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

Partnering with a company as large and as powerful and as knowledgeable with such a great history as AT&T, there's so many strategic advantages to that. You have access to a knowledge base that is outside of some of the acumen that we've possessed prior to doing this level of business with LinkUp. But the biggest thing that it's done is it's positioned us appropriately in the market with our pricing. We have a 3-year contract with AT&T, so this is not a one-and-done situation. This is something that we are very much committed to. Our relationship with AT&T has enabled us to do things from a pricing basis that are going to allow us to not just power us, but to also power other agencies that need access to this level of pricing. And that's really probably the best thing that it's done for us. So it's not just some of the insight into the industry that we've gathered from this relationship, which is valuable, but really the pricing and driving home that on our agreement was really important to how we have a move-forward strategy.

That's a great segue to the next question that I have, which is the economics of the prepaid business. So when we think about economics, there is the revenue element and there is a direct cost of that revenue. So can you talk about what the ARPU, average revenue per subscriber, should be? And what are the direct costs of generating that revenue?

Sure. ARPU, on your average customer, you're really looking at on LinkUp particularly because we'll hone in on that. LinkUp, we have a very strong $30 offering. But we do have a lot of clients that really, they love our $10 plan, our $20 plan. We have a $40 and $50 as well, but the $30 seems to be where a lot of people settle. So what that does is it gives us an average, aggregately about $35 on the average customer because our $30 plan is very competitive in the market space. We have 12 gigs of data on that plan, unlimited talk and text. We have international roaming; Canada and Mexico, we have international talk and text available. So there's a lot of things that you can do on that $30 price point. And really, when we look at these plans, Kunal, how we look at it when I was talking to Brian is he said, "Just make it 2 bills." A lot of people can come up with a $20 and a $10. And a $20 and a $10 when you're out there working, et cetera, especially if people are making $15 an hour, that was a big point for us. We want to say, okay, 2 hours of hard work can get you 30 days of really great service on LinkUp Mobile. And that's really something that we wanted to hone in on. That's why we settled on that $30 plan. So that gives us our ARPU around $35 as an average. Cost of acquiring that customer, we're finding it's about 3 months of that value. It's just right around that $100 point is where it kind of settles in. That's our kind of our cost of acquisition on that customer. So that's where we're seeing that settle in.

Great. So 3-month payback on the cost. Let's talk about the lifetime value, which is a big thing in a subscription business. So typically, what is the -- how long does a typical subscriber stay on the platform? And what -- how should we kind of think of the lifetime value of a subscriber?

This is one of my favorite questions that we get asked is what's the lifetime of that subscriber? Traditionally, the market will tell you that it's about 6 months, and that's what we have to believe. We officially launched with AT&T officially in April. So if you think about it and going through the months, it's difficult for me to give you a full basis for that because if I'm on a 6-month average, we haven't quite achieved that, obviously, at the time of this podcast. But we really believe in the stickiness of how we achieve our customers. So we really believe that 6 months is something that we've put in our modeling. But I would tend to think that 7, 8 months, and it's because of the relationships that we have at the store level. When you position yourself in a convenience store, you're positioning yourself inside of a community. And when that's part of your penetration point, your longevity of that customer relationship tends to be longer in everything else that we do here at Surge. And so we tend to believe that this is going to help us expand that relationship with that customer. So we're really hoping to see 7 and 8 months out of a standard customer and hopefully even longer.

Great. Let's talk about the new initiative that was just launched 2 days or 3 days ago, the Trump Mobile service. On the face of it, with a $47 per month price for the service, which includes telemedicine and a $500 price for a high-end gold phone, that should be attractive to consumers. So does that change your plans in any way? Or how are you thinking about this additional competition?

It's fascinating when you see something like this. We've weathered so many things here in this industry and here at Surge. We've weathered the launch of what people like to call at that time the Obama Phone, which was going into that whole Lifeline aspect. And we're big, and we have an important aspect in our company within that. But there's so many things that you are going to always come into competition, whether it's with a Trump Mobile or whether it's with any other MVNO that might enter the space. The biggest competition that we have in this is really an internal one. And that sounds cliche, but it really is to that point because if you're doing what you should be doing as a company appropriately, if you hone in on fantastic customer service, white-gloving your customers from the initial point of contact all through their entire life cycle with you and if you reach them at a point that other people will struggle to get into, because penetrating in those markets where we are is something that you don't do overnight. It's something that we have spent a couple of decades perfecting, and it's something that other companies won't be able to do in a short-term relationship or in a short-term launch strategy. I think you're going to see a lot of companies like the Trump Mobile, which is fantastic, but you're going to see something like that. You're going to see it in a lot more of your big-box retail. And if you were to take all the big-box retails that you would think of in a traditional aspect, you couldn't come up within maybe 1/8 of how many convenience store, mom-and-pop and single-store ownership locations that there are. Maybe it's 1/16. I wouldn't know the exact figures, but there's thousands and thousands and thousands additional mom-and-pops, bodegas, tiendas, convenience compared to your big-box retail, which is traditionally how something like that's going to be positioned. So I don't really think that we're going to find ourselves with the same people. So I'm not too concerned about it at this time.

Got it. Coming back to your position overseeing so many different business lines, how do you decide how to allocate capital and resources to the different businesses that you are responsible for?

I think more than capital and resources, I wonder how I'm going to take care of my personal resources, where I spend my time and my mind, have the time because it's the advantage of having such an amazing team that we have positioned here at Surge. But really, if you're looking at the capital allocation, there's -- money is not infinite, right? Money is finite, and we have to be great caretakers of the revenue that we create and any type of funding or anything that we bring into the company. And so what we do is we look at things from a stability standpoint first. And that's the first thing that we attack as we look things that are going to be stable and long term. We look for month-over-month money, things that are -- you're going to be your quick revenue generators. So if we can push revenue into a quick revenue generator, right, and then that revenue generator creates the month-over-month for the long-term play, like a LinkUp, then that's what we do. So we'll focus some funding and some -- and monetizing into that quick revenue generation aspect because a lot of those times, those are short cycles. So those can bring in revenue very quickly month-over-month. Then we take that money and now we've parlayed that additional revenue that we've created internally using the outside revenue, and we've pushed this into the long-term vertical, which is companies like our MVNO, LinkUp. And that's how we allocate the resource.

Got it. Back to you, Tim.

Thanks, Kunal. Thanks for joining us today, Derron Winfrey, President, Sales and Operations of SurgePays, NASDAQ ticker symbol SURG. And thanks to my equity research colleague, Kunal Madhukar, for also joining us. And finally, a special thanks to the producer and editor of the podcast, Joe Brunetto of Water Tower Research. Thank you for listening, and don't forget to subscribe as well as visiting www.watertowerresearch.com to stay up to speed on the company's small-cap written research reports, podcasts, fireside chats and conference schedules. We will see you the next time for another edition of the WTR Small-Cap Spotlight podcast.