Greetings. Welcome to SurgePays Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, [Doug Lane] (ph), Investor Relations at SurgePays. Doug, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays second quarter 2024 earnings webcast and conference call. Today's date is August 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, ir.surgepays.com. In addition, SurgePays' Form 10-Q for the quarter ended June 30, 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, Doug. Thank you for joining today's call and your continued interest in SurgePays. I want to start by reiterating our unwavering commitment to providing financial technology and prepaid wireless services to the underbanked and underserved populations at the grassroots level where they live and shop. This commitment is at the core of our mission and guides all of our actions. Over the past few years, we have successfully acquired over 250,000 subscribers to our mobile virtual network operators, or MVNO, business, which at its peak accounted for over 90% of our consolidated sales. This was made possible by offering plans subsidized by the federally-funded Affordable Connectivity Program, or ACP. We were aware that this program's funding could run out in the first half of this year, which it did. However, the uncertainty lay in whether Congress would authorize additional funding for the program, which unfortunately, as of this date, did not happen. We want to ensure you we are fully informed about the challenges we face. But as said on the last call, we can no longer wait around to find out. We had contingencies and had already begun implementing non-subsidized MVNO business, LinkUp Mobile, which was launched in early June. We aim to offer our subscribers the option to remain on a free monthly plan subsidized by sister subsidy program or transition them over to LinkUp Mobile, which we priced to be attractive to our target customer. We also hired Joe Gomez, a senior telecommunications industry executive for the newly created position of Vice President of MVNO Operations. Joe spent over 18 years at AT&T and brings a wealth of experience to the team. He is charged with helping to develop innovative products and services for the value market segment where we believe our competitive position is enhanced…

Thank you, Brian, and good afternoon, everyone. I will begin my overview of the second quarter's financial results. For the second quarter, we reported revenues of $15.1 million compared to $35.9 million in 2023, representing a decrease of 58%. The decrease was primarily due to the lack of additional federal funding for the ACP. April was the last month that ACP households received the full ACP benefit as they had in prior months. Some ACP households received a partial benefit in May and effective June 1, households were no longer receiving an ACP benefit. Additionally, similar to the first quarter, we received no revenues from our lead generation services consisting of LogicsIQ in Q2 of 2024 versus the $2.8 million received in Q2 of 2023. This was a result of operational changes by management. Gross profit swung to a $3.4 million loss in the second quarter from a $10 million profit in the year-ago period due to our strategic decision to utilize our strong balance sheet to protect our ACP subscriber base and distribution network while we transition over to a non-subsidized MVNO business model. Additionally, the deemphasis of our lead generation business resulted in a lower gross profits in that segment as well. SG&A expenses increased by 101% year-over-year. The increase was primarily due to additional non-cash stock compensation for management. The stock compensation relates to employment agreements signed in late 2023. We also had additional expenses for contractor and consulting fees. The company engaged several contractors to overhaul the financial platform to allow for the conversion to a tablet-based transaction at the store level from the outdated VeriFone terminal. The company also engaged with consultants to provide advisory services, specifically in the area of investment relations to identify opportunities to increase our shareholder value. Loss from operations was…

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 products. We currently have the most compelling offering in our market. We own our own distribution and have $38 million cash in the bank as of June 30, 2024 to execute our transition. I believe SurgePays has the foundation for long-term success despite the short-term disruption caused by the ACP funding situation. Thank you so much for your time today. We will now open up the call to questions. Operator?

Thank you. [Operator Instructions] And the first question today is coming from Anja Soderstrom from Sidoti. Anja, your line is live.

Hi. Thank you for taking my questions. First, of course, the ACP. What are you -- how optimistic are you that that's going to be refunded? And do you have any sort of idea of any timeline there?

Hey, Anja. Thanks for the question. I'd tell you, it's been a week to week feedback scenario for us. I think our optimism wanes as time goes on. I mean, just being blunt. We had internally set a date of August 1st to take action, and assume internally if ACP comes back, great, if it doesn't, it's beyond that, let's just call it, the threshold that we had set for ourselves to take and move to transition to Plan B. We are still told that there are actions taking place in the halls of Congress. We are still told that most people, even the folks who were negative about the program, now are very positive about it, especially since JD Vance on the Republican side is the Vice President pick. And he was a huge advocate of the program, but at the same time, we can't sit on our hands anymore as we talked about earlier, had to take action. So, we're positioning the company after a lot of talk and a lot of back and forth. We want to transition these customers or offer them the ability to remain on a free service, and then have that subsidized by the Lifeline program, but for those that want to keep, let's call it, a heavier broadband bandwidth, more gigabytes per month, more accustomed to a regular wireless plan that would have a much larger -- let's call it, more like a regular plan, $30 or $40 or $50 plan in the prepaid world, offer those folks a discounted LinkUp Mobile plan that they could transition to. So, if they needed the help, they could stay on the Lifeline, the free service. If they wanted to have something more similar to ACP in that service, then they could start paying for it.

And do you have any sort of initial read on who's going to opt for the Lifeline program, who's going to opt for the LinkUp Mobile?

My instincts would tell me that the majority of folks, once something is free, they're going to maintain then stick with the free program. And then, it would be over the course of, let's say, three to four months, the transition would take place to bump to a paid plan. I don't think people out of the gate would opt for a paid plan until they've experienced the free plan first.

Okay. And then, in terms of the ClearLine customer engagement platform, what are you seeing initial reads there?

I've spent a lot of time with our folks on the ClearLine side of things. I'm really happy we acquired ClearLine. Just a quick history lesson for those that are not familiar with ClearLine. The reason we acquired ClearLine was they had a really good technology that allowed us to do the ACP enrollments at convenience stores. They enabled us to -- as Tony had mentioned, to transition away from refurbished VeriFone terminals, which are the little credit card terminals with the keypad push buttons. They allowed us to transition over to touch screens, which enable people to use their finger to sign things. And it's obviously a much more technologically advanced interface at the store. Also provides for a lot of cool things in the future, such as scanning QR codes and doing transactions, which is one of our business model -- or excuse me, business plan goals in the future is to be able to be that go-to for digital transactions at the convenience store for underbanked folks. So, ClearLine was a really good acquisition for us, but what was -- it helped us accomplish a goal that we had an immediate need, it addressed the problem for us, but the really great thing about that is with that solution also came all of the projects that they were currently working on and we're just a tad bit underfunded. They had a great team. They were almost there on quite a few projects and we incentivized the guys to come over. We converted that entrepreneur into an intrapreneur, empowered him to go focus on doing what he was great at and not have to worry about all the operational distractions of running a business. And Nate, the gentleman who runs that for us, has rolled out some really…

Okay. Thank you. And then, also you talked about getting back to free cash flow positive this year. How -- do you envision you doing that without the ACP being refunded, or how dependent are you on that coming back for you to be free cash flow positive?

Yeah. No, I appreciate that question. Our goal of being cash flow positive by the end of the year is assuming ACP is gone. I'm not going to do any modeling or projections or any, even on my own spreadsheets, old school pro forma, I'm not going to factor in any ACP. I'm going to assume that's behind us. The cash flow positive, by the end of the year, would be taking into account transitioning those customers who want to remain on a free product over to a Lifeline product. That would be the third-party wireless transactions we talked about that are really a gateway product to the store. It's the lead product to where a convenience store owner could take payments for every prepaid wireless company out there using our platform. That is ramping up significantly right now. The ClearLine product picking in for us, and then by the end of the year, LinkUp Mobile getting its -- getting traction and starting to contribute as well.

Okay. Thank you. I'll get back in queue.

Thank you. The next question is coming from Curtis Shauger from Water Tower Research. Curtis, your line is live.

Yeah. Hi, guys. Can you hear me?

Yes. Hey, Curtis.

Yeah, awesome. Thanks for taking my question. I think what usually comes to mind for me is, are there any opportunities with the carriers to help mitigate the cost that you're experiencing to keep the ACP customers alive?

That's a good question. And I appreciate that question because you've given me an angle to discuss some of what Tony and I and our management team has been scratching our head about. The initial discounts and let's call it maybe the cost of goods sold alleviation that the carriers were discussing, it was a lot more aggressive for a period of time back, let's say, when this first came up on the horizon in April, but they pulled a lot of it back due to their absolute certainty that ACP was going to be funded. So, it was really -- I mean, we were in a whirlwind. Every day was something different. It was a soap opera. And so, that's one reason why finally we had to put our foot down and say, hey, this is the path we're going to chart. If ACP comes back, great. If it doesn't, it's been a great run. The carriers right now, where I believe the alleviation is going to be is, obviously, they do not want to lose subscribers. Just looking out at the market, you can see some of the other guys out there who have lost significant subscribers. The backbones of T-Mobile and AT&T, they don't want to lose subscribers. So, I think where we're going to see the -- I would never call it a partnership necessarily, but the assistance to collectively keep these subscribers on is going to be in offering us some discounted rates to provide these folks Lifeline service, which again, that's the subsidy program that's been around since Ronald Reagan. And it's not quite as much as ACP, but it is viable. The challenge with Lifeline was that pricing to provide the service, the wholesale side of it never was really there to give…

Awesome. Thank you. I'll get back in the queue.

Thank you. The next question will be from [Andrew Scott from 395 Group] (ph). Andrew, your line is live.

Hey, Brian. Hey, Tony. I know you guys are in a truly challenging period right now. And a lot of the questions that I had were just answered regarding what's your fastest way back to cash flow positivity and breakeven. It sounds like you guys outlined it on the call. Looks like you have more than enough cash to get there. And I've heard you talk about Lifeline a lot. But would you consider -- would you look at any other accretive acquisitions with synergistic business models? Whether it be any other kind of payment processing? I'm just throwing ideas out there. But have you guys thought about other acquisitions in addition to Lifeline, sorry?

Yeah. Hey, thank you for the question, Andrew. And yes, we're constantly in a mode of evaluating it. It's called sorting and sifting like panning for gold through acquisitions. And I think right now, and let's just kind of zoom out of the ACP and what we're dealing with and say the macro environment is unique for a company with cash in the bank. We don't want to buy a company just to buy a company or just to go buy revenue. But I think, one of the mantras I've had is I'd rather have a little less in the bank and have that cash flow stacking upward than have a little more in the bank and have that cash flow depleting, because you're either growing or you're dying. So that's just an old school mentality that coming from the entrepreneurial world where we had to survive or you went out of business. And, yeah, it's a tough environment, but it's a transition. And, look, the opportunities for people who keep their heads up during transitions or during tough environments, I think the team that we have, we've made our biggest gains when times were the toughest. So, we see this as opportunity. There's opportunities for millions of customers who are going to be looking for an alternate way to communicate for their wireless services. There's opportunities out there with immigration and the Hispanic, say, the bilingual prepaid wireless companies. There's not a whole lot of them out there right now. There's a lot of opportunities out there. And one of the benefits that I get to enjoy is that our team is built of primarily, at the high level, former entrepreneurs who all built from scratch, from nothing, just crawling across glass, elbows and knees and elbows, to survive.…

I got it. Guys, nice touch on the corporate buyback. I thought that was a really good idea. I'm good. Thank you, guys.

Okay. Thank you. Thanks for the question.

Thank you. And the next question will be from Ed Woo from Ascendiant Capital. Ed, your line is live.

Yeah, thanks for taking my question. My question is, you guys have a direct relationship with the underserved market through the convenience stores. What are you hearing in terms of the economic outlook? And has it really changed? And how has that impacted your business and obviously with the underserved customers? Thank you.

Hey, Ed. Thanks for the question. I think that the feedback -- maybe a way to position that is, one of the things we've been cultivating is specific feedback as it relates to the wireless world. And consumers are looking for something that's more engaging. As far as the economy, it is what it is. And we've always talked about the underbanked segment of society really is not necessarily affected by the Dow Jones or the GDP of the country. It kind of maintains, it is what it is. In good times and bad times that underbanked/underserved market stays pretty similar. But there's been a stagnant offering platform to these consumers for the past three or four or five years. And if you look at the prepaid brands out there, there's been a lot of consolidation where the larger carriers, previously Sprint, T-Mobile, Verizon and AT&T acquired quite a few of the larger companies. And then obviously, we know that Sprint and T-Mobile merged, or Sprint was acquired. So, we think there's a huge opportunity out there for value-added prepaid wireless, not just who can offer the cheapest talk, text and data. That's something we can do to our efficiencies. We can compete in that environment, but then, when the next guy comes along and offers the same plan for a couple of bucks less, I mean, now you're in that down -- I always call it the downward bidding game. I think what we've put together and when you start adding some of the unique components that we can pull from our subsidiaries, for example, one of the folks that are integrated with ClearLine is a coupon redemption company that -- the intent of that company is to work for convenience stores and the register and -- but what…

Great. Well, thank you.

Thank you. And this is the end of our Q&A session today. And that does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.