SURG - NASDAQ

Good day, everyone and welcome to the SurgePays 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Valter Pinto, Investor Relations at SurgePays. Sir, the floor is yours.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays 2025 Second Quarter Financial Results Conference Call. Today's date is August 13, 2025. And on the call today from the company are Brian Cox, President and CEO; and Tony Evers, CFO. 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 earn 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, 2025, will also be available on SurgePays' Investor Relations website. I'd now like to turn the call over to President and CEO, Brian Cox. Brian?

Good afternoon, and thank you for joining us. Our second quarter 2025 revenue increased approximately 8.9% sequentially, bringing total revenue for the first half of 2025 to approximately $22.1 million. Subsequent to the second quarter, we saw a strong accelerating momentum across all of our business verticals. Our MVNO operations through LinkUp Mobile and our government subsidies brand Torch Wireless as well as our MVNE wholesale platform, which offers a full suite of nationwide wireless solutions to third-party wireless providers. Our SurgePays point-of-sale prepaid top-ups revenue has spiked upwards as well. Today is less about the past and more about what's happening now and what's ahead. We have visibility on our growth and full confidence in providing revenue guidance of $75 million to $90 million for 2025 and $225 million to $240 million for 2026. Let me start with the subsidized Lifeline wireless program through our Torch brand, which has scaled significantly. The Lifeline program is a government-subsidized benefit program that provides essential wireless connectivity to those who qualify. While the ramp in activations took about 60 days longer than we anticipated due to regulatory approvals and software platform adjustments, we are now 100% live and activations are steadily increasing daily. After activating 20,000 Lifeline subscribers in June, we acted 57,000 in July and are now projecting to activate 80,000 to 90,000 subscribers, approximately $3,000 per day by September. To put this into perspective, at our highest peak during ACP, we were activating roughly 3,000 per day. With Lifeline, we are approaching that level and have reached it in a significantly shorter period of time. What's even more exciting is that we're still operating well below our full capacity. Many sales channels are still being opened, so we expect continued sales growth. This positions us exceptionally well for the continued growth in the months ahead. During ACP, we made significant investments in infrastructure and operational efficiencies to support the growth we experienced. When ACP funding ended in June of last year, we immediately repurposed that infrastructure to support Lifeline and our other platforms. We successfully built upon that foundation by adding an exceptionally seasoned team, new technology, additional distribution and most notably, a direct strategic partnership with AT&T. We signed a multiyear agreement with AT&T in November 2024 and completed full integration, including a network migration and SIM activation rollout on April 1. This partnership gives us direct access to one of the most reliable networks in the country, and positions us to provide back-end telecom infrastructure to MVNOs that don't have a direct carrier relationship. Another key differentiating factor from the ACP days is that we are now uniquely diversified, not only through Lifeline but also our MVNO prepaid LinkUp platform. We fully launched LinkUp in April, activating approximately 10,000 users. In July, we more than doubled that surpassing 20,500 activations, driven primarily by expanded retail distribution, target marketing and competitive pricing. The grind of market adoption takes longer on the prepaid side of the wireless business, but we are seeing the expected traction. These drivers are sustainable as we continue opening new doors and building customer loyalty. The heart of this model is our proprietary point-of-sale software, which not only facilitates transactions, but also drives reoccurring revenue from activations and replenishments right at the convenience store register. It's not just a tool, it's the backbone of our ecosystem and a true competitive advantage. Third- party prepaid wireless top-up revenue is a key indicator of future revenue growth in our other products. In July alone, we generated $4.3 million in top-up revenue and are projecting nearly $5 million in August, putting us at a run rate of over $60 million, assuming no growth. Last year at this time, we were generating approximately $1 million in monthly top-up revenue. This same channel's revenue in July 2025 is now almost 4x higher. Our strategic initiatives, including the recent signing of several key new accounts are expected to drive sustained recurring revenue growth. The model is working and the investments are paying off. On the wholesale side, our MVNE platform is a growing revenue engine with a robust pipeline. As an MVNE, we provide billing, provisioning, SIMs and eSIMs to other wireless companies. A high-margin model with minimal incremental costs and low overhead. Many MVNOs in the market today are actually sub-MVNOs. We're one of the few with direct carrier access putting us in a rare and powerful position. To date, we've onboarded 3 MVNO partners. Collectively, these partners serve thousands of subscribers and they're looking to grow quickly, providing us with a path to scale our platform and reoccurring revenue base. We are also in advanced talks with national convenience store distributors, each with footprints and tens of thousands of community retail store locations. Last quarter, we discussed HT Hackney, which services over 40,000 stores. Hackney is carrying our Phone in a Box product, which continues to perform well. Phone in a Box is our retail-ready grab-and-go solution that enables stores to sell and instantly activate wireless service by scanning it at the register. As rollout progresses, each Hackney location becomes part of our extended ecosystem and begins to accept top-up payments for our monthly wireless plans. That means each store transforms into a new activation point for our entire product suite. Our near-term goal is to ramp to 100,000 locations operating on the SurgePays platform, driven by a combination of organic growth and distribution agreements with HT Hackney and other partners. Before I turn the call over to Tony to discuss our results in more detail, I could not be more excited about the future. July was the turning point. We have built a powerful engine that blends technology, innovation and distribution. Today, we have the products, partnerships and infrastructure to enter the next phase of high growth. Thank you for your support and belief in our mission. I'll now turn it over to Tony for a detailed review of our Q2 financials. Tony?

Thank you, Brian, and good afternoon, everyone. Second quarter 2025 revenue totaled $11.5 million, an increase of 8.9% sequentially as compared to $10.6 million for the first quarter of 2025. 2024 marked the end of the federally funded ACP. And as expected, year- over-year financials have been impacted. Our platform service revenue growth was robust, generating $9.2 million in the second quarter of 2025 as compared to $2.5 million in the second quarter of 2024. We have achieved strong prepaid top-up revenue growth over the past 2 quarters, reflecting the execution and leadership of our new Vice President of Sales. Our strategic initiatives, including the signing of several key new accounts are expected to drive sustained recurring revenue growth. Gross profit was a loss of $2.7 million for the second quarter of 2025 compared to a gross profit loss of $3.4 million for the second quarter of 2024. As indicated, we continued the transition of our business model from ACP to LinkUp Mobile and Lifeline verticals. SG&A expenses decreased 45% year-over-year to $4.1 million during the second quarter of 2025 as compared to $7.4 million for the second quarter of 2024. The decrease was primarily due to a reduction in noncash compensation to various employees, along with the reduction in contractors and consultants and professional services, partly offset by an increase in computer and internet, advertising and marketing and other expenses. Loss from operations was $6.8 million in the second quarter of 2025 compared to $10.9 million in operating loss in the second quarter of 2024. Our reported net loss and loss per share for the second quarter of 2025 were $7.1 million and negative $0.35 per share. Our loss and loss per share continues to be impacted by this transition from ACP. Turning to the balance sheet. Our cash and cash equivalents and investment balances as of June 30, 2025, were $4.4 million compared to $11.8 million as of December 31, 2024. As Brian mentioned, we are providing revenue guidance of $75 million to $90 million for 2025 and $225 million to $240 million for 2026. At this time, I would like to turn the call back over to Brian for closing comments.

Thanks, Tony. To summarize, Q2 was about building and positioning. Post quarter, we hit the acceleration phase we've been talking about, and the numbers already reflect it. Our activation growth, expanding distribution and scalable technology platforms give us confidence that we're on the right path to create significant shareholder value. We've addressed the challenges, proven the model and are now focused on executing at scale. I would like to thank our shareholders for their continued support and our team for their tireless efforts in making this growth possible. Now before we take questions, I have a note here to clarify that when I refer to revenue growth being up across every vertical, I'm referencing growth trajectory quarter-over-quarter and after Q2. Operator, we will now open it to questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And your first question today is coming from John Roy from Water Tower Research.

It looks like you've got quite an acceleration coming up in Lifeline activations. I kind of wonder what are really the key drivers that are driving that growth?

Thanks for the question, John. The drivers right now are in states with the higher-margin ACP, similar gross margins. Obviously, we blend those in across to all states, but that's really our focus for obvious reasons, the profitability of the customer and the return. So when you're starting -- we touched on this a little last quarter, but we didn't have the visibility into it happening where we could literally stick our head out the window and look down and see the asphalt flying by. We were just looking ahead. We had the platform geared up for ACP, retooling it for Lifeline and then retooling it for some of these state-specific programs that give the extra money. So what you see is a lot of the experience, a lot of the wisdom, a lot of the things we've learned across the last -- let's see what since 2006 being a part of the Lifeline program. And as a reminder to everyone, Lifeline has been around since Reagan, he instituted the program. It basically switched over to wireless around 2010, 2011, but it's been around a long, long time, part of the budget, some of the things that are not similar to ACP that was a separate non-budgeted item. But yes, we've learned. We've added a lot of inventory controls. We've added a lot of compliance components, which were some of the actual reasons why the delayed start, things that help facilitate faster, quicker enrollments, things that used to be manual workarounds are now all built into the system. So we referenced as well it's a little frustrating and exciting at the same time because we're still not -- I see all these sales channels yet to come. And obviously, we want to go now, now and now, more and more and more. But we're methodically rolling this out, hitting our numbers that are in our projections for those sweet spots of growth. And yes, I mean, we've made a lot of connections over the past 10 years. Those folks are excited to come back to work for us, and a lot of the same similarities with the ACP program, including tents out in front of convenience stores or in front of DHS offices around the country. So it's very similar to those that watched our growth during ACP.

Great. So as a follow-up, you got Lifeline and LinkUp. How do you really balance the priorities between those 2 different businesses? It's really kind of a dollar allocation question. Are you really going to push growth here? Are you really going to push growth there, push growth everywhere? I mean you can't really realistically do everything. How are you balancing those 2 different businesses?

It's even a broader question than that. It's -- you've got your top-ups, you've got your opportunities over here with ClearLine which we're excited to talk about in some of the upcoming quarters. You've got all these things hitting and how you allocate your resources. And I think that goes back to our management team's experience. And bluntly, what the upper management of our company has been able to accomplish over their careers. And in telecom, it's just -- it's almost like looking at different plans. If you have different plans that are more profitable, which ones do you incentivize in the field? Well, that's the way I look at subsidiaries. And right now, it's even more -- and let's make a step back, those who have been entrepreneurs or have started their own businesses, probably relate to me a little bit right now because when you're not in the black, basically, what you look for is how do I, number one, cancel out my expenses with income. And number two, get numbers, but how do I get there as quick as possible, the path of least resistance. So you have knowns and you have unknowns. The market adoption for LinkUp, that's a grind. We talked about that in the script, you put incentives out there, you shake hands, those masters go out, set up doors. You hope that your plans are better. You hope that customers choose you. Lifeline, it's almost known revenue. If we put out so many people with so many phones, we know there's going to be a direct return, which is why we are so confident in our numbers, and we're watching it, and we've watched those numbers align the last 90 days. So to answer your question in a long way, just to kind of give you the methodology behind it. We go after what's known. We go after the sure thing. And we go after one of the industries that a couple of us help build the Lifeline industry. So right now, we have a set number that we know when we get this many customers in these certain states, we are cash flow positive. When we get this many here over here, we're profitable. So those are the knowns. Those are where we're spending our most time that's where I'm spending a lot of my time just from the historical legacy that I've got in the Lifeline program. So that is where the focus and where we're putting most of our resources right now.

Your next question is coming from Michael Diana from Maxim Group.

I have some more specific questions about Lifeline. So you just mentioned tents and stuff, but is most of this through your retail network or tents? And the other part of that is, what sort of commission, if any, are you paying to get each account?

Yes. The tents right now are allocated to the states with extra money. And I don't want to bore people to death on a granular level, but there's 2 components of the Lifeline program. One of them is federal, it's $9.25. The other is any additional state, primarily some of the blue states that give extra money. The states that have extra money, we have tents. Like I said, it's very similar to ACP margins, ACP distribution. In the other states, we're doing online. So there is a blend there, there's modeling that goes into that. There's not enough profit in the $9.25 to justify paying people to man enrollment tents, but there is in the other states. We still have not -- because of the response which is -- I'm not going to say it's overwhelming. It's a little more than what we anticipated. It was definitely more friendly than what we thought it would be. I thought it would be a little tougher. We still have the retail network component that we haven't even opened yet. And we've tested it, we have a little here and there, but we haven't allocated a lot of time and resource to because we're getting such a great return from the tents. It's like fishing. There's no reason to switch over from worms to crickets if you're crushing it with worms. So it's kind of what we're doing right now. Now we do look to scale as we grow. But right now, we're almost running out of phones, things are going so fast. And I can't run out of phones because if you -- I think we talked about this back in the days of ACP when it comes to inventory, you can't sell out of inventory because then people have nothing that day. They always have to have backup inventories, then you lose your salespeople, your enrollment agents. So there's always got to -- you got to stay ahead of the game in inventory-wise. So that has been our -- where we've been really, really hands on navigating this scaling up and ramping up.

Yes. Okay. So for your $9.25 states, it's virtually all online, no commissions. For the more -- the higher revenue states, you're doing tents and you have to pay what onetime upfront or?

Yes, it's usually onetime, and that varies.

Yes. And what is the additional revenue in some of these states?

You're looking at anywhere. Some states give upfront of an additional $19 plus ongoing, let's just say, ballpark $18. You've got some states that....

You mean $9.25 in 18, just 18? Is that what you're saying or...

No, no, I apologize. That's the additional. For clarity, I thought you asked for additional. Yes, there's ongoing -- let's take a step back, let's take a step back. Let's go net, what we would get from states with additional money, the ones we're targeting. You're looking at a net of about $27 ballpark. What's unique about that, Mike, is that you could look at it, it's close to ACP, it's $3 less. Yes, it is $3 less, but we have a better contract now from AT&T. So my cost is about $3 less. So magically in the universe, it's almost the identical spread of margin.

Wow. Okay. And what is -- that was my next question. What is your monthly cost?

Well, you're asking me to give out my wholesale numbers. I can't give out my wholesale numbers because I have found through -- unfortunately, we have people who don't wish us greatness on these calls. So I don't want to give away any of the thing. And I also have people who sell for us. And rather than them not use my own words to negotiate against me for higher commissions. So let's just say that our margins are very similar to ACP. Our cost of acquisition is very similar to ACP. And in those regions, that's specifically what we're focusing on because if you look at our numbers, we know, for example, ballpark 90,000 higher-margin ACP- like customers, we're sitting cash flow positive. So that's -- if you want to really drill it down, the hair on fire focus laser of all the management team is getting to that number first, then everything else is gravy after that.

Yes. And are any devices involved in any of these?

Smartphones.

Yes. I mean, are you -- do you have to give a smartphone? Do they buy a smartphone? What's the deal?

We have found that we've tried it SIM only, and you're -- you can go that route and you could also do a blend of SIM for some, smartphone for others. But if you can get a smartphone for ballpark $30 and you run the math on the stickiness or longevity of the customer, you're going to have them a whole lot longer with a phone and you're actually going to increase your customer acquisition with a phone. It just makes sense. And look, a lot of people use that phone for 8, 9, 10 months. Some use it merely as a vessel until they are able to go buy an iPhone or a Galaxy usually in the spring with tax credits. That's normally what we see.

So are you saying you give them a $30 smartphone or they pay you $30 for a smartphone?

We give them a $30 smartphone.

Okay.

Your model is probably going to look very similar to what your ACP model was.

Yes, but you don't get reimbursed for the phone, right?

We get -- there is a connection credit in some states that is almost the cost of the phone.

Oh, wow.

So we're pretty excited. Yes, we're pretty excited.

You are getting reimbursed for the phone for the most part. Is that what you're saying?

Ballpark, 2/3 of it.

2/3, wow. Okay. All right. Very excited.

Your next question is coming from Ed Woo from Ascendiant Capital.

Yes. Congratulations on all the progress and definitely for the guidance. Really appreciate it and excited for you guys. My question is, how is the competitive marketplace? It seems you're ramping up a lot of these new customers. Are you taking them from someone else? And is there any risk of price competition going forward?

Insightful question, always a risk of competition. We are the -- not necessarily the new kid on the block, but our style of how we compensate salespeople, for example, who we brought to the table and the way that our platform enrolls people so quickly and easily is very enticing for the field enrollment agents. And keep in mind, those field enrollment agents, keeping them happy is really how you grow your subscriber number because they're going to be constantly pelted with solicitations from other companies. So incentivizing them, doing them right, a few things that we've learned over the years of really taking care of our distributors in the field is really how we've grown it this fast. And look, everybody kind of wants to be a part of the new thing, an exciting thing, and that's what we are right now. But there's definitely other companies out there. There's companies who've been doing this for a long time. I think right now, we're -- while we don't pay as much commission, we are hands on and a lot of the things we do, we definitely utilize our team in El Salvador. For those of you that remember, we have 125 specialists down there who assist in onboarding. And one of the other components that's a differentiator for us is we own our own platform. So that enrollment platform that a field agent is using that's our platform. We don't have to put in special requests and beg for a third party and then hope somebody around the world gets around to doing the development for us. I'll give you a little example on that. One of the delays, its was really frustrating in Q2 because we kept having these little [indiscernible] delays that kept us from full rollout. Well, one of them was one of the states that we were really heavy in wanted the pictures where you upload a picture to show proof of ID. They wanted it to be under a certain megabyte. Well, one of the problems with devices now is they take better, nicer pictures, which means a whole lot more megabytes. So it's impossible to ask a field rep to, "Oh hey, take this, come up with your own way to cut it down and compress it so that it's acceptable to the regulatory approval of compliance folks." So we had to take 2.5 weeks and develop a system in our software that would compress pictures. So things like that, us being able to prioritize and us being able to facilitate things and then also show our sales reps, " Hey, you asked, we took care of it, let's go. What else can we do to help you guys do better, make you more efficient, to help you be more compliant, to help you get more sales." So that's really what is the niche that we see and that we have in the market, maybe compared to some of our other competitors.