Digerati Technologies, Inc.

What they do

Digerati operates through its subsidiaries—Verve Cloud Nevada, Verve Cloud Texas, T3 Communications, Nexogy, and NextLevel Internet—collectively known as Verve Cloud, offering unified communications as a service (UCaaS) and broadband connectivity. Its UCaaS products include hosted IP PBX, video conferencing, mobile applications, VoIP transport, and SIP trunking. Broadband services include internet, fiber, mobile broadband, and software-defined wide area network (SD WAN) solutions. The company targets SMBs with monthly subscription-based services.

Revenue drivers

• UCaaS and cloud communications — Provides hosted IP PBX, VoIP, SIP trunking, and video conferencing to SMBs on a monthly subscription basis. This is the primary revenue source, with cloud software and service revenue increasing 31% in fiscal 2023 to $31.6 million.
• Broadband connectivity — Offers internet, fiber, mobile broadband, and SD WAN solutions designed to support cloud communications and other business applications. This segment complements the UCaaS offerings and contributes to recurring revenue.
• Customer base growth — Revenue growth has been driven by acquisitions (Skynet in December 2021, Next Level Internet in February 2022) and an increase in total customers from 4,023 in fiscal 2022 to 4,671 in fiscal 2023.

Recent performance

For fiscal year 2023, revenue was $31.6 million, up 31% from $24.2 million in fiscal 2022, driven by acquisitions and customer growth. Net loss was $8.3 million, and operating cash flow was negative $3.2 million. In the first nine months of fiscal 2024, quarterly revenue declined slightly from $7.7 million in July 2023 to $7.4 million in April 2024. The company reported total assets of $37.2 million, total liabilities of $81.0 million, and shareholder equity of negative $38.8 million as of April 30, 2024.

Strategy

Management's strategy focuses on integrating acquired companies to consolidate products and services, retain monthly recurring revenue, and provide customer support. The company emphasizes a 'local' touch for sales and support to differentiate from national providers. As of June 1, 2023, all operating subsidiaries were consolidated under the Verve Cloud name. The company seeks to capitalize on the migration from legacy telephone networks to cloud-based communications.

Risks

• Going concern and liquidity — The company has a history of operating losses and negative operating cash flow, and its CEO took a medical leave of absence, raising substantial doubt about its ability to continue as a going concern.
• High leverage — Total liabilities of $81.0 million exceed total assets of $37.2 million, resulting in negative shareholder equity of $38.8 million as of April 30, 2024.
• Past due promissory notes — The company has received default notices on past due promissory notes, and lack of liquidity could lead to further defaults or acceleration of obligations.
• Terminated business combination — The proposed business combination with MEOA was terminated on June 15, 2023, after Nasdaq halted trading of MEOA securities, eliminating a potential source of capital and liquidity.

Outlook

Management does not provide specific guidance. The company faces significant liquidity challenges and has stated that its ability to continue operations depends on raising sufficient capital. It remains focused on integrating acquisitions and growing its customer base.