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Operator: Good day, and welcome to the SurgePays’ Q3 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Prenoveau, Investor Relations. Please go ahead.

Brian Prenoveau: Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays’ third quarter 2023 earnings webcast and conference call. Today’s date is November 14, 2023, and on the call today from SurgePays, Brian Cox, President and Chief Executive Officer; and Tony Evers, Chief Financial Officer. 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 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’ most recent filings with the SEC.

All forward-looking statements made 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 we issued this afternoon. Copies of today’s press release are accessible in SurgePays’ Investor Relations website, ir.surgepays.com. In addition, SurgePays’ Form 10-Q for the quarter ended September 30, 2023, will also be available on SurgePays’ Investor Relations website. Now I’d like to turn the call over to President and Chief Executive Officer, Brian Cox.

Brian Cox: Thanks, Brian. First, I’d like to thank our shareholders and those interested in SurgePays for joining the call. As we have expanded and continue expanding our audience, I’d like to give a brief overview of who we are, what we do and our target market. SurgePays brings financial and telecom products to the underbanked and underserved populations at a grassroots level where they live and shop. The underbanked do most of their financial transactions at their trusted local convenience store closest to their home. SurgePays utilizes these stores as the point of distribution into these communities. Our technology layered platform empowers clerks at thousands of convenience stores to provide prepaid wireless and financial products to lower income and underbanked consumers without access to traditional credit cards or checking accounts.

The FCC licenses us to provide subsidized wireless service to qualifying subscribers through the affordable connectivity program more commonly referred to as ACP. Our ACP prepaid wireless companies provide service to hundreds of thousands of subscribers nationwide. This enticing and beneficial program is the lead product to get our platform into stores nationwide. These store owners are quick to realize that in lower income areas, usually over 20% of the transactions in the store are done through government-supported programs and those customers are all eligible for ACP. In a high interest rate environment, where store owners are looking for more transactional revenue without hitting their credit line for store inventory, SurgePays presents a compelling offering for those owners who want their store to be the transactional tech hub for the underbanked community.

With this go-to-market approach and a profitable suite of underbanked products and services, we are well positioned to significantly grow our footprint and owner-operated convenience stores nationwide. Our strategy is to continue evolving into a multiproduct company with an ecosystem around us, enabling us to build the largest distribution of products and services sold to the underbanked population. I’m pleased to announce that the third quarter of 2023 continues the profitability trend that we saw at the end of 2022, delivering our highest ever net income of $7.1 million and EBITDA of $7.5 million. This year has indeed demonstrated the long-term profitability potential of the business, and we are just getting started. We have achieved over $17 million of net income year-to-date and our profitability margins have continued to expand.

Our cash balance improved to over $12 million and minimal debt. This year compares well to September 30 of last year, when we lost approximately $3.7 million on the bottom line. The tremendous profitability level SurgePays has achieved have afforded the company some opportunities that would have not have been possible in the past, especially in this economic environment. SurgePays can now focus on playing offense aggressively and make strategic decisions on our terms at our timing that will produce both short- and long-term growth and profitability. In over 20 years of successful business, I have never been shy of stating my goals and willing to make tough decisions to accomplish them, whether through delayed gratification or some actions that might be confusing or unpopular to casual onlookers.

Achieving the listing on NASDAQ was just the first of several accomplishments we fully expected to perform. The next goal is to move from micro-cap to small cap. After months of discussion and well over a year of speaking to analysts, consultants, portfolio and fund managers on this subject, it became apparent in order for us to accomplish this next move, we need to gain institutional stakeholders at an impactful level. One of the checks against us was our potentially confusing businesses outside of our core model. It was clear we needed to shelf the legacy mass tort lead gen company, LogicsIQ, and streamline the company messaging along with our financials. Our company, story, focus and market strategy must be defined with an understandable vision of a significant attainable future value.

Even though LogicsIQ contributed $4.1 million to the top line sales last year in Q3, we chose to wind down operations because we felt it was the right thing to do to ultimately accomplish our goals. Another example of our strategic long-term profit approach is our ACP sign-up transition focus to convenience stores. Yes, it slowed down subscriber growth in the short term compared to outdoor pop-up tent sales, but considering the economics of a store base versus tent sales model, it was 100% the right call. Scaling the national footprint of stores transacting on our network, while growing actual roots into these communities creates a tremendous revenue opportunity not only organically, but by controlling the distribution platform, we are creating an M&A machine, whereby we can acquire companies with existing relationships or networks of stores and also acquire companies with products we can add to our platform.

Revenue was down $2.1 million for Q3 year-over-year. But as discussed, this is due to the winding down of LogicsIQ, which contributed $4.1 million last year. For those of you doing the simple math, yes, that means the core business of wireless and Fintech was up over $2 million in Q3. And this focus contributed to the record-breaking $7.1 million in net income. As a moment of reflection, in 2021, when we uplisted to NASDAQ, we had a net loss of $13.5 million for the year. It’s pretty amazing what our team is accomplishing and we are adding like-minded folks to the team each quarter. From our leaders spread out coast-to-coast, to my favorite team working at our bilingual operations center in El Salvador, Chris and Franklin are among several great managers, leading a fantastic group of over 150 hard-working folks at every level of operations, ready to immediately scale our store and subscriber growth.

As I mentioned in last quarter’s call, the key metric is — in the future is new stores on our platform. More stores on the platform mean more ACP sign-ups, more products and services, more transactions over the platform and more sales for individual stores equaling more revenue for SurgePays. Our model to acquire ACP subscribers at stores worked fantastically. However, converting leads to customers directly using text messages were not performing at the success rate I expected. After a couple of months of analysis, we determined the challenge was relying on customer follow-up to give consent to check their eligibility. We concluded we needed equipment on the countertop next to the register that was customer-facing and allowed the customer to perform the necessary compliance components of the ACP enrollment at the moment of impact before they walked away.

This short-term process failure was the seed of a tremendous success that has opened opportunities for a much better approach to the market with our own customer-facing point-of-sale equipment. We can now promote our other products through 24/7 marketing on the LCD screen at the register. This includes creating awareness of the prepaid top-ups potential for customers, awareness of the upcoming launch of our prepaid wireless brand Linkup Mobile and other products on our platform. Historically, we relied exclusively on posters and other promotional materials in the store to create awareness of our products since we don’t have actual facings on the shelf. Now we will have our products in light, on the screen right in the middle of the most prized real estate in the convenience store, the counter by the register.

In other words, this solution launched our point-of-sale equipment channel. We partnered with ClearLine Mobile to test customer-facing LCD screens at the register to promote our products, activate wireless subscribers and create customer engagement. This next step in point-of-sale advancement will solidify SurgePays as an innovative market leader in providing wireless telecom and fintech products to be underbanked and underserved where they live and shop. This will also assist in connecting dots for potential investors by quickly seeing visuals of our equipment at the register and understanding the impact we can have in the stores on our network. We have placed over 100 LCD screens at this time and are pleased with the response. An additional 1,000 units just arrived this month and we will be immediately deploying those while continuously reordering more units in bigger batches.

At this point, we’ve just begun to scratch the surface of the potential means SurgePays has to drive additional revenue through our store relationships. As always, we’re focused on managing our cash and cash flow and deploying that cash to maximize growth. Now that we have integrated our equipment and software platform and our sales leadership team has been built out, we can focus more heavily on driving revenue organically and through acquisition while working through relationships that position us to accomplish our revenue goals. We expected third quarter revenues to align with second quarter revenues and precisely what happened, but with even stronger cash flow. Now I’ll turn the call over to Tony to review our financial results before summarizing today’s call.

Tony?

Anthony Evers: Thank you, Brian, and good afternoon, everyone. I will begin my overview of the third quarter’s financial results. For the quarter, we reported revenues of $34.2 million compared to $36.2 million in the third quarter of 2022, representing a decrease of 6%. The decrease was primarily due to a $4.1 million decrease in the revenues from the company’s LogicsIQ business. Revenues related to providing mobile broadband and wireless service to low-income subscribers through the ACP increased 12% to $30.7 million in the third quarter of 2023. Gross profit increased 446% in the third quarter to $10.5 million compared to $1.9 million in the year ago period. Third quarter gross margin also showed significant improvement up to 30.7% versus 5.3% in the third quarter last year.

SG&A expenses increased by 19% year-over-year. The increase was primarily driven by contractor and consultant expenses, legal fees and expenses related to the acquisition of ShockWave CRM. Income from operations was positive for the quarter at $7.1 million compared to a loss of $1 million in the year ago period. Net income for the third quarter was $7.1 million or a gain of $0.49 per share compared to a net loss of $1.5 million or a loss of $0.12 per share. Of the $8.6 million gain for the third quarter included lower interest expense of $503,000 less than a year ago period. Turning to the balance sheet, liquidity and cash flow. Our cash balance as of September 30 was $12.6 million compared to $7 million at the end of 2022. Accounts receivable have increased by $540,000 from year-end 2022 to $9.8 million.

The receivable is from the U.S. government for the mobile broadband subsidy. Payment generally occurs approximately 30 to 60 days after a new subscriber is verified and signed up. Given our strengthened financial position, cash balance and capital structure, our cash allocation priorities focus on investing in the business and maintaining ample liquidity for future growth. I will now pass the call back to Brian for closing remarks. Brian?

Brian Cox: Thanks, Tony. SurgePays is now on sound financial footing with a healthy cash balance, consistent earnings and growth. We are poised to create one of the largest direct distribution networks of underbanked products and services in the country and a vast market with tremendous growth potential lakes. These results have proven we perform at a high level, are not afraid to make difficult decisions and understand how to deliver positive cash flow. Thank you so much for your time today. We will now open up the call to questions. Operator?

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Diana with Maxim Group. Please go ahead.

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Michael Diana: Sure. Hey, thank you. Congratulations on the quarter, Brian.

Brian Cox: Hey. Thank you, Michael. Appreciate it, Michael.

Michael Diana: You mentioned that a key metric or the key metric now is new stores. And you also talked about screens being a main driver of business at new stores. And you also mentioned you got 1,000 new screens coming in, right? So is that the sort of — is your growth in number of stores going to be dependent on how many screens you get into the stores?

Brian Cox: Thank you for the question, Michael. I wouldn’t say that our growth in stores is going to be dependent on how many screens we have, but one of the key metrics we’re going to analyze internally is the stores that have an existing platform that we pipe into or stores that already are using our web interface app or, let’s say, for example, the stores that use the reprogrammed Verifone terminal up at the countertop compared to stores that have the screen. Now ideally, we want to roll out with as many stores utilizing the point-of-sale screen as possible because as stated, the fantastic side effect of needing that to provide a solution to us internally actually became an external marketing device that we didn’t even think about until we deployed it and it kind of had the Eureka light bulb go off of being able to promote all of our products without having multiple rooms at the operations center, sending out posters and replacements, promotional materials constantly or needing salespeople to visit stores once every three months to replace promotional materials that had either been ripped down or destroyed from the sun or just needed to be updated.

So I think what you’re going to see and I think the next time that we talk on this call, we’re going to start having metrics based on our stores and then stores where we’ve deployed our screens. And I’ll come up with a little bit catchier phrases to differentiate that because that’s going to be a really important metric for us as it relates to being able to have and provide all of the products on our platform. I could say, compliantly provide ACP, launch our prepaid wireless brand, due to the prepaid wireless top-ups, load prepaid debit cards and then to promote all of these services in loops non-stop 24/7 right there at the register. So I do think that while this will not limit our ability to add stores, this — we should catch up pretty quickly.

I’m very, very aggressive on the screen. And I do expect us — like I said, we just got 1,000 in. We’re already reordering now. And I think that you’re going to see us reload and really get those out there as fast as we can and get a good stockpile of screens. And bluntly, the actual screen is going to help us get into more stores because they’re excited. The stores are actually more interested in our platform with the screen at the point of sale as opposed to just our platform. So I think it’s going to be a driver for sales and revenue.

Michael Diana: Okay. Great. So I know ACP has been your big product so far, but you mentioned prepaid wireless, and I think you have high hopes for that. Could you talk more about that?

Brian Cox: Sure. The prepaid wireless brand Linkup Mobile, we’re literally weeks away from the launch. I wanted to kind of hang tight and wait for more screens to get out because the alternative is, we already have real estate in the store tied up with posters for creating awareness of ACP. It’s a little difficult to send out multiple rounds of new posters and say, hey, can you put these up in your store? Don’t put them in the place that the posters we already have, we just want to own all the real estate on the wall. That’s not going to happen. We’re competing with everything that’s in the store for that marketing space. So the actual screens at the point of sale are going to drive the Linkup Mobile, the prepaid wireless brand.

And am I excited about that? Absolutely. That — before ACP, that was a part of our — that was really going to be the anchor of our entire business model moving forward, bring on stores with the sales pitch of doing prepaid top-ups, then launch our prepaid wireless company that has a savings to the customer of $5 to $10 per plan, and we’re able to pay a little bit higher commission to the store owner for the activations and for taking the payments because we own the platform. So that was all — that’s always been the mix. What I didn’t I guess, factor in was the fact that we have hundreds of thousands of subscribers. We have much better rates from the carriers, AT&T and T-Mobile, because we’ve got the buying power and legitimacy. And we’ve got a seat at the table on the wholesale side.

We own our CRM, the customer relationship management platform. So we already have that built. We were able to own everything soup to nuts as it relates to the MVNO. We don’t outsource anything from — all the way from the payment being made at the store. It’s our platform. It’s our ACH. It comes to us. Everything — we own every component of the product delivery all the way to the actual tower where the service is provided. So it’s a whole lot better than my original business plan because of ACP and then utilizing ACP to grow the prepaid wireless brand. And I think we’ve talked about this before, but ACP is limited one per household that qualifies. A prepaid wireless brand, there’s no limits. It’s — there’s four or five smartphones in that household on prepaid wireless.

And keep in mind, there’s over 100 prepaid wireless consumers out in the United States now. It presents a huge opportunity without limits for us to piggyback on our technology layer platform and ACP that we’re using to get into these neighborhoods. So we expect this to be a big hit and we’re really looking forward to talking about the subscriber growth on Linkup Mobile and hopefully, we can have a good discussion about that on our next call.

Michael Diana: All right. Thank you very much and congratulations to you.

Brian Cox: Thank you, Michael.

Operator: Our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Edward Woo: Yeah. Congratulations on the quarter and the profitable quarter. My question is you seem to have — the macro environment seems to be steady. Inflation is coming down, job growth is still relatively high. What are you seeing and hearing from the convenience store owners with obviously their core customer base? Are there any significant changes from the last couple of months?

Brian Cox: Ed, thanks for the question. It’s — I’ve talked about this for years and years now. It is a little bit interesting. Lower-income people are still lower income people. I think some of the macroeconomic things out there, more affect the middle to middle upper class, maybe a little bit more than lower income folks who are already on government assistance. I think there’s a scenario where more people might actually pull into our potential customer base, whether it be folks that are a little bit challenged financially with, let’s say, too much mouths, not enough check or immigrants coming. Like I said, we have a bilingual operations center and all of our products are in both English and Hispanic. So our potential customer base does increase by the day.

I don’t look at that and we’ve talked about this a lot. I don’t look at that as wishing any type of economic downfall on folks, but we do provide significant essential services to folks that may be in these situations. And I think you’re always going to have that lower-income prepaid market and for us to be able to provide them a savings on their wireless services. These are essential services now. A savings on most of the services that we offer, it does free up cash to spend on other things that they might have. So I think from the convenience store perspective and the convenience store owner, we stated earlier, they are getting bit quite a bit on the interest rates for the inventory they have in their store. So they’re definitely not looking at bringing in new inventory, new products or anything that’s not proven.

So if we were rolling out with a kiosk of new products or had a freestanding rack or something like that and it required the store owner to come out of pocket for new product launches, that will be a little bit difficult for us to do. It would be a tough sell right now. But quite on the contrary, we’re coming to the store with a, I call it, the first dollar you take is the first dollar you make product where there’s no inventory requirements. They’re making it on the transaction. And the great thing about these transactions is those customers have to come in the store to make the transaction. So they’ve got foot traffic, they’ve got reoccurring foot traffic. And they’re providing a service to their community and word of mouth gets up really fast that, hey — number one, hey, guys, you don’t have to go way back down the street to the A++ wireless store to make your wireless payments, you can go down to the C-store, the convenience store now.

And say, by the way, I also — while I was down there, I switched my service, I get to keep my same number, and now I’m saving $10 a month. That word gets around real fast and in an economic category where that $5 to $10 means a lot and traditionally hourly workers on government assistance that savings means a whole lot more to people when things are tight. So those are what we’re hearing. We think it’s a perfect window of opportunity. Sometimes when things are going great and money is falling through the cracks and people and store owners don’t really care because things are so fantastic, they’re not as open to new products or services because they’re a little content. It’s one of our downfalls as humans, not always looking to better ourselves or better ourselves financially.

We get comfortable. So I think because things are a little bit odd out there right now, a little bit challenging, it’s a wonderful time for a company like SurgePays [Technical Difficulty] compelling opportunity and a compelling platform, if you will, for these store owners to not only make more money, but to help their communities.

Edward Woo: Great. Well, thank you and make sure all your customers appreciate your – the products and services. Thank you very much and good luck.

Brian Cox: Thanks, Ed. Appreciate it.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Brian Cox for any closing remarks.

Brian Cox: Thank you, operator. Thank you, everyone for joining us on the call today. We look forward to continuing to report our team’s execution in the near future. Have a good evening.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may all now disconnect.