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

Welcome, everyone. Today at our fireside chat, we are with SurgePays, that ticker symbol is SURG. I'm your host, John Roy. I cover technology here at Water Tower Research. And today, I'm joined by Brian Cox. He's the President and CEO of SurgePays. I should mention that SurgePays' safe harbor statements can be found on their website. Also, this fireside chat cannot be reproduced or a written transcript distributed without the expressed written consent of Water Tower Research. Brian, how are you?

John, doing good and excited to be here.

It sounds great. So just to kick us off, look, not everyone knows SurgePays. Maybe you could give us a quick overview and give us some color on the addressable market and your business lines.

Sure. From a high level, our company caters to about 1/3 of the country in the United States here. It's the -- let's call it, the prepaid market. There's 100 million prepaid wireless subscribers in the country kind of encapsulates that overall market, the blue-collar working class all the way down to the government subsidized class. Our consumer demographic visits their local community store multiple times a week, and we use the point-of-sale platform at those stores to distribute our products. Our products range from prepaid wireless, subsidized wireless, other third-party payment mechanisms to help folks pay their bill at that store that's closest to where they live. And look, we've recently integrated through a contract with AT&T. So now we're an MVNO. And what we've been talking about is that the MVNO market in the United States is $30 billion last year, 2024, projected to be almost $53 billion in the next 8 years. So we want to ride that wave, and we want to do so at a grassroots level right in the neighborhoods where our target market lives.

Now your distribution system is about 9,000 retail points now roughly?

Yes. And that's one of the growth focuses of our company. If you want to look at these entrepreneur-owned stores, and this could be anything from a gas station to a community market, a Hispanic store depending on the type of neighborhood. But it is that community store usually on the corner within walking distance of neighborhoods that fall into this category. And what we find is even through government studies, which ironically came from the USDA, looking at the health of folks and various socioeconomic classes is that our target market visits that community store 4 to 5 times a week, especially the cash-driven folks who -- their security is the cash in their pocket each month. And as that depletes, they don't just go to Walmart or Target once every 2 weeks. They constantly visit the store. So understanding our customer base and then understanding our clients, which are really our partners, who are behind the counter, working as clerks in these stores, our whole distribution mechanism is geared around helping these store owners make incremental money through transactions for products we provide, creating more foot traffic and then helping them help their community and making money doing so. So we have 9,000 of these stores right now. There's a big aggressive push going. Our goal is over 100,000, and we've got the product suite, we believe, to do it, and we're seeing some pretty exciting numbers come in as we grow this network.

Wow, 10x, that's an impressive goal. So why don't you tell us about the subscriber growth initiatives other than these that you've already talked about a little bit. I believe you're looking at Lifeline subsidy model and your LinkUp model as well, the prepaid model?

Yes. We've got a direct contract with AT&T, where it really gives us 3 channels of revenue. One would be our prepaid brand, LinkUp. So we've got some really aggressive rates providing it through the AT&T network, similar to Cricket, Boost, MetroPCS, some of the other prepaid companies out there that you may see commercials on TV. That's our LinkUp channel. You've also got our government subsidized channel. That's our torch wireless channel. We're really seeing some great numbers coming from the Lifeline side. Lifeline, for those that don't know, Lifeline is a program that was created by Reagan in the '80s. And what it does is if you're on any government subsidy program, food stamp, Section 8, veterans pension, Medicaid, then you qualify for free connectivity. Now it's evolved over the years to free wireless service limit 1 per household. And it's a really good program for us. So we've got that subsidized program. And just back story for those who have been following us, when the ACP program ceased being funded last June, we retooled that entire platform that built that $120 million of revenue and refocused it and regeared it into the Lifeline program. So we're seeing some really exciting things coming from the Lifeline program right now, very similar to the scaling we saw in ACP. The third channel that was created from our AT&T contract is our -- it's actually -- to put it in layman's terms, our ability to wholesale to other wireless companies. AT&T only lets us select few companies integrate directly with them. Since we already had a platform not only for maintaining customers, the CRM, we also have a platform for taking payments and doing transactions at the store, which is the SurgePays platform. So they asked us if we'd be interested in working with integrating other third parties, in some cases, our competition. And yes, so we've rolled that out as well. We've got 3 MVNOs now on our platform doing activations through our contracts. So really, really exciting things that we're seeing right now. It's exciting numbers coming in, and we're kind of managing the lightning hair on fire right now.

Maybe you can highlight some of those numbers, obviously, public information to how well you're doing? And why are you so confident in your revenue guidance?

Well, we're confident in the revenue guidance because the team that we've put together, we've got a really unique team. And it's -- I tell people, in my opinion, is by far the best team that's ever been assembled in prepaid. I'm obviously biased. But the reason I say that is because you've got guys like me and the team that I brought to the table, which did a couple of billion dollars in prepaid. You've got an acquisition that we did a couple of years ago. We brought that entire team and we kept all of those entrepreneurs that built that platform to billions of dollars of revenue. And we recently hired a sales executive last year that also built a company into the hundreds of millions of dollars of revenue. So in our market, if you look at it, we're in the telecommunications market. But in that prepaid niche market, prepaid wireless really has only been around since 2009 at a really explosive level. So we're -- you're talking about, what, 15, 16 years. So we're kind of a new industry. It's a small knit industry. So when you have what we call in our war room, known revenue. You have people who bring network of sales with them because they have a master agent hierarchy that they distribute through. So as we bring these folks on, they bring their own network of stores on. We know the sales that we're going to hit. And we're watching that right now. As a matter of fact, one of my -- it's -- I don't mind being wrong when I was off on our sales numbers, and they're exponentially more than what we had projected and anticipated. So as we're looking at numbers right now, we can focus on the Lifeline piece. And again, for those that follow the scaling of the ACP program. Right now, we're taking off in Lifeline faster than what we did in ACP. So we're extremely confident in both the projections we gave for the being cash flow positive by the end of 2025, heading out of the year. And we're looking at blowing the doors off of some of the numbers we did on our best months in ACP by the end of Q1 next year. So it's exciting. And we do already live in 2026. I mean, we're looking at that. We're looking at the numbers because we're also -- what's different about now in ACP. ACP we had retooled our push to get behind one product, one program, one channel. And that was that ACP piece. Now you've got your LinkUp, which is the prepaid, you've got your MVNE, which is the wholesale to other competitors, you do have your subsidized, which will grow at that ACP level. You've also got the top-up platform, the fintech platform. And then you've got ClearLine. All of those other 4 channels and subsidiaries will be growing simultaneously to the Lifeline piece. So we'll never have that kind of negative comment about, well, you either have all of your revenue coming from one channel or there's a funding -- the -- maybe the discount applied to the analysis on your stock, the valuation because of the unsure funding of a program. That will never happen again. We've got multiple channels that all contribute to the consolidated revenue, and everything is being geared to where it can either these subsidiaries can grow siloed by themselves or in a lot of cases, in synergy together because they all use the same distribution mechanism, but however you get in the store, whatever -- whether it's signing up with a chain of stores or someone pulling a door one at a time, depending on what the lead product is in that area. We're seeing growth in all 5 channels. So yes, it's exciting. Like I said, it's -- there's long days right now. But when you get to see numbers to the minute, and you get to see these sales just tick, tick, tic. And we know how many customers we have to have at a certain level to get back to profitability, and we appreciate the profitability and what comes with it and what that enables us to do as a company. From top to bottom right now, it's a lot of excitement and electricity at SurgePays.

That sounds great. So maybe we take a quick step back for a second if it's okay. What's the rest of '25 look like? What's the rest of '26 -- going into '26. I mean, obviously, I can hear the confidence in your voice, but can you give us a little more color on maybe what we might see coming down the pike?

Yes. I think as always when you put out numbers, you subject yourself to scrutiny. And I think it's important to -- for folks that follow us to know with these 4 channels all going to market and essentially all starting at 0 a couple of months ago. Things scale significantly. especially when it's a 4x scaling, 4 different subsidiaries and understanding that all 4 of these are reoccurring revenue models that grow scale-wise, skewed-wise into the future. So I think what you're going to see is Q2 was a little bit of an uptick, but that was the priming across the board of all of these and getting that -- getting the wheels cranking, the gears cranking. What we're watching right now is exponential growth. And obviously, we've got to report Q2. That's a part of being public. I'm really excited to talk about Q3. And obviously, we don't have a Q4. It will be a while before people get to see that. But we're going to do some things to create visibility of our real-time growth. as much as possible. We've got some huge subscriber growth numbers that are coming in and well in the thousands a day. And I want prospective shareholders and existing shareholders to understand and be cheering for us on the sidelines as they watch this growth and not have to wait until all the way in the spring to hear what we'll do in Q4 this year. And I think as people pay attention, they'll start to correlate what happened 3 years ago with ACP when you saw the subscribers going up over 1,000 a day, and knowing that we have very, very similar, if not a little bit better because of our AT&T contract margins as we did in ACP. So very simple numbers on the Lifeline program. There are certain states that pay extra money in the Lifeline program. And a couple of them that we're focusing on right now we know that at 100 -- and this is obviously using big blocks and shapes and colors. But with 100,000 subscribers in those particular states, well, we're breakeven cash flow positive. And that's just one subsidiary, one product in a few states. And the fact that we're doing 1,200 to 1,800 a day right now, and we're not even at full capacity of just that product. I mean, people watching us are smart enough to do the quick math of why we're excited. And that if you look at it, it's almost the end of July. We're very, very quickly going to be back on the green or black depending on how you like to look at it of the profitability meter.

Well, Brian, that sounds really exciting. Unfortunately, we're running out of time. So I really appreciate you joining me today to talk about this. For those who want to learn more about SurgePays, please visit their website or access our research on -- WTR's website that's watertowerresearch.com. And I want to thank everyone for joining us. The views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research LLC and are provided for informational purposes only. This fireside chat may not be distributed or reproduced without the written consent of Water Tower Research and should not be considered research nor recommendation. WTR is an Investor Relations firm, not a licensed broker, broker-dealer, market maker, investment banker, underwriter or investment adviser. Additional disclaimers can be found in watertowerresearch.com. We'll see you later, Brian.

Thank you, John. Have a great day.