Digerati Technologies Inc., a San Antonio-based cloud and communication services company, plans to move its stock listing to the Nasdaq Stock Market from the over-the-counter market in the first quarter of next year.
Digerati said it’s been difficult to raise capital on the OTC and that listing its stock on Nasdaq would provide it with more access to money to grow its business through its acquisition game plan.
“There’s a lot of challenges with the currency on the OTC market right now. It’s not a primary exchange or currency that typically sellers of a transaction want to hold,” CEO Arthur Smith said. “This uplist transaction is important to what we’re doing overall strategically.”
Digerati announced its uplist timeline after reporting that revenue jumped to $8.1 million in its fiscal 2023 first quarter, which ended Oct. 31 — up 115 percent from a year ago. It also reported a net loss of nearly $5 million, down from a net income of $2.4 million in the same quarter last year.
Digerati attributed the revenue gains during the recent quarter to its acquisitions of NextLevel Internet, a Miami-based business communication company, in February, and San Antonio-based service provider SkyNet Telecom in December 2021.
Digerati grew to 4,565 customers from 2,658 over the past year in Texas, Florida and California. It has nearly 100 employees with ongoing plans to hire more staff to meet incoming demand.
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Smith set a general target date for the uplisting after it executed a merger with Minority Equality Opportunities Acquisition Inc., or MEOA, on Oct. 30.
MEOA, based in Waxahacie, said it’s the first minority-led special-purpose acquisition company, or SPAC, to list on Nasdaq with the mission of executing a business combination with a minority-owned, -led or -founded business.
A SPAC raises money through an initial public offering to fund an existing company that can benefit from more capital and merging with it. They’re also known as blank-check companies.
Digerati, which has a market capitalization of $14.6 million, said the transaction will result in a $105 million enterprise valuation for the company. The transaction has been approved by the boards of directors of Digerati and MEOA. It’s expected to close in first quarter 2023, pending approval from shareholders, the Securities and Exchange Commission and Nasdaq.
In a statement Friday, Digerati Chief Financial Officer Antonio Estrada said the company recently closed on a $1.5 million financing — “which provides us with the capital necessary to close our Nasdaq listing transaction with MEOA that includes fees for extending the SPAC, as well as attorney and audit expenses.”
A game plan
Digerati competes in a tech industry that includes cloud-based phone, video and messaging services — referred to as universal communications as a service, UCaaS or “u-cass.”
The global UCaaS market, Smith has said, is projected to reach about $170 billion by 2027, up from $38.7 billion.
Smith believes that Digerati has the ability to “capture a sliver” of the fragmented industry through mergers and acquisitions, a strategy that relies on moving to Nasdaq.
He spoke highly about the birth of Rackspace Technology Inc., a cloud computing company that has become the largest tech company in San Antonio.
“Rackspace didn’t invent anything new,” he said. “Although we don’t tend to compete against Rackspace, it’s the same concept. We haven’t invented anything new. We’ve taken technology that’s off the shelf. We’ve licensed technology. And we built a network and an infrastructure to support our customers.”
Smith also noted his admiration for Clear Channel Outdoor Holdings Inc., a San Antonio-based billboard and advertising company.
“They grew through acquisitions,” he said. “They were able to buy radio stations in local markets throughout the United States and roll those up and consolidate. It’s similar to our strategy. We’re consolidating local regional providers that allows local regional touch in the markets we serve in a particular area, whether it’s Texas, Florida or California.”
Digerati on the rise
Digerati was launched in 1994 as ATSI Communications Inc., an international telecommunications operator that served markets in Latin America. The company traded on what was then called the American Stock Exchange — now the NYSE American — under its former name.
Two years later, it launched GlobalSCAPE Inc., an internet software company that was acquired in 2020 by HelpSystems, a Minnesota-based software company.
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In June 2021, it entered a partnership with Sandler Partners, a fast-growing business communications company headquartered in Redondo Beach, Calif. In November 2020, it acquired two Florida-baed business communication companies, Nexogy and ActivePBX.
Long an earnings laggard, Digerati said its business grew through the COVID-19 pandemic as demand increased among small businesses for its cloud computing and communication services.
It generated $24.2 million in revenue for fiscal 2022, up 95 percent from the previous year, while cutting its net loss nearly in half to $8 million.
As of noon on Thursday, Digerati was trading on the OTC market at about 10 cents per share.
eric.killelea@express-news.net