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Operator: Greetings and welcome to the SurgePays Inc. Fourth Quarter and 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Brian Prenoveau with Investor Relations. Thank you, Brian. You may begin.

Brian Prenoveau: Thank you, operator. Good afternoon, everyone. Welcome to the SurgePays fourth quarter 2022 earnings webcast and conference call. Today’s date is March 30, 2023, and on the call today from SurgePays are Brian Cox, President, Chief Executive Officer, and Tony Evers, Chief Financial Officer. Before we begin, we’d like to let everybody know that the press release is in queue. The wire service is a bit backed up, a bit of a log jam, but we have been notified that it should be out momentarily. So you should see anything necessary in the next few minutes. Before we begin, I’d like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995.

These statements are subject to a certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see SurgePays recent filings with the SEC. All forward-looking statements may today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call. Also, during the course of today’s call, the company will be discussing one or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and Form 10-K. Copies of today’s press release will be accessible on SurgePays’ Investor Relations website at ir.surgepays.com.

In addition, SurgePays’ Form 10-K for the year ended December 31, 2022 is also available on SurgePays’ Investor Relations website. And now I’d like to turn the call over to President and Chief Executive Officer, Brian Cox.

Brian Cox: Thanks Brian. The fourth quarter of 2022 feels like a lifetime ago. So I want to remind our listeners of some important items announced in our last quarter. We announced that we had eclipsed 200,000 subscribers in our wireless business through the Affordable Connectivity Program, or ACP. We announced the addition of Jeremy Gies as President of SurgePays Fintech. Adding Jeremy has ignited our efforts to grow our convenience store network, which will take on an increased importance in 2023 as I will discuss. Jeremy is playing the lead role in expanding store count as we build our business for sustained growth and expansion. We announced the closing of a senior credit facility on November 18. This dedicated financing allows us to move away from ordering tablets on the high cost secondary market and order direct from the manufacturer.

Going direct reduces our per device cost over 20% and allows us to utilize our financing facility more cost efficiently. I think it’s important to state that switching from real time spot buying devices on the secondary market to purchasing, manufacturing, and the shipping logistics of buying direct from the factory overseas, did force us momentarily to take our foot off the gas, no different than shifting gears in order to accelerate at a higher velocity. For example, we were faced with the decision of air versus ocean freight. The timing for ocean was an additional 35 days difference, but the cost savings averaged over $35,000 per staged shipment, of which there were 13 shipments. When forced to choose between optimizing the appearance of growth or maximizing the present value of current and future cash flows, we’ll always choose the cash flows.

I’m happy to say these shipments started arriving in March and are now in a rhythm. A dedicated staff of 40 people are now managing the activation, distribution and fulfilment of our inventory. During this transition, we did grow our wireless base, but at a controlled and disciplined pace to minimize overpaying for devices simply to attain subscriber numbers, we believe we will ultimately achieve either way. In December, we announced the resignation of Jay Jones from our Board of Directors in the election of Lori Weisberg and Rich Sheffield. This announcement will be a boon to SurgePays, as we continue to scale the company. Jay resigned as an independent board member only to move into a closer advisory role where he will work with us and the company senior management.

Lori and Rich are either current or former CEOs with extensive executive experience in the tech and telecom industries. In addition to operational expertise in their respective fields, Lori and Rich bring invaluable next level familiarity with the critical legal and governance issues we expect as SurgePays continues to grow. Subsequent to year end, in February, 2023, we announced a new distribution agreement with Capital Candy, a family-owned wholesale distributor to convenience stores in New England. The agreement with Capital Candy will allow SurgePays to sell our prepaid telecom and financial products for the underbanked, including ACP signups into over 3,000 convenience stores. It’s deals like these where we start to see the impact of adding someone like Jeremy Gies to our team.

As a matter of fact, we recently added another 20-year veteran to the team as VP of Sales, directly reporting to Jeremy to assist in working through a funnel of over 35 more partnerships, integrations and similar agreements with several of those being 10 times the number of convenience stores. In the fourth quarter, revenue exceeded $36 million, a one and a 1.5 times increase compared to last year and we exited 2022 with $144.8 million revenue run rate. 2022 revenue increased by 138% compared to 2021 and it’s important to note that this was during the timeframe where sales were intentionally throttled by management to grow without dilution. The discipline growth plan we laid out earlier this year will be rewarded with continued revenue growth, profitability and increased shareholder value.

As previously discussed, due to us taking the foot off the gas to shift to buying devices direct, the fourth quarter clarifies that SurgePays generates a lot of cash when it doesn’t have to expense customer acquisitions fully upfront, and much more of our revenue reached the bottom line with a net gain of $3 million. Looking forward, we’re excited about the earnings potential of SurgePays. I have been providing prepaid telecom products to the underbanked community through convenience stores for 20 years, and I’ve never seen the response like what we’re seeing in our beta testing for in-store ACP signups; not just from the customer’s response inside of a store that sees a poster or sticker, but from the store owner’s willingness to sign on with us, which gives us access to offer all of our FinTech and prepaid wireless products for the under bank through his store.

If a customer is on SNAP, EBT, they qualify for ACP. In many cases, the SNAP benefits are used at the store closest to the residents, which is usually the convenience store. Our store owners already have a good idea of their subsidized customer base and immediately are realizing the potential. Also, by enrolling a customer from a brick and mortar store versus a pop-up tent, we anticipate retention will be higher if the customer knows where he can go to get help if needed, and the store owner is making a residual commission, so he has a vested interest to make sure these subscribers remain active and happy. Ultimately, it is our goal to utilize the ACP program to gain access to tens of thousands of convenience stores nationwide and maximize those relationships by deploying our entire suite of prepaid and FinTech products for the underbanked.

The early data is really encouraging and we anticipate this being a major revenue growth driver across several verticals. To further prepare for this growth, we’ve more than doubled our bilingual sales, support and back office team at our operations center in in El Salvador, where we now have over 200 people strong. As I sit back and visualize how I see the model unfolding, being able to watch both main revenue channels grow in synergy, spearheaded by experienced sales leaders, this is really electric for me. Now is the time where we work aggressively to build the foundation for a multi-billion dollar revenue company, serving millions of subscribers and tens of thousands of convenience stores with operational excellence and value-minded efficiency.

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to add convenience stores to our network and leverage those stores as points of distribution into the underbanked community. The larger our national network of stores, the more powerful our economic model and more viable platform for an M&A strategy in the near future. We believe increasing our network of stores can translate directly to higher revenue, higher profitability, and correspondingly stronger returns on invested capital. We continue to focus on managing our cash flow and deploying, excuse me, deploying that cash best. I generally look at current assets as a gauge of where we’ve been, where we are and where we want to be.

Accounts receivable have increased throughout the year from $3.2 million at the end of 2021 to $9.2 million at the end of 2022 with $7 million of cash. Turning to guidance for 2023, we believe leveraging new alignments with distributors and additional in-store ACP signups will allow SurgePays to generate revenues of at least $190 million. We expect first quarter revenues to be relatively in line with fourth quarter 2022, given that our devices started arriving in March. We anticipate growth accelerating quickly the remainder of the year. We expect 13,000 stores to be operating on the SurgePays network and expect to see positive operating cash flow during the year. I’ll turn the call over to Tony to briefly review our financial results, before summarizing today’s call.

Tony?

Tony Evers: Thank you, Brian, and good afternoon, everyone. I’ll begin my overview of the fourth quarter and full year’s financial results. For the quarter, we reported revenues of $36.2 million compared to $23.3 million in the fourth quarter of ’21, representing an increase of 155%. During 2022, we reported revenues of $121.5 million, an increase of 138% over the prior 12-month period. The increased sales for the year were primarily attributable to subscriber growth and our mobile broadband business. Gross profit increased 272% in the fourth quarter to $6.7 million compared to $2.5 million in the same period a year ago. Gross profit for the year increased 118% to $13.5 million compared to $11.4 million of prior year. SG&A expenses increased by 4.4% during the year.

The increase was primarily driven by one-time bonuses paid to various management personnel and increased insurance expense related to the NASDAQ uplifting. Income from operations were positive for the year at $0.6 million compared to a loss of $6 million in the prior year. Net loss for the year was $0.7 million, or a loss of $0.05 per share, compared to a net loss of a $13.5 million or a loss of $3.09 per share last year. Of the $7 million loss, 2022 included much lower interest expenses than the prior year and certain non-recurring items including $89,000 loss in the investment in Centrecom, a $336,000 gain on the PPP loan and $115,000 loss from amortization of debt discount. EBITDA for the year was $2.5 million compared to a negative $5.1 million in 2021.

In the fourth quarter, EBITDA was positive $4.1 million compared to $3.5 million in the fourth quarter of 2021. Turning to the balance sheet, liquidity and cash flow, our cash balance as of December 31, was $7 million compared to $6.3 million at the end of ’21. Account receivable have increased by over $7 million from year end ’21 to $2.92 million. The receivable is from the US Government for the mobile broadband subsidy. Payment usually occurs approximately 30 days to 60 days after a new customer is verified and signed up. Given our strength in financial position, higher cash balance and capital structure, our cash allocation priorities focus on increasing the business, investing in the business, and maintaining ample liquidity for future growth.

I’ll now pass the call back to Brian for some closing remarks. Brian?

Brian Cox: Thanks Tony. We couldn’t be more excited about the opportunities ahead. It’s encouraging to know we have a value differentiating business model that has only begun to show its true potential. The foundation we are building today could set the company on a trajectory that’s limited only by our imagination. The past year’s successes and I believe our future successes are the product of a talented, smart and hardworking group of folks and I take a lot of pride and I’m thankful for being a part of this great SurgePays team, who are all working to build something important. Lastly, I greatly appreciate the support and interest of our shareholders as we continue this growth journey. We will now open the call for questions. Operator? Question-and-Answer Session

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Operator: Thank you, sir. We will now be conducting a question-and-answer session. And the first question comes from the line of Michael Diana with Maxim Group. Please proceed with your question.

Michael Diana: Hey, thank you. Hey Brian. So, is this the way, I heard you about how late the new tablets arrived. You had been talking about surpassing the 500,000 customer, ACP customer mark. Is that still a 2023 event or it does in fact get pushed out some.

Brian Cox: Hey, Michael. No, I appreciate the question. No, absolutely. That’s still a 2023 event and if there was not, as Brian P mentioned, the log jam and the press release, you’d see that, in the press release as well. But no, that’s absolutely a part of where we see the growth trajectory going this year. As a matter of fact, I think we’ve put it out there a couple of times this initial PO round of tablets that are coming in 15,000, 20,000 at a time was over 300,000 devices. So we’re definitely prepped and ready to get that get that rolling up. What’s interesting is this, I don’t want to call it a pause. It was strategic. We looked at attrition and we wanted to make sure in ad every month. We’re very careful about it and just, as I said before, I didn’t want to overspend on tablets when I knew we could get them a couple of months later at a much better rate.

So what we did was, give me just a second. In doing so, we were able to spend a little bit more time developing, looking internally, negotiating with carriers, looking at our software. So it did give us a couple of moments to spend to plan and prepare, retrain and cross train our folks down in our operations center. So we didn’t just sit idly by and twiddle our thumbs, I want to make sure everybody knows that. We’re working our tails off in preparation, so that we could still go beyond the numbers that we expect to hit this year without hitting any plateaus.

Michael Diana: Okay, great. And I know it’s probably impossible to answer this, but given the growth of the stores as a sales point for the ACP, like in the fourth quarter, what percentage would you say of your new customers in the fourth quarter could come through the stores?

Brian Cox: That’s going to be a good guess, Michael, my hope, let’s say you what, let me replace the word used, let me replace I hope. I hope we maintain our field sales level. Now that’s a more expensive customer acquisition, but it’s a good baseline of incoming sales force. So we want to maintain that, not necessarily just exploding the outdoor field sales. That’s where a lot of competition is, and that’s where we feel like a lot of the attrition is when a tent moves into town, is there for two weeks, and then goes on and is out of town, and then somebody else comes in four weeks — four months from now. So we do feel like that that contributes to a little bit of the attrition, but it definitely was one of the drivers to get us here.

So we want to keep that baseline. The store acquisition cost is about 80% less than the field sale acquisition. So from a cash flow standpoint, we would hope you would start seeing a significant skew of our sales coming from the store because of the — we’re paying such a lower upfront cost for acquiring that customer because that store owner doesn’t need the money to travel, pay hotels, pop up tents, and their livelihood is depending on that one commission. They’re a store. This is an add-on product for them. So it’s a different dynamic and I feel it’s a far better model for us to sustain long term and we’re the only company, excuse me, we’re the only ACP company that’s able to do this through the stores because we’re the only ACP company that owns a software platform that does FinTech transactions and convenience stores.

So we want to get out there very quickly. We want to leverage, it’s not even a competitive advantage because we really don’t have competitors specifically in this channel. We want to land rush this thing as hard as we can. That’s why I’ve, basically given Jeremy the green light to bring on as many sales folks as he needs to manage the sales funnel, get all of these deals on board, everything from California to New England, all the way down to Florida. We’ve got various integrations going all over the country. So we definitely expect to see those numbers continue to skew. And it’s my hope that you’re looking at 70%, 80%-plus by the fourth quarter of our sales coming from the stores.

Michael Diana: And as part of your guidance, I think you said you expect to have more than 13,000 stores by the end of the year. Is that the right number?

Brian Cox: That’s the number we’re going to go with right now. My hope is that it’s beyond that number, but we want to put out a good number that we feel we can attain. Yes.

Michael Diana: Okay. Great. Thanks Brian.

Operator: And the next question comes from the line of Ed Woo with Ascendiant Capital. Please proceed with your question.

Ed Woo: Yes. Congratulations on a tremendous growth this year. I think I’ve asked in the past about how your business is a little bit countercyclical. It’s obviously, the consumers that you guys are targeting will have to look for increased opportunity to save money. Have you seen any significant changes in your customer base in the past three months? Whether people are moving down in economic ladder at all?

Brian Cox: That’s an interesting question. That’s one of those that’s going to take us a little while to see. I don’t know that it’s such an instant impact. Now, I will say this. The federal government when it comes to ACP has, definitely made it, I don’t want to say made it easier, that’s not the right phrase, but they’re putting an emphasis on the program. They put a lot of grants out for companies to promote it into areas where there’s not an awareness or not companies making an effort to sign folks up. So we know that the program’s being a success, but as far as the kind of call it the macroeconomic global impact of everything that’s going on in the world, people falling into our category, I don’t know that we’d be able to directly see that.

And the reason is, we’re at such a hyper-growth type arena, we basically are pushing out all of the devices we have. So I think you almost have to get to that edge of slowing down your growth to see, oh, hey, there’s a new group that came in. So now our growth, we got a blip. We’re able to grow so fast right now, I don’t know that we would see or can see that the market has expanded. Now we definitely know that there’s millions of potential customers out there, and one of the things, without getting way off in the weeds, one of the things that I’m passionate about is using one of the — using the ACP to get in the stores as we’ve talked about, but also keep in mind every one of these subscribers that we sign up is using talk text and data. Well, that’s building a relationship with the carriers; that’s ultimately giving us more leverage to better negotiate with the carriers on pricing.

So that’s going to give us the opportunity to now come back to the market, use these same convenience stores, use the same equipment that’s on the accounter, use the same relationship to offer the ability for them to upsell prepaid wireless at a lower cost than the other folks out there. A lot of us watched what Mobile just sold to Verizon for, and they had pretty slim margins. We’re very familiar with most of the MVNOs out there. We take payments for most of the MVNOs out there. To have an ability to be an MVNO that has your own brand that’s paid for by the customer with family plans and very aggressive rates to help folks out and then be able to do the transaction over our own platform. So we’re not paying a third party, 8%, 9%, 10%, 15% to do the transaction.

That’s another significant competitive advantage that we want to take, really maximize by getting in the door through ACP. It’s the — by the way, upsell. And then, by the way, we also have a reloadable debit card, by the way, we have these other products here to help your customer the same way we helped them with the internet. So that’s really — that’s really our philosophy of this rollout. So I think without driving it home too hard, I think you’re going to start seeing by Q4, you’re going to start seeing also not only customers skewing over the ACP customers coming in through the convenience stores. I think you’re going to start to see the number of prepaid customers who are paying their own bills. Remember ACP is limited to one per household, and there’s an average, as with a survey we did average of four to five smartphones per underbanked household.

We want to go after those other devices, those other phones, that other service both in urban and rural areas, and then be able to allow and enable those people to go pay at the convenience store that they’re already going to save them money, save them travel and be more I guess more and more of a partner with the convenience store owner serving his community.

Ed Woo: Great. Thanks for answering my question and I wish you guys, good luck. Thank you.

Operator: Thank you. This reaches the end of the question-and-answer session, and this also concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time. Have a great rest of your day.