SurgePays, Inc. (SURG) Earnings Call Transcript & Summary

Hey, Kunal thank you for having us, and I'm looking forward to our conversation.

Great. So when you -- on the fourth quarter call, when you guided to revenue of $200 million, Street consensus was $125 million at that time. It's now $160 million. But it still points to some conservatism and possibly some of people just waiting to see the execution. So let's start with the biggest element in this $200 million, which was the $75 million of revenue that you talked about from LinkUp Mobile. Understand it went fully live, nationwide, on April 1. Want to understand, just so many questions with regard to what are your assumptions underpinning the guide? What is the competitive landscape look like? What's your go-to-market strategy? How can you help investors kind of get comfortable with your guide?

Sure. That's -- I think what you just encapsulated almost a view into our entire business model and what makes us different, those questions right there. So those are a fantastic place to start. The integration with AT&T, for those of us that have followed our story, was really the crux and the center point of our entire business model. We are a wireless company by trade, and we -- the key leaders in our company have all been involved in wireless since 2010, really since home telephone flipped over the copper, flipped over to prepaid wireless. We've all been involved in facilitating other companies' payments. We've been involved in launching other MVNOs, which is what we're called as 3 carriers, T-Mobile, Verizon and AT&T and the rest of us who have access to those networks are called Mobile Virtual Network Operators, MVNOs. So when people hear that knows it, we have relationships with the carrier. We get to use it. It's our service. It's branded with our name on. You can see behind that LinkUp Mobile, that's us. So we earned the right to sit at the table with AT&T. Last fall, we went and met with them in Dallas. They loved our presentation. They said it was very unique. The fact that we weren't just proposing a wireless company, but we also had a point-of-sale software platform to do activations and take payments, and they hadn't seen a comprehensive strategy of attacking into the neighborhoods where our customers live, shop, go to school and the whole convenience store, gas station, wireless store combination of our deployment as a grassroots company was what intrigued them. So yes, they gave us a slow roll green light last month in March, which we did 30,000 activations went off without a hitch. April 1 is our go date. And for those of us following, we got 200,000 SIMs in on top of that 30,000. Those are almost all spoken for. We've been rationing the SIMs out to those master agents in the field who are going pull in doors and set those stores up with our SIM cards to start activating for LinkUp. So this is something we've been building towards for over a year. And really, if you want to look at it, go back 6, 7 years, this was the natural phase-in of our model. For those of us that followed our numbers during the ACP era, we were using a third party as a gateway. We were using an MVNE, a third party that was between us and AT&T, which is really interesting because now as a part of, I think you want to -- we can get into later, but now we get to be an MVNE for other companies. So it's really exciting. We have -- we have worked in this industry long enough to know what our expected revenue through sales should be. And the reason that we're so confident is we have the relationships. We have the relationships and the people that we've hired have those relationships. We have the distribution networks, and those people have committed certain allocations from their own monthly distribution to us. So yes, we're very confident. I do believe I've got the best team by far in prepaid wireless. And we also are significantly different from other companies because we're not just a wireless company. We can go in with the whole point-of-sale system where not only do we know what we're doing, we're taking payments for every 1 of our competitors. We can do activations for most of them. And so it's kind of unique where we have the playbook from all of our competitors. So we know how to tool based on region LinkUp Mobile best, so it's adopted the best.

That's -- that definitely is very, very interesting. Now you talked about having a more comprehensive service than just prepaid wireless. And that goes back to your vision, and we were talking about it the other day. When you were telling us about how it's more a FinTech kind of a vision or the underpinning of the vision, where telecom is one of the services that are kind of layered on to it. So how about talking about your vision and how this kind of play into a competitive differentiation that you have, which nobody else has, at least in the markets that you're operating in?

Kunal, we have this debate all the time. Are you wireless? Are you FinTech? Are you this? And I'm like, you know, we're a platform. We're a platform. We're a comprehensive platform that sometimes it's kind of hard to do the elevator pitch because it's interesting, our market cap, you would think we're a small company, but we're not. We have -- as a matter of fact, I'm actually on location in El Salvador at our operations center. I've got 120 people working right to my right on the other side of these glass walls as the heartbeat of our operations. We have folks spread all over the country. We have developers from United States to Ukraine to India, all over the world. So we did things a little differently than most companies. We've built our company watching 15 years of growth from companies that we saw grow from companies we assisted, we help them launch. We take payments for them. We saw the plateaus, we saw the mistakes. We also saw the wins. There's been some great wins and guys that have sold the Verizon like Net Mobile for over $1 billion for just 2 million subscribers. So we were able to, I'd call it, a last-mover advantage. We got to look in front of us and go, okay, this is the course of the race. Man, we've got the best drivers, how can we navigate this? And the best way to do it, we feel and why again, why we're so confident is for us to be able to go out to a wireless store or a convenience store or a Tienda or a Hispanic store because there's 100 million prepaid wireless customers in the country and to be able to say, first of all, we're not going to charge you a dime. At the point of sale, the clerk there at the cash register. We can set up through our clear line company, a little LCD screen that when it's not being used for credit cards would be promoting LinkUp Mobile where people can save significantly because, again, we don't just make money off LinkUp. We make money off other services we provide to the same customer base, but to be able to use that platform to distribute our prepaid wireless, very high-margin product for us. We can afford them to give that store a great deal doing top-up payments for every other company, doing activations for debit cards to give people credit card buying power they don't qualify for a credit card. So we've debated this a lot, and I think over time, if you look at what we're really doing, it's kind of funny, Kunal. We didn't know each other back then, but in 2017, my first press release ever as a public company CEO, even on the OTC. We talked about where we want to build the nation's largest network of independently owned convenience stores, gas stations, retail outlets, neighborhoods that may not even classify that through SIC code as a convenience store is where people go to buy their food and to buy their things. Build that out, and that gives us such -- knowing that we're in their checking accounts. We're profit partners with every one of these entrepreneurs and mom and pops, that gives us such a dynamic relationship of distribution. And we also feel -- and again, I don't want to ever get ahead of myself, but I do live a year or 2, 3 years in the future. As we start looking at a way that we can bring stores onto our network, where that store owner cannot say no. Hey, we're going to allow you to offer your community the best rates and prepaid. We're going to allow you to offer your community Lifeline services where if they qualify for subsidy, they can get a free wireless, one per household. We're going to allow you -- there's -- they make money off transactions, especially at a time of uncertainty in the world with tariffs and maybe other things. We're under that watermark of economic -- macro economics, if you will. We really are. Our market is under that water market. Our market is still going to be our market, no matter who's president, no matter what tariffs, no matter what GDP is, it's our market. You've been in it for 20 years. So I think if you look at us from that perspective, you see a hedge against the crazy chaos of the world. you see a company that's got a big upside. Convenience stores have been around since the dawn of time, and they'll be the last thing standing with cockroaches up to the apocalypse. And you look at what we're putting together. And hey, not to get ahead of ourself on the wireless because the wireless is so significant with so many opportunities for billions of dollars in revenue just in LinkUp Mobile alone, when you start looking at putting together a scenario where digital currency at some point in the future will be adopted for the market that's cash only now, once regulation in Washington is comfortable and they meet. Well, we've looked at this 7 years ago, what better company to push that for real adoption, then if I've got store owners right now who are really my points of distribution with the trust that they've built with their community. These are the exact same guys 3, 4, 5 years from now, who can push that digital currency into that market. And we're the perfect company to do those transactions and reconciliations to give buying power to folks. So we keep up with things like Cash App and those other things, too, so that we know how the regulatory market is coming because we do. That is our big home run, whether it's LinkUp Mobile, whether it's top-ups, whatever it is, get the relationship in the store. And I think you'll hear that underlying word from me more often than not. It's all about relationships, ongoing reoccurring revenue. And then as we expand our network expand our product suite. Very similar to what PayPal did, but PayPal used more of a Silicon Valley direct-to-consumer. We're looking at it grassroots into the community. But the same thing. Expand your network, expand your product suite. Simultaneously, you've got a 2x -- 2x, it's a squared growth model, a 3D growth model, if you will.

That is an interesting conversation for another day, maybe.

Yeah, I know it is.

But a 3D growth model, that sounds very interesting. So coming back to the guide, and let's -- what I'm trying to focus on is the biggest question that people probably have today is about the guide and about the numbers and how easy or tough is it for you to kind of get there? So the other element to the guide is about $50 million of revenue that you talked about from the Lifeline business. And you were -- you talked about it on the earnings call in terms of, hey, this is not just the Lifeline, the basic Lifeline $9.25 a month business. There will be -- there are states where you get premium revenue. So help us understand the path there in terms of what are the regulatory approvals that you need once you get those regulatory approvals or partnerships that you have, how soon, how quickly can you deploy? And what kind of deployment catalysts or milestones can we kind of expect?

Going back to the guidance real quick, let me touch on that first. Our whole team, we met in Memphis before we put that guidance out. And I challenged every single person who is accountable and responsible for bringing part of that revenue into the consolidated financials, everyone of them, I asked, 3x. Are you positive. Now our numbers internally are obviously much higher than what we put out there in guidance. And I want to be very clear to everybody, that's not 2025 because April 1 really is the kickoff for us. So that's the 12 months after -- that will be April to April. And then we're going to -- I think later this year, we'll fall into more of a quarter being able to give guidance on the next quarter. But we wanted to put it out there. We're super excited, and this is what we're very confident in. And I'm actually really looking forward to giving an upgrade from that as we go. And we're going to do a really good job messaging, we haven't messaged much at all of the last 9 months. We've been building for this launch. So now like this conversation with you is actually might kickoff of an Investor Relations world of being able to talk about the company and the things that we're doing. So a part of that, about 25% of that, was the Lifeline business that you asked about. What's really awesome about our company right now is all the systems that we built for ACP and for those that don't know that was the government program that came out of COVID. The qualifiers for ACP are identical to Lifeline, food stamp Section 8, school lunches, Medicaid, Veterans Pension. If you are on any of those government programs, you qualify for Lifeline, which is a Reagan program, been around withstood every administration, you could imagine a big stream, so it's around. And what we did was we're pinpointing certain areas that we want to have more of a presence in. And so we can use the exact same platforms that we use for ACP, really going direct to consumer through the stores where they shop, don't have a lot of risk in it. We have the compliance systems built. So we're essentially retooling the ACP for Lifeline, which we're already doing right now. I mean we're doing a these guys out here, we're processing Lifeline. Probably their live chat and dealing with folks answering questions so they can sign up themselves for Lifeline. And so it's a component that we don't have to sweat. We already have it. It's there. So you just send it out and push it. So yes, so we're really confident. Lifeline has been a really good business for me, for the company. For years, we've been involved since 2007. We've got a lot of people on staff that know it live, breathe it. So why not? And now that we have the AT&T rates, we have enhanced our margins. So if you look at it from blended margins from Lifeline to LinkUp, yes, LinkUp usually will make more money depending on the plan. But Lifeline's a great plan for us. And plus look at the end of the day, it's a product that helps low-income people. So we're proud to be a part of that really from a social responsibility standpoint as well.

Got that. In fact, when we initiated or we've been when I assume coverage, that was one of the things that I was doing was in the report, we talked about how the economics is different. And what the NPV of a 12-month subs on different platforms. So coming back to Lifeline, when you think about your existing network, and it all kind of dovetails together in the story that you're kind of building. But when you look at, say, let's say, California, if you go and you start the Lifeline business in California, do you have the network of stores and convenience stores and bodegas and what have you that allows you to be able to be in the market and have a presence very quickly? Or how are you thinking about -- so basically, what I'm trying to do is figure out you have -- right now, your run rate is about $8 million on the telecom side annually. If you're promising -- if you're talking about $50 million of revenue, something has to go from $8 million to $50 million right. How do we get comfortable going from $8 million to $50 million?

I think when you look at $8 million, there wasn't a run rate in the $8 million. It was because there was no running. That was maintaining. It is maintaining. It was doing the circle around the city, waiting to leave or land. But -- so I think what you could do actually in looking at that, go back to the beginning of ACP.

Okay.

And let me be -- I think it's good for folks to know. We're actually throttling the Lifeline program. We're throttling it from a cash flow perspective because while, again, LinkUp Mobile behind me is a prepaid, a customer pays us in advance for the product. That's a really good product for cash flow. We get paid upfront, we provide the service. We pay AT&T in a big, huge wire at the end of the month, all right? Well, on a government-subsidized program, we sign up the customer. We usually have to pay a marketing fee, even if it's Google, Facebook, whatever it is, you provide the service and then 45, 60 days arrears, we get paid from the FCC or USAC, that wire as it comes. So that is the complete opposite of a good cash flow model. profitable. Yes. Margins, yes, exciting, yes, but not good for cash flow. So we throttle -- think about them running side by side. we throttle to where we can make sure and really focus, especially early on. I'm an old school, Excel, Spreadsheet pro forma guy where the dip goes down, your ROI comes up, boom, you crested above profitability. Now you just [ rinse ], repeat and go. Well, we want to make sure that first 8 months, starting yesterday, we're very careful. We're only doing the activations that are least cost to lower our cost of acquisition to pull that ROI sooner. And they're almost -- just think of it as a revenue triage of allocating LinkUp first and then Lifeline. Because Lifeline is going to pull from the cash flow. So we believe we can do significantly more than that. But again, that first 12 months, cash flow and growth, they had -- their priority is a little different for us right now. So we want to make sure and maximize growth, while not going desert because you can lose your hat, wake up 1 day and you've had a phenomenal adoption, phenomenal sales and you don't have enough money for payroll. So that's a big concern for us. So that $50 million, think of it in Lifeline you're almost like buying your customers. You are. It's wide open now. A lot of the guys who were in the business back during the ACP and previous are no longer in the business for one reason or another, wide open right now. And we use that to gain access to stores. Even if it's not a huge focus in 2 to 3 years from now, we probably won't talk about it much because that $50 million will grow but it will grow at a different rate than all these other opportunistic where you consider you've got tens and tens of millions of potential with LinkUp and some of the other things that we'll be rolling out, we've got a Hispanic brand on the horizon later this year, specifically a Spanish first language product that we think will be fantastic because if you look around, there's not one. It's been all consolidated. So very confident in the Lifeline. We're tooled for it. And the states -- there are states that give extra money, whether it's Oklahoma, whether it's Kansas, Kentucky, California has numbers that are very similar to ACP. California has over 6 million eligible folks that qualify for Lifeline. Don't need many of them hit that $50 million when you annualize it times 12. So yes, so that -- we do have folks, we have distributors in California. We have a presence there. Actually our Director of Sales, lives in California. So our Director of MVNO services lives in California. So absolutely, we have a base there. We're looking to maximize and monetize.

Brian, we are getting close to time, but there is one theme that I definitely want to touch on. And this was something you sounded very excited about this on the earnings call. This was the MVNE part. Now here, the revenue number that you talked about was smaller. So you talked about $25 million of revenue. But you sounded very, very excited about it. So let's try and understand what the MVNE opportunity is for you.

The MVNE, we touched on this earlier. That's how we got access to airtime to minutes, text messages data since 2009. I've always used another company as intermediary that provided me the gateway, access, build me, they marked it up. And then we paid it. Look, we've done hundreds of hundreds of millions of dollars of revenue that way. No problem with it, right? Well, when we were meeting with AT&T, we talked about this, and a large company like AT&T does not want a bunch of small companies they deal with and bill. They hedge their bets by going with a company like us who has the ability to pay even if we don't get paid. Now it's our responsibility to make sure that we have terms in our contracts where we get paid. But we can provide that there's a lot of companies out there. As a matter of fact, before this call, I was on the phone negotiating with 2 companies, giving feedback, we're in contract base right now to be able to do that. And I think as you look at growing a business, and you're talking to a guy that started with nothing 25 years ago, slip on the floor if you slept, traveled all over the place, the ability to make money off of other people's work, effort and sweat by providing the commodity to them that they're packaging and selling, even if it's a competitor directly to us, we're going to make money off the competitors. So is it really a competitor anymore? Yes, it's a competitor for the higher margin and retail product to another one for it. Now because of SurgePays platform, we could be taking payments for that competitor. So we could be providing the airtime, taking the payments for them. And all the while, they're getting paid twice, and they're a competitor of ours. So the MVNE business is also enhanced because one of our -- actually a couple of our employees, their background is in selling wholesale airtime. We even have a former CEO of a large wholesaler of airtime, a gateway company. So this is something we don't have to learn necessarily. And guys may need to blow the dust off of some of their filed cabinets in their minds. But yes, we already have the network and connections to do this. So we're very, very excited about this because there's 0 incremental cost to us. and it only enhances our profile with AT&T, so that when we start putting up good numbers, we take a little quick trip back to Dallas. We have a discussion with them on our value now. And maybe we make a few amendments to some of these pricings and promotions and see what they can do to help us out and reward us for making them look good on their Christmas bonuses and their shareholder calls.

This is great. Thank you so much, Brian. This was very, very interesting. And I know we need to do another call on the 3D growth opportunity. So looking forward to that chart with you. And ladies and gentlemen, thank you so much for joining us on this call. Have a great day. Thank you.

Thanks Kunal. Thank you.

Thanks.