Greetings, and welcome to the SurgePays' Q1 2024 Earnings. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Quinn Callanan. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays' First Quarter 2024 Earnings Webcast and Conference Call. Today's date is May 13, 2024. And on the call today from SurgePays are 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 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' 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. Copies of today's press release are accessible on SurgePays' Investor Relations website. In addition, SurgePays Form 10-Q for the quarter ended March 31, 2024, will also be available on SurgePays Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Thanks, Quinn. First, I would 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. Our core mission at SurgePays is to provide financial technology and prepaid wireless services to the underbanked and underserved populations at the grassroots level where they live and shop. Studies have shown that the underbank do most of their financial transactions at the trusted local convenience store closest to their homes. SurgePays' technology layered platform empowers clerks at these convenience stores to provide a suite of prepaid wireless and financial products to underbank customers at the register. Before we dive into Q1 results, let's address the 800-pound gorilla. We are currently in a complicated environment pending government approval of continuing the funding of ACP, the Affordable Connectivity Program. The ACP funding provision made it to the floor by being attached to the FAA Reauthorization Act. So it's likely it could come to a vote with Rip and Replace another program or be attached to another bill. We could know in a few weeks. We are hopeful ACP passes, but we aren't waiting around for approval. 3 months ago, I challenged my team to make a plan to replace or duplicate all ACP revenue within 12 months. I'm thrilled to announce that I believe that they have not only met this challenge but exceeded it with the successful rollout of our prepaid wireless company, LinkUp Mobile, combined with ramping up our legacy prepaid wireless top-up business. Strategic hires, new technology and other corporate initiatives have put us in a great position. Our team has put together a comprehensive strategic plan that we are confident will…

Thank you, Brian, and good afternoon, everyone. I will begin my overview of the first quarter's financial results. For the first quarter, we reported revenues of $31.4 million compared to $34.8 million in 2023, representing a decrease of 10%. The decrease was primarily due to the operational changes by management in late 2023 to our Lead Generation services consisting of LogicsIQ with its revenues decreasing by $3.2 million. Gross profit increased 6% in the -- during the first quarter to $8.2 million compared to $7.7 million in the year ago period. First quarter gross margin also showed improvement to 26% versus 22.1% in the first quarter last year. SG&A expenses increased by 115% year-over-year. The increase was primarily due to noncash stock compensation for management. The stock compensation relates to employment agreements signed in late 2023. We also had additional expenses for contractor and consultant fees related to the purchase of ClearLine earlier this year. Income from operations was $1.8 million during the first quarter compared to $4.6 million in the year ago period. Net income for the first quarter was up -- was $1.2 million or a gain of $0.07 per share compared to $4.5 million or $0.32 per share in the prior year quarter. Our reported net income and EPS were $1.2 million and $0.07 per share. Our income and earnings per share were adversely impacted by the noncash expenses in the quarter, primarily related to noncash compensation to executives based on the employment agreements. For comparative purpose to quarter -- first quarter 2023, adding back to $1.5 million in stock compensation in the first quarter of 2024 would have resulted in an EPS of $0.15 per share. EPS was also diluted by a 34% increase in shares outstanding related to the capital raise and the warrant conversions occurring in the first quarter of 2024. Turning to the balance sheet, liquidity and cash flow. Our cash balance as of March 31, 2024, was $42.9 million compared to $14.6 million at year-end 2023. The increase was attributable to both the capital raise in January of approximately $17 million and the exercise of warrants during the first quarter of 2024 of over $8 million. Accounts receivables decreased by $1.3 million from year-end 2023 to $8.3 million. The ACP stopped accepting subscribers in February of 2024. As a result, our overall receivable from the U.S. government decreased as of quarter end. 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 call -- pass the call back to Brian for some closing remarks.

Thanks, Tony. I believe the four key components to a company's success are the team, the products, the distribution and the funding. I believe we have assembled the best and most experienced team in the history of prepaid wireless. We have the most compelling offering in the market currently. We own our own distribution, and we have over $42 million cash in the bank to execute our plan. I believe SurgePays is built for success regardless of how the ACP funding situation plays out. Thank you so much for your time today. We will now open up the call to questions. Operator?

[Operator Instructions] The first question we have is from Andrew Scott of OIS.

Interesting situation. Didn't really look like a bad quarter when you look at the $2 million nonstock compensation charge. And you think what's your feel on ACP? I know that's like you called it the big 800-pound gorilla. Are you guys getting any more body language out of Washington? We're seeing a lot of senators talk about it. Can you just -- I got two other quick questions, but can you give us any thoughts to anything more you're seeing?

Yes. Sure, Andrew. Thank you for the question. And yes, that's -- it's day-to-day. I think we all have learned more about civics in the last 30 days than we did in any classes that we took in school for sure. Because now it applies to us. As we stated in the script that they did leverage the FAA bill to get it to the floor, which makes it a lot more probable. We got it out of committee and a lot more probable now that people will have to vote on it. If you can Google ACP funding, and you could see additional Senators lining up even over the weekend. I don't want to get off into too much politics, but we have been told from our advocates in Washington. It's definitely a situation where if it is funded, people want to take credit for it. So I think people like to swoop in with -- on the white horse in the last minutes to save the day, especially in an election year. And as far as body language, I watch the folks that have better connectivity to Washington than we do. And what I mean is, don't watch the dealer, watch the other people at the table. And when I have a spiff that was pulled off the table last week by AT&T, it was the original intention was to try to go snag a bunch of ACP customers that lost their service. When ACP pulled that, it was basically a promotional wholesale spiff to us to go try to grab a bunch of customers. It was pulled off the table Friday because they believe ACP is funded. So that would be the body language that I would look for. The people who have a whole lot more cocktail parties in Washington than we're part of. And normally a lot more in the know. But that's really -- I mean, your guess as good as mine. It's Washington. I mean I saw -- there's 50 million people. I saw an advocate over the weekend. I talked about -- it's not -- it's 23 million households, but it's 50 million people. And it's everybody from J.D. Vance to Fetterman. So you've got the extremes and everything in the middle, both sides of the aisle. We're very, very hopeful. But again, we're not walking outside and praying to the sun every day. We're definitely executing our business model and thank goodness, the timing couldn't be better for us because the launch of LinkUp Mobile. If ACP was perfectly fine, we would still be launching LinkUp Mobile now. That's how long it took to put that together. So either way, we're either in a phenomenal situation or we're in a great situation.

All right. Brian, any more comments on LinkUp Mobile. I know it's a new division. You said some strategic hires. Is there any kind of any more guidance you can give us on what you're looking to accomplish there?

Yes. I don't know about guidance because I know that's a funny word on these calls. But definitely, we didn't get into this, and let's just go in my background, for those that don't know, I jumped into wireless. I am one of the original guys that have been since day 1. I sold 5 copper line CLECs that I owned when I saw people lining up around a convenience store, buying Boost flip phones out of the trunk of cars. So we've been in wireless since day 1, and the entire reason I got into wireless was to launch my own and our own prepaid wireless brand one day when I had a really compelling offer that wouldn't be an also-ran. And that's a reference to horse racing. Don't just be in the race as an also-ran. We wanted to be in the top three. So never really had that opportunity until now. And for those that don't know, distribution of the prepaid wireless is predicated on a couple of things, primarily getting to dealers that would be like your A++ wireless and more wireless guys, it's those resellers of prepaid wireless that are now all over the city even in the, let's call it, kind of the upper class parts of town. They're everywhere because there's over 100 million prepaid wireless customers. And the way these folks make money. Well, they make money by the front-end spiff on activating prepaid wireless customers. And then also, they make a percentage of taking payments for these customers every month. Well, we never really had the right combination of both components there. The ability to not only offer them the ability to take our payments, but great rates on all the competition as well, now we do. And we're head-to-head with…

Yes. And I'd love to see what you guys are going to do with that $43 million in cash. There's a lot you can do. I'll finish there, but I got a couple of other questions. I don't want to hog the line.

No, I'll give one last comment. Don't forget, I started this company with a mattress on the floor, a dorm fridge, and a dog. And a credit card with a $10,000 limit. I definitely didn't have $43 million in the bank, but I'm still the same guy that did it. And I've got a fantastic team now that can help me execute on. So I appreciate the questions, Andrew.

The next question we have is from Ed Woo of Ascendiant Capital Markets.

Yes. Congratulations on the quarter and definitely managing through the ACP process. And like I said, you and a lot of people out there are rooting for this to get funded. My question is, obviously, congratulations on having such a huge war chest. Some of your recent acquisitions have been pretty minor, relatively small for technology. Do you anticipate maybe doing a major shift that maybe buying one of your competitors to expand in the MVNO space? Or will it be kind of more of the same going forward?

No. You know what, that's a fantastic question. I talk with Tony, our CFO about that exact thing quite often. We have people who send us potential acquisitions that are not necessarily on our route. They're in our in our neighborhood, but they're not on a route trying to accomplish with what we're building. I do -- we do have competitors out there that I think at the right time would be a good acquisition for us. But what I'm watching right now with as many NDAs, contracts being executed and known revenue of these distributors, when I'm watching -- we basically have a spreadsheet that's almost like a draft board of all of our targets for master dealers, which represent tens of millions in revenue a month. And targeting them and going after these guys and then going after these networks and then going after some of these technology service providers. I think when it comes to acquiring a company, if -- let me try to word this as politically correct as I can. If we're going in with a compelling offer that others can't compete with, they're an argument that people may be willing to value their company less after they've been knocked around for a few rounds. We have a tremendous amount of revenue that's low lying fruit for us right now with our offering. So what I'd like to do and what we're doing is putting this behind our LinkUp Mobile push. And then, for example, I'm not going to say you buy your revenue, but it's almost like acquiring subscribers in an acquisition if, let's say, a competitor is offering x for activations. And we know that a master dealer is doing 10,000 activations a month for that carrier, that competitor. Well, how much are…

Great. Well, thank you. And I know you guys are very well, experienced to be able to take advantage of that. And congratulations and good luck.

The next question we have is from Curtis Shauger of Water Tower Research.

Congrats on your execution and what can only be described as a challenging environment with ACP. If I could for the help of all investors out there. Can you provide maybe a little bit more on the partnerships you mentioned? You mentioned master dealers. Are these folks that are going to help you populate the convenience stores in Bodegas? Or do they have a more diverse distribution network themselves?

Yes. No, Curtis, thank you for the question. That's a really good question because sometimes I guess, those of us who deal with us every day, you can get used to it using all the acronyms and everything else in wireless that we take for granted. The way that we're approaching the rollout is Phase 1, is through using master dealers or master agents as they're called. And normally, how that's set up, if you look at the map of the country and you have a territory that a master would be over. And these guys have been in this a long time. There's an expectation of they know the activations that they're going to do. They're ordering their SIMs from the dealers and most of the masters utilize 2 or 3 prepaid carriers. And keep in mind, also T-Mobile, AT&T, Verizon, everybody has their own prepaid brand, too. So there's usually a combination of 2 or 3 companies that they carry. And they know about how many activations they are going to do a month, which is really exciting for Tony and myself because we're about to embark into a revenue channel where we can start having a little more predictability than the ACP piece. Especially once we dig our feet in and we better understand attrition, specifically geared to our product on the prepaid side with LinkUp, we're going to have a significant amount of predictability because we're going to have the SIM cards ordered by the tens of thousands from our masters. And they're going to be accountable for activating those in a certain amount of time. And they're doing business with everything from the convenience stores that kind of have a little lean over to the side for wireless or just straight up freestanding wireless stores.…

Excellent. If I could follow up with a quick question about LogicsIQ. I know we've talked about it before in terms of it going into dormant mode or nonoperable status. But is it -- is there any -- I know there was a point in which you thought about divesting it? Is it -- can you give us any idea about what the kind of finality of that is there, if at all?

Yes, no, sure. I appreciate the question. It is an interesting question. And just as a side note, it was a little bit of a strain having -- even Tony at the CFO level, having to wear completely different hats, dealing with prepaid underbank and transactions and fintech and wireless and all that vernacular and then immediately jumping into Lead Generation for mass tort lawsuits. I mean it was -- I could see the stress across the company, and it was creating a scenario that just wasn't a part of my model. And to be completely honest with you, I was not a subject matter expert. And the people I was bringing on were not subject matter experts in that field. It didn't make sense. Now the last year, LogicsIQ when we were pushing the subsidiary, we did a partnership where we share in the outcome of a certain number of, let's just call them, booked cases, signed, filed and delivered book cases that are pending the outcome of those cases in certain courts around the country. [indiscernible] Camp Lejeune, 3M earbuds, some other mass tort cases out there that are waiting for -- to see how the chips fall. We do have vested interest. And we have had that valuated, and that could come back from x million to x millions. So we are debating. Does it make sense to divest ourselves of that? Because that's really almost an asset. If you -- it's not a GAAP asset but to us in the real world, that would be something that has value. So we have considered an asset. And would we go ahead and be willing to offload that at a discount, just to have access to the cash? I think so. But worst-case scenario, it's sitting over to the side on deck. And as those cases come to fruition over the next year 2, 3, 4 years, then that share -- our share of the outcome of the legal fees associated with those cases would come to us. So that's where we are right now.

The next question we have is from Anja Soderstrom of Sidoti & Co.

So I'm just curious with the ACP not taking any more new sign-ups in February and it's stopped funding totally in April. How are you seeing the transition sort of trending? Is it that above expectations or...

That's a good question, Anja. I appreciate the question. And to clarify, because we did touch on this, and I think both the press release and the call earlier. On February 7, they stopped -- the government stopped allowing new enrollments. It's almost like the Obama Care open enrollment. It closed down. So they did allow us, which I really wasn't a big fan of, but they allowed us to take customers from competitors, but not bring in any new customers. I think they looked at it as a way of tapping whatever their spend would be. They didn't care whether they were sending us or another ACP company the money, they just wanted to cap the money. Where it affected us was the fact that if you're pulling a customer from a competitor, that $100 credit for a tablet most likely has already been used. So that did hurt our -- this is called our top line revenue, $100 a pop for anybody that is not used that tablet credit. So when you talk about expectations, this has been -- I mean, again, this is not all consuming. I always want to make clear, 95% of my day the word ACP never crosses my e-mails, text, mouth. It's not a part of what we're building. But the time that we are spending on it is looking at competitors and the irony is all of our competitors were all collectively in advocacy groups because while we may go beat each other up in the street, right now, we're all looking to make sure that the program is funded so we can get back to beating each other up. So most companies out there are still continuing to go after customers, the ones that we talk to, they're all very hopeful.…

Okay. That was helpful. And then in terms of your gross margin, that's been improved also helped by the tablet sign-ups, right, rather than the in-person representatives. How should we think about that going forward? How is that rolling out?

Going forward, I think -- well, there again, it really -- I almost have to answer these types of questions with either/or. If ACP is funded I think you should see gross margins do well and keep that trend moving forward. If it's not, I'm going to go into absolute aggression mode to grow LinkUp Mobile subscribers. So in the short term, if gross margins because we'll have front-loaded spiffs, incentives, promotions, pushing branding, if those things pull down margins in the short run, to achieve hundreds of thousands and leading up to millions of subscribers. I have no problem with that. That's one of the great things about having cash in the bank is being able to model that out and track and chart your growth trajectory to make sure that you're maximizing that. But the worst thing we could ever do, in my opinion, is focus every day on gross margin and then grow one pebble at a time. That is absolutely not why I'm here. I see $140 million in revenue. I'm asking my team, how do we double it. How do we double $280 million? How do we double $560 million. That's just the way I'm wired. And so I think that when you look at margins, not something -- obviously, coming from the entrepreneur side of the world, it was important for me, making money is important, absolutely. But right now, growing and getting a subscriber base to where we are profitable regardless of whether ACP is funded or not is definitely way higher on my priority list.

And one last one. In earlier that you expected LinkUp Mobile in case ACP does not get refunded that should replace the ACP revenue. What type of time frame do you have on that.

We have SIM cards going out now. That's a good question. We have SIM cards going out now. We have contracts and APIs being finalized. Let me -- you gave me an opportunity to add maybe a little bit more color to the question I answered earlier. Let's say that you have 100 wireless dealers that you distribute to. And you signed the deal with me today to -- you're coming exclusively for LinkUp Mobile. We got a deal. We high-fived, we're now we're in business together. Because you also are supplying them with the ability to top up, now your IT guys are going to work to API and integrate into our platform so that we can process all of those transactions seamlessly. Activations, payments and then also payments for, like I said, our competitors. So we're watching these contracts and APIs essentially redlining my development and IT guys right now. I think I'm working them to the bone. They're definitely burning the midnight oil to keep up with what the sales team is doing. But I think that -- and by the way, we're going to start reporting some of these milestones. I'm really excited. We did a little bit of that early on in ACP. And I don't want to get stuck in a rut of creating an expectation, but I do want to start reporting some milestones, hey, we just hit 50,000, hey, we hit 100,000. We do look forward to start showing people what we can do in this non-subsidized non-ACP market. So I think, like I said, look for some news over the next week or 2 as we formally roll this out. And then I think you're going to see some really special things.

We have come to the end of the question-and-answer session, and I would like to turn the call back over to Brian Cox for any closing remarks.

Hi. Thanks again for everyone who joined the call. We appreciate you. I appreciate you being a shareholder and look forward to next quarter. Have a good day. Bye-bye.

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.