nexogy.com), SkyNet Telecom (Skynettelecom.net) and NextLevel Internet (nextlevelinternet.com), 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 generating annual revenue of $31.5 million, the acquisition opportunities in a very fragmented market, and working towards our corporate goal of listing our common stock on a national securities exchange, 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
The Eversull Group
Jack Eversull
jack@theeversullgroup.com
(972) 571-1624
ClearThink
Brian Loper
bloper@clearthink.capital
(347) 413-4234
| Reconciliation of Net Loss to Adjusted EBITDA | |||||||||||||||||||
| DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES | |||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||
| (In thousands, except per share amounts, unaudited) | |||||||||||||||||||
| Three months ended January 31, | Six months ended January 31, | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| OPERATING REVENUES: | |||||||||||||||||||
| Cloud software and service revenue | $ | 4,019 | $ | 3,326 | $ | 7,796 | $ | 4,878 | |||||||||||
| Total operating revenues | 4,019 | 3,326 | 7,796 | 4,878 | |||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization) | 1,553 | 1,434 | 3,042 | 2,182 | |||||||||||||||
| Selling, general and administrative expense | 2,127 | 1,965 | 3,915 | 2,976 | |||||||||||||||
| Legal and professional fees | 1,175 | 255 | 1,749 | 513 | |||||||||||||||
| Bad debt | 2 | 4 | 15 | 4 | |||||||||||||||
| Depreciation and amortization expense | 481 | 432 | 974 | 593 | |||||||||||||||
| Total operating expenses | 5,338 | 4,090 | 9,695 | 6,268 | |||||||||||||||
| OPERATING LOSS | (1,319 | ) | (764 | ) | (1,899 | ) | (1,390 | ) | |||||||||||
| OTHER INCOME (EXPENSE): | |||||||||||||||||||
| Gain (loss) on derivative instruments | (3,425 | ) | (160 | ) | 1,009 | 18 | |||||||||||||
| Loss on extinguishment of debt | (5,480 | ) | – | (5,480 | ) | – | |||||||||||||
| Gain (loss) on settlement of debt | – | 197 | – | 197 | |||||||||||||||
| Income tax benefit (expense) | (41 | ) | (51 | ) | (119 | ) | (59 | ) | |||||||||||
| Other income (expense) | 1 | – | (2 | ) | – | ||||||||||||||
| Interest expense | (1,380 | ) | (1,202 | ) | (2,887 | ) | (1,502 | ) | |||||||||||
| Total other income (expense) | (10,325 | ) | (1,216 | ) | (7,479 | ) | (1,346 | ) | |||||||||||
| NET LOSS INCLUDING NONCONTROLLING INTEREST | (11,644 | ) | (1,980 | ) | (9,378 | ) | (2,736 | ) | |||||||||||
| Less: Net loss attributable to the noncontrolling interests | 602 | 30 | 760 | 65 | |||||||||||||||
| NET LOSS ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS | (11,042 | ) | (1,950 | ) | (8,618 | ) | (2,671 | ) | |||||||||||
| Deemed dividend on Series A Convertible preferred stock | (5 | ) | (5 | ) | (10 | ) | (10 | ) | |||||||||||
| NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS | $ | (11,047 | ) | $ | (1,955 | ) | $ | (8,628 | ) | $ | (2,681 | ) | |||||||
| LOSS PER COMMON SHARE – BASIC | $ | (0.08 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.02 | ) | |||||||
| LOSS PER COMMON SHARE – DILUTED | $ | (0.08 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.02 | ) | |||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC | 139,203,973 | 122,706,601 | 138,963,449 | 121,578,716 | |||||||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – DILUTED | 139,203,973 | 122,706,601 | 138,963,449 | 121,578,716 | |||||||||||||||
| See notes to consolidated unaudited financial statements | |||||||||||||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA – OPCO, Net of Non-cash expenses & Transactional Costs. | |||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS, as reported | $ | (11,042 | ) | $ | (1,950 | ) | $ | (8,618 | ) | $ | (2,671 | ) | |||||||
| EXCLUDING NON-CASH ITEMS TRANSACTIONAL COSTS & CORP EXP | |||||||||||||||||||
| ADJUSTMENTS: | |||||||||||||||||||
| Stock compensation & warrant expense | 23 | 381 | 47 | 724 | |||||||||||||||
| Corp Expenses (Net of stock compensation & Transactional cost) | 382 | 200 | 757 | 384 | |||||||||||||||
| Legal and professional fees – transactional costs | 1,022 | 198 | 1,389 | 378 | |||||||||||||||
| Depreciation and amortization expense | 481 | 432 | 974 | 593 | |||||||||||||||
| Bad Debt | 2 | 4 | 15 | 4 | |||||||||||||||
| OTHER ADJUSTMENTS | |||||||||||||||||||
| Loss on derivative instruments | 3,425 | 160 | (1,009 | ) | (18 | ) | |||||||||||||
| Loss on extinguishment of debt | 5,480 | – | 5,480 | – | |||||||||||||||
| Gain (loss) on settlement of debt | – | (197 | ) | – | (197 | ) | |||||||||||||
| Other income (expense) | (1 | ) | – | 2 | – | ||||||||||||||
| Interest expense | 1,380 | 1,202 | 2,887 | 1,502 | |||||||||||||||
| Income tax | 41 | 51 | 119 | 59 | |||||||||||||||
| Less: Net loss attributable to the noncontrolling interest | (602 | ) | (30 | ) | (760 | ) | (65 | ) | |||||||||||
| ADJUSTED EBITDA – OPCO | $ | 591 | $ | 451 | $ | 1,283 | $ | 693 | |||||||||||
| ADD-BACKS Expenses | |||||||||||||||||||
| Corp Expenses net of stock compensation & Transactional cost | 382 | 200 | 757 | 384 | |||||||||||||||
| ADJUSTED EBITDA – INCOME | $ | 209 | $ | 251 | $ | 526 | $ | 309 | |||||||||||
