Good day, everyone and welcome to the SurgePays Third Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Doug Lane, Investor Relations at SurgePays. Sir, the floor is yours.

Thank you, operator. And good afternoon, everyone. Welcome to the SurgePays third quarter 2024 earnings webcast and conference call. Today's date is November 12, 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 September 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.

Thank you for joining today's call and for your continued trust in SurgePays. Today, I'm excited to share our progress in advancing our core business strategy since the Affordable Connectivity Program ran out in May. While there is optimism that ACP may resume when the political landscape allows, as we discussed on our last call, we are not and never have been an ACP only company. This quarter we've channeled all of our energy into realizing our core mission and positioning ourselves for a transformative growth phase. We anticipated a challenging third quarter and we seized it as an opportunity to reset, recalibrate and accelerate. With every team member intensely focused, we're advancing toward our goal of becoming cash flow positive as quickly as possible. It's been all hands on deck, aligning sales, integration and strategy to generate new revenue streams across each of our business segments. This quarter wasn't a setback, but a setup priming us for long term sustainable growth. We're now at a turning point where our business summary aligns with our business plan and the flywheel effect takes hold. Over the next few months, we expect each of our four business segments to create a momentum that drives continuous growth and improvement, generating synergistic and scalable reoccurring revenue. As we expand our footprint, our business model becomes increasingly relatable to investors. As revenue climbs, we foresee growth in technology and telecom based valuations, unlocking new potential for shareholder value. At our core, SurgePays is pioneering financial technology and telecommunications with a single mission to enhance connectivity and financial access where people live, shop and work. We serve convenience stores, bodegas and retail local hubs nationwide delivering prepaid wireless services, financial products and advanced point of sale solutions to those high need markets. This is an enormous…

Thank you, Brian. And good afternoon, everyone. I will begin my overview of the third quarter's financial results. For the third quarter we reported revenues of $4.8 million compared to $34.2 million for the same period in 2023, representing a decrease of 86%. The decrease was primarily due to the shutdown of the ACP funding program which ceased as of June 2024. Similar to the first and second quarter of 2024, we received no revenues from our lead generation services in Q3 of 2024 versus $0.7 million received in the third quarter of 2023, again as a result of operational changes by management. On a positive note, the platform service revenue for the third quarter of 2024 was $4.8 million compared to $2.8 million in the same period of 2023. This increase is the direct result of our new sales director hired earlier in the year. Gross profit swung to a $7.8 million loss in the third quarter from a $10.5 million profit in a year ago period due to the shutdown of the ACP federal funding and our strategic decision to utilize our strong balance sheet to protect our previous ACP subscriber base and distribution network, while we transition the base over to either a non-subsidized MVNO business model LinkUp Mobile or into another subsidized program Lifeline. Additionally, the de-emphasis of our lead generation business resulted in lower gross profits in that segment as well. SG&A expenses increased by 97% year-over-year. The increase was primarily due to additional non cash stock compensation for management. This stock compensation relates to employment agreements signed in late 2023. We also had additional expenses for contractor and consultant fees. The company continued to engage several contractors to overhaul the financial platform to allow for the conversion to a tablet based transaction at the…

Thanks, Tony. At SurgePays, we're driven by four pillars of success: team, product, distribution and funding. With what I believe is the most seasoned team in prepaid wireless, a market leading product suite, proprietary distribution channels and $24 million in cash, cash equivalents and investments collectively as of September 30, 2024, we're positioned to execute our growth strategy with precision. We're only beginning to tap into a vast market opportunity. Our foundation is built on diversified products, a solid infrastructure and strategic partnerships all aligning us for rapid expansion. Our focus on high growth sectors in telecommunications, fintech and retail solutions targets an underserved market with immense potential. Guided by a mission to deliver affordable quality services to communities. Our unique approach to problem solving is our moat. A lasting competitive edge. SurgePays a dedicated to creating enduring value by meeting essential needs in a way that others can't. Thank you so much for your time today. We will now open the call to questions. Operator?

Certainly. Everyone, at this time we will be conducting a question-and-answer session. [Operator Instructions] Thank you. Your first question is coming from Curtis Shauger from Water Tower Research. Your line is live.

Yes. Hey, guys. I think -- thanks for taking the call. And I think the main impetus here is around all the new initiatives. Very exciting to see against the tough backdrop of what happened with the ACP. Can you give us any more details on what the renewed expectations about getting back to Breakeven? Do you have enough experience now in converting folks to Lifeline in terms of what the efficiency is, what the cost associated costs are, and then also what you're yielding in terms of return to when we might see -- when investors can kind of see a path to cash flow breakeven? Thank you.

Hey, Curtis, thank you for the question. I appreciate it. And it's a good one. Let me do my best to navigate that. There's a couple of points to make on that because we do look at things through the lens of getting back to cash flow positive, as we hopefully stressed, as fast as possible. That's priority one, and the point of least resistance to do that. And the purpose of retaining those ACP customers was to migrate them over and utilize the platforms that we had already built to be able to put those on Lifeline and be able to maximize those subscribers. So right now, what we're seeing, and I think we had referenced this in a previous press release, is between 2,000 to 3,000 a day, some days more than that, are migrating over. And that's a mix of existing ACP customers that we've reached out to that have opted into Lifeline and also new subscribers. We've got some online ads going. And as a matter of fact, the online ads have been so successful that we actually had to shut them down last week because we needed another reload, as we talked about earlier. Reload of people to help work the sales. It's been, I tell you what, I was expecting about 30% to 45%. We're seeing over 50% right now of the initial people we get in touch with coming over to Lifeline. At this time, we're over 70,000 folks that have enrolled on Lifeline. And my obviously immediate goal is to get back to that 280, 300 number. And to put it in perspective, if you're looking at the average Lifeline revenue per customer. There are five to seven states that have some additional monies, but the average revenue is going to be…

Yeah. That's awesome. Thanks for the detail. I'll let the next person go.

Thanks, Curtis.

Thank you. Your next question is coming from Andrew Scott from SLS. Your line is live.

Hey, Brian, thanks again. The gentleman that asked the question before me was the same exact question I was going to ask. So I won't hold up too much time, but I think everybody is focused on how you can minimalize the loss from operations. We see what you're doing with Lifeline. And to your last comment, how you're going to put out some metrics on upcoming press releases, I think that's going to help the street track the progress you're making. So I'm encouraging you and supporting you to do that. But it sounds like things are lining up. And I don't know if you go out and say it yet, but it seems like the worst is behind you now and you're making progress. Any other guidance going forward in the future that you're comfortable with or what we should be looking for?

Yes. Andrew, I appreciate the question, the opportunity to address that. As we talk about often on these calls, we get a lot of questions from shareholders, fund managers and sophisticated folks who look to build their own model of where we are, what we can be, and then the valuation in the future. And so that's been one of my focuses the past year or two, is thinking through the fact that almost everybody who works or deals in the stock market is banked. So the underbanked is a part of the world that they're not familiar with normally. And the market opportunity, the problems in that market is not something they see on a daily basis. So while that will continue to be our focus, we're shifting some of the phrase geology that we use so that we can have better, more, I'd say, more consistent touch points with shareholders so that there's not a confusion in what we do. When you start talking about shareholder value and you start talking about the things that we will be putting out there moving forward. And that was one of the rewrites of our business plan, even up until the last week or so, where we're going to consistently moving forward, talk about our four segments. We have our telecommunications segment, which the market understands we've got the prepaid and subsidized. There should be models there, especially once you start getting into the beef of Q1 and once we're able to utilize this new contract where our rates are even better than what we've had the past four or five years, our capabilities are better and our ability to service people and capture more of a market in the prepaid, we can actually become a name in the prepaid space,…

Got it, Brian, Thank you. I can hear your enthusiasm, too. I appreciate it. I'll turn it over the call now. Thanks again.

Thanks, Andrew.

Thank you. Your next question is coming from Mike Diana from Maxim Group. Your line is live.

Hey, Brian.

Hey, Michael.

Yes. So you guys have been incredibly busy. Starting with a prepaid platform. About how many convenience stores do you have right now?

About right now. We're still hovering at that 8,000 to 9,000 range. And now from a perspective of growth, that number this time next year should be exponentially more just based of what's on deck with ClearLine, what's on deck with LinkUp and the prepaid top ups. So that is one thing that should be coming on very, very heavy as we move forward. And then also some potential acquisitions of companies that do nothing but top ups or international top ups.

All right. And the $4.7 million in revenue from prepaid, was that all top ups?

It was mostly top ups, yes.

Okay, and you mentioned also that you're doing $2.2 million a month in top ups. Is that like a run rate now or do you expect that to go up a lot?

Now that's a -- Well, it's the run rate right this second, but that's going to go up every month as we're bringing on these masters who bring on their networks. I expect that to be over $3 million in December alone. And continue -- now, it won't continue forever. Five years from now doing $80 million a month, but it'll continue to the point where I expect that to get up over $10 million to 12 million, later in the year next year. Because now not only are we doing top ups, but we're also doing top ups for our products as well, our LinkUp mobile. And keep in mind that one of the reasons you see that kind of growth is because when you add that store and you start to get those top ups, then you add more stores. I mean, it's stack that compounding revenue momentum.

So you're saying you expect $10 million to $12 million a month in top ups by the end of 2025?

December next year I expect that to be about where we are in top ups, yes.

Wow. Okay, moving on to Lifeline. How many -- compared to ACP how many people qualify for Lifeline?

That's a good question. I probably should have put that in the script. It's an identical sister plan, if you will, and it would be approximately the same number of people. And just as a backdrop to that, it's anyone who's already receiving any form of government assistance, whether it be EBT food stamps, Medicaid, veterans pension, low income school lunches. Now there are some states that have a few different ones, but that's going to be your primary, which was the same primary for ACP.

Okay. And I guess it wasn't as big because people like you couldn't make much money before on it. Otherwise, I mean, logically, it would have been as big as ACP.

Now, that's a good question. You know, there were Lifeline providers that were strong in certain states like Oklahoma, California, Kansas, Kentucky states that had extra money. And if you had asked me, starting from zero, you and I go out today and we're going to do a business and do Lifeline. Does it make sense to buy devices, pay commissions, kickstart that ROI, come out of pocket and get that ROI on a customer and build a business that way? It'd be very difficult, be very difficult. But since we've already paid for the device, since we've already paid the commission, that's why retaining those customers was so important, because by migrating them over, there is no ROI. We're able to -- while we may not make as much money as we did on ACP, we're able to retain that value and go right back to making money. Even if it's four bucks a customer, we're able to go back to making that four bucks a customer and we have no ROIs today, as opposed to the historical Lifeline ROI is going to be about month four, maybe month five. And we were able to bypass that.

Okay. And then I think the number you've been using the last few years for how much it costs you per month to provide the service is roughly $10. So I assume your new deal with your direct carrier is what's going to lower it to $5 to $5.50?

Yes, yes, the new deal. And then also the carriers, to their credit, have been sensitive to the fact that we maintained our subscriber base. We don't have to get into the weeds, but there's --subscribers are good for all underlying carriers. So the fact that we retain them, they have opened up other plans and other ways for us to save money. But ultimately, yes, our direct carrier connect by January should reduce that cost below five bucks and enable us to deliver that same product where we get paid $9.25. So our margins by February Q1 next year should, I'm not going to say double, but should be substantially higher.

Higher then you double from $4?

No, our cost should be closer to $4 at that point, which would put our gross margin [Multiple Speakers] just a hair above five.

Okay. And the – Okay. So your LinkUp, have you really started that yet or are you waiting for this direct carrier connection before you do that?

No, we started it and then tapped the brakes. Like I said. I was actually sitting in on some of those meetings and I heard the opportunity and then LinkUp, we've got somewhere between 30,000 and 40,000 customers. But those are ones that -- those are the smaller masters that we allowed to go ahead and start bringing on some numbers to test our systems internally. But it was definitely a massive throttling by us because we wanted to be able to go out there and you know, there is something to be said for your first impression. And when somebody pulls a door and brings you into a wireless store, if you're unable to do certain things, you're going to immediately be labeled and most likely relegated to the corner. We didn't want that. And we've got some folks out there that we think we can get some significant traction with and get LinkUp well beyond 100,000 activations a month. And we just saved it. We saved the boom, we saved the fireworks, if you will, for when we could come locked and loaded. So that 35,000 customers is proving out our systems. It's proving our ability to activate, to ship sims, to deactivate, to take payments, to communicate with the carrier. But what we don't have the ability to do right now is certain things like throttle after a certain amount of data, and there's import numbers as we talked about. And those are two things that we need to be able to compete at the highest level, to go head to head with the brands that you see on TV.

Okay, so I assume your cost for LinkUp is going to be the same as for Lifeline. You say you can get it down to about $4. What's the -- how much are your plans going to cost? Your main LinkUp plan?

Yeah, good question. The LinkUp plans will actually be, and they should be considerably more profitable than Lifeline. You know, and now the plans will cost us a little bit more, but our revenue, we're not going to be selling $9.25 plans out there. You're going to be looking at $15, $20, $25, $30, $40, and $50. One of the unique things about our company, we have the ability to see payments, millions and millions of dollars in payments for all of our competitors. So we already know that the most popular plan out there is a $30 payment. Now, psychologically, we all believe it's because it's just two pieces of paper it's a $10 and a $20, you throw it down, $30, there's your phone service. So psychologically, it's an easy payment. And that plan should cost us around $15 to $17. So you could almost keep out your old ACP pencil, because the margins and the ROI and the mechanisms we use to deploy that most popular plan, if you will, will be about the same. So that will be what we start rolling out there toward as soon as it's tested. Again, it's a first impression thing. We got to be really, really careful. The wireless distribution world is not forgiving and you don't get a second chance. So that's why we're actually -- we're soft launching here, as we talked about in a couple of weeks, but hard launching full throttle in January. And those should be the margins we expect to see. And I'm definitely going to keep everybody in the loop once that comes around updates, because we're really excited about this. So I want to start talking about the subscriber growth and then by then we should be talking in black numbers as well.

Okay. And the LinkUp, the 30,000 to 40,000 LinkUp customers you have now, how much are you charging that.

The plans are from, I believe, $15 to $45, $50. Until January, not spending a whole lot of time in the analytics on that because it's just proving out. My focus personally has been on this, the Lifeline integration and getting everything set up, getting our guys down in El Salvador, getting our team set up, making sure we're able to take the incoming from all the stores coming on, the customers coming on. Because keep in mind, as we're adding these customers for LinkUp, it's not just a government paid for product anymore. We have to earn people's money. And it doesn't matter how much it is. It may be less than mine in your wireless bill, but we still have to earn it. And it's a different customer service approach when you have to secure that payment every month. So those are all the things we've been building. I've been spending a whole lot of time on that. But yes, you're looking at ballpark with LinkUp right now. I would say still the same thing. The average $30 to $35 a plan.

Okay. All right. Well, thank you very much. It sounds all very exciting.

Thank you, Michael. Appreciate the questions.

Thank you. Your next question is coming from Ed Woo from Ascendiant Capital. Your line is live.

Yeah, thanks for taking my question. I know it's only been a week out since the elections, but there seems to be a little bit of optimism in the economy. What are you hearing from your end customers, the convenience stores, the bodegas, who are on the feet of dealing with these underserved, underbanked customers? Do you sense any sense of optimism or do you feel that things are about the same and it's still going to be tough, which is ultimately good for your business.

Yeah, I think being in this business almost, gosh, going on 25 years now, a lot of the folks in this 30% of the market, when you're in the ocean and a wave's coming, which kind of represents the ebbs and flows of the economy. You drop below the water level and that wave doesn't affect you a whole lot. That's really where our market is. It sits below that water level. Now the interesting thing is when times get a little bit tough, more people move or transition into our potential market. Those are people that may need a little bit of help, maybe, maybe more value conscious. When things get tight, people get more value conscious. Now they're open to changing their wireless care. Their subconscious starts paying attention to opportunities to save money. That benefits us. I think from -- as far as directly from the election and optimism, we could tell in a week. I think that would take a while to see that. And obviously talking to convenience store owners, that's not something that we've jumped out and asked. And also in the political world we live in now, let's not jump around. And I don't want to. You never know because, I mean, we don't want to offend half the country. So we got to be careful how we approach things. But I think I would say this. The one thing that's going to be very interesting from the political change that's coming is J.D. Vance was the lead senator who authored the extension and was a huge proponent of the ACP program. For those of you that may not know, he grew up on food stamps and had situations where he was on government assistance. So it's unique. You have a Republican, now you have a super powerful Republican who's a huge proponent of these types of programs of keeping people connected and these subsidy programs. So there's optimism from a regulatory standpoint in companies like ours where that optimism lies. And one of the reasons why Lifeline is important to us and we've made this move from a chess perspective, if you will. We think that there's going to be funding come back for the connectivity customers similar to ACP, but it's going to be an enhanced Lifeline product. It won't be the traditional ACP. It'll be Lifeline providers who will be able to provide it. And it will be an enhanced extra subsidy amount per month to cover the bandwidth that Lifeline doesn't cover. So that $9.25 could go back up to $25 or $30. So that's what we're going to keep our eyes on. And again, we're not going to bank on that per se. That would be 100% welcome and fantastic. But that's not what we're going to bank the company. We're going to bank on $9.25 and anything beyond that would be gravy.

Great. I really appreciate the answer to my questions, and I wish you guys good luck. Thank you.

Thanks for the question, Ed. Appreciate it.

Thank you. That completes our Q&A session, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.