SurgePays Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the Searchbase Q3 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brian Prenevo, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to the Surajpay's Q3 2023 earnings webcast and conference call. Today's date is November 14, 2023 and on the call today from SurgePay's Brian Cox, President and Chief Executive Officer 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 And uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements.

Speaker 1

For a discussion of such risks and uncertainties, please see Surajpay's 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. Also during the course of today's call, the company will be discussing 1 or more non GAAP financial measures. Reconciliations of these non GAAP financial measures to the most directly Approval GAAP measures are included in the press release we issued this afternoon. Copies of today's press release are accessible on SurgePay's Investor Relations website, ir.

Speaker 1

Surgepays.com. In addition, Surge Turgeon's Form 10 Q for the quarter ended September 30, 2023, will also be available on Surgeon's Investor Relations website. Now, I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Speaker 2

Thanks, Brian. First, I'd like to thank our shareholders and those interested in Surge Pace for joining the call. As we have expanded and continue expanding our audience,

Speaker 3

I'd like to give a

Speaker 2

brief overview of who we are, what we do and our target market. Surge PACE brings financial and telecom products to the underbanked and underserved populations at a grassroots level where they live and shop. The under bank do most of their financial transactions at their trusted local convenience store closest to their home. Surge Pays utilizes these stores as the point of distribution into these communities. Our technology layered platform empowers clerks visit thousands of convenience stores to provide prepaid wireless and financial products to lower income and under bank consumers Without access to traditional credit cards or checking accounts.

Speaker 2

The FCC licenses us to provide subsidized wireless service to qualifying subscribers Through the Affordable Connectivity Program, more commonly referred to as ACP. Our ACP prepaid wireless companies provide service to hundreds of thousands of subscribers nationwide. This enticing and beneficial program is the lead product To get our platform into stores nationwide, these store owners are quick to realize that in lower income areas, Usually over 20% of the transactions in the store are done through government supported programs and those customers are all eligible for ACP. In a high interest rate environment where store owners are looking for more transactional revenue Without hitting their credit line for store inventory, Surge Pays presents a compelling offering for those owners Who want their store to be the transactional tech hub for the under bank community. With this go to market approach And a profitable suite of under bank products and services, we are well positioned to significantly grow our footprint in owner operated convenience stores nationwide.

Speaker 2

Our strategy is to continue evolving into a multi product company with an ecosystem around us, Enabling us to build the largest distribution of products and services sold to the under bank population. I'm pleased to announce that the Q3 of 2023 continues the profitability trend that we saw at the end of 2022, delivering our Highest ever net income of $7,100,000 and EBITDA of $7,500,000 This year has indeed demonstrated the long term profitability potential of the business and we are just getting started. We have achieved over $17,000,000 of net income year to date and our profitability margins have continued to expand. Our cash balance improved to over $12,000,000 and minimal debt. This year compares well to September 30 last year When we lost approximately $3,700,000 on the bottom line.

Speaker 2

The tremendous profitability level surge pace has achieved Have afforded the company some opportunities that would have not have been possible in the past, especially in this economic environment. Surge Pays can now focus on playing offense aggressively and make strategic decisions on our terms at our timing That will produce both short and long term growth and profitability. In over 20 years of successful business, I've never been shy of Stating my goals and willing to make tough decisions to accomplish them, whether through delayed gratification Or some actions that might be confusing or unpopular to casual onlookers. Achieving the listing on NASDAQ was just the first of several accomplishments We fully expected to perform. The next goal is to move from micro cap to small cap.

Speaker 2

After months of discussion and well over a year of speaking to analysts, consultants, portfolio and fund managers on this subject, It became apparent in order for us to accomplish this next move, we need to gain institutional stakeholders at an impactful level. One of the checks against us was our potentially confusing businesses outside of our core model. It was clear we needed to shelf the legacy mass tort lead gen company, Logix IQ, and streamline the company messaging along with our financials. Our company, story, focus and market strategy must be defined with an understandable vision Of a significant attainable future value. Even though Logix iQ contributed 4,100,000 to the top line sales last year in Q3, we chose to wind down operations because we felt that was the right thing to do to ultimately accomplish our goals.

Speaker 2

Another example of our strategic long term profit approach is our ACP sign up transition focus To convenience stores. Yes, it slowed down subscriber growth in the short term compared to outdoor pop up tent sales, But considering the economics of a store base versus tent sales model, it was 100% the right call. Scaling the national footprint of stores transacting on our network, while growing actual roots into these communities creates a tremendous revenue opportunity, Not only organically, but by controlling the distribution platform, we are creating an M and A machine Whereby we can acquire companies with existing relationships or networks of stores and also acquire companies with products we can add to our platform. Revenue was down $2,100,000 for Q3 year over year, but as discussed, This is due to the winding down of Logix IQ, which contributed $4,100,000 last year. For those of you doing the simple math, yes, that means the core business Wireless and FinTech was up over $2,000,000 in Q3, and this focus contributed to the record breaking $7,100,000 in net income.

Speaker 2

As a moment of reflection, in 2021, when we uplisted to NASDAQ, we had a net loss of $13,500,000 for the year. It's pretty amazing what our team is accomplishing and we are adding like minded folks to the team each quarter. From our leaders spread out coast to coast to my favorite team working at our bilingual operations center in El Salvador. Chris and Franklin are among several great managers leading a fantastic group of over 150 hardworking folks at every level of operations, Ready to immediately scale our store and subscriber growth. As I mentioned in last quarter's call, the key metric is in the future is new stores on our platform.

Speaker 2

More stores on the platform mean more ACP sign ups, More products and services, more transactions over the platform and more sales for individual stores equaling more revenue for surge pay. Our model to acquire ACP subscribers at stores worked fantastically. However, converting leads to customers directly using text messages were not performing at the success rate I expected. After a couple of months of analysis, we determined the challenge was relying on customer follow-up to give consent to check their eligibility. We concluded we needed equipment on the countertop next to the register that was customer facing and allowed the customer to perform the necessary compliance components of the ACP enrollment at the moment of impact before they walked away.

Speaker 2

This short term process failure was the seed of a tremendous success that has opened opportunities for a much better approach to the market With our own customer facing point of sale equipment. We can now promote our other products Through 20 fourseven marketing on the LCD screen at the register. This includes creating awareness Of the prepaid top ups potential for customers, awareness of the upcoming launch of our prepaid wireless brand Link Up Mobile And other products on our platform. Historically, we relied exclusively on posters and other promotional materials in the store to create awareness our products since we don't have actual facings on the shelf. Now we will have our products in lights On the screen, right in the middle of the most prized real estate in the convenience store, the counter by the register.

Speaker 2

In other words, this solution launched our point of sale equipment channel. We partnered with Clearline Mobile To test customer facing LCD screens at the register to promote our products, activate wireless subscribers and create customer engagement. This next step in point of sale advancement will solidify SurgePay as an innovative market leader in providing wireless telecom and fintech products to the underbanked and underserved where they live and shop. This will also assist in connecting dots for potential investors By quickly seeing visuals of our equipment at the register and understanding the impact we can have in the stores on our network. We have placed over 100 LCD screens at this time and are pleased with the response.

Speaker 2

An additional 1,000 units Just arrived this month and we will be immediately deploying those while continuously reordering more units in bigger batches. At this point, we've just begun to scratch the surface of the potential means Surge Pace has to drive additional revenue through our store relationships. As always, we're focused on managing our cash and cash flow and deploying that cash to maximize growth. Now that we have integrated our equipment and software platform and our sales leadership team has been built out, we can focus more heavily on driving revenue We expected 3rd quarter revenues to align with 2nd quarter revenues and precisely what happened, but with even stronger cash flow. Now, I'll turn the call over to Tony to review our financial results before summarizing today's call.

Speaker 2

Tony?

Speaker 4

Thank you, Brian, and good afternoon, everyone. I will begin my overview of the 3rd quarter's financial results. For the quarter, we reported revenues of $34,200,000 compared to $36,200,000 in the Q3 of 2022, Representing a decrease of 6%. The decrease was primarily due to a $4,100,000 decrease in the revenues from the company's Logix IQ business. Revenues related to providing mobile broadband and wireless service to low income subscribers through the ACP increased 12% to $30,700,000 in the Q3 of 2023.

Speaker 4

Gross profit increased 4 100 and 46 percent in the 3rd quarter to $10,500,000 compared to $1,900,000 in the year ago period. 3rd quarter gross margin also showed significant improvement, up to 30.7% versus 5.3% in the 3rd quarter last year. SG and A expenses increased by 19% year over year. The increase was primarily driven by contractor and consultant expenses, Legal fees and expenses related to the acquisition of Shockwave CRM. Income from operations was positive for the quarter at $7,100,000 compared to a loss of $1,000,000 in the year ago period.

Speaker 4

Net income for the Q3 was $7,100,000 or a gain of $0.49 per share compared to a net loss of $1,500,000 or a loss of $0.12 per share. Of the $8,600,000 gain, the 3rd quarter included lower interest expense of $503,000 less than a year ago period. Turning to the balance sheet, liquidity and cash flow. Our cash balance as of September 30 was $12,600,000 compared to $7,000,000 at the end of 2022. Accounts receivable have increased by $540,000 from year end 2022 to $9,800,000 The receivable is from the U.

Speaker 4

S. Government for the mobile broadband subsidy. Payment generally occurs approximately 30 60 days after a new subscriber is verified and signed up. Given our strengthened financial position, cash balance and capital structure, cash allocation priorities focus on investing in the business and maintaining ample liquidity for future growth. I will now pass the call back to Brian for closing remarks.

Speaker 4

Brian?

Speaker 2

Thanks, Tony. Surge Pays is now on sound financial footing with a healthy cash balance, consistent earnings and growth. We are poised to create one of the largest direct distribution networks of under bank products and services in the country and a vast market with tremendous growth potential late. These results have proven we perform at a high level, are not afraid to make difficult decisions and understand how to deliver positive cash flow. Thank you so much for your time today.

Speaker 2

We will now open up the call to questions. Operator?

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Michael Diana with Maxim Group. Please go ahead.

Speaker 5

Hey, thank you. Congratulations on the quarter, Brian.

Speaker 2

Hey, thank you, Michael. Appreciate it, Michael.

Speaker 5

You mentioned that a key metric or the key metric now is new stores and you also talked about Screens being a main driver of Business at new stores. And you also mentioned you got 1,000 new screens coming in late, right? So is that the sort of Is your growth in number of stores going to be dependent on how many screens you get into the stores?

Speaker 2

Thanks for the question, Michael. I wouldn't say that our growth in stores is going to be dependent on how many screens we have. But one of the key metrics we're going to analyze internally is the stores that have an existing platform that we pipe into Or stores that already are using our web interface app, or let's say, for example, the stores that use the reprogrammed Verifone terminal up at the countertop compared to stores that have the screen. Now ideally, We want to roll out with as many stores utilizing the point of sale screen as possible, Because as stated, the fantastic side effect of needing that To provide a solution to us internally actually became an external marketing device that we didn't even think about until we deployed it and it Kind of had the Eureka light bulb go off of being able to promote all of our products without having multiple rooms at the operations center, sending out posters and Placement, promotional materials constantly or needing salespeople to visit stores once every 3 months to replace Promotional materials that had either been ripped down or destroyed from the sun or just needed to be updated.

Speaker 2

So I think what you're going to see and I think the next time that we talk on this call, we're going to start having metrics based on Our stores and then stores where we've deployed our screens. And I'll come up with a little bit catchier phrases To differentiate that, because that's going to be a really important metric for us, as it relates to being able to have and provide all of the products on our platform, like So, compliantly provide ACP, launch our prepaid wireless brand, do the prepaid wireless top ups, load prepaid debit cards, And then to promote all of these services in loops nonstop 20 fourseven right there at the register. So I do think that while this will not limit our ability to add stores, this we should catch up pretty Quickly, I'm very, very aggressive on the screen. And I do expect us, like I said, we just got a 1,000 in. We're already reordering now.

Speaker 2

And I think that you're going to see us reload and really get those out there as fast as we can and get a good stockpile of screens. And bluntly, The actual screen is going to help us get into more stores because they're excited. The stores are actually more interested in Our platform with the screen at the point of sale as opposed to just our platform. So I think it's going to be a driver for sales and revenue.

Speaker 5

Okay, great. So I know ACP has been your big product so far, but You mentioned prepaid wireless, and I think you have high hopes for that. Could you talk more about that? Sure.

Speaker 2

The prepaid wireless brand Link Up Mobile, we're literally weeks away from the launch. I wanted to Kind of hang tight and wait for more screens to get out because the alternative is, we already have real estate in the store tied up with posters For creating awareness of ACP, it's a little difficult to send out multiple rounds of new posters and say, hey, can you put these up in your store? Don't put them in the place of the posters we already have. We just want to own all the real estate on the wall. That's not going to happen.

Speaker 2

We're competing with everything that's in the store For that marketing space. So the actual screens at the point of sale are going to drive The Link Up mobile, the prepaid wireless brand. And am I excited about that? Absolutely. That before ACP, that was a part of our that was really going to be the anchor Of our entire business model moving forward, bring on stores with the sales pitch of doing prepaid top ups, then launch our prepaid wireless company It has savings to the customer, dollars 5 to $10 per plan, and we're able to pay a little bit higher commission to the store owner for the activations And for taking the payments because we own the platform.

Speaker 2

That was all that's always been in the mix. What I didn't, I guess, factor in Well, the fact that we have 100 of 1000 of subscribers, we have much better rates from the carriers, AT and T and T Mobile, Because we've got the buying power and legitimacy and we've got a seat at the table. So on the wholesale side, we own Our CRM, the customer relationship management platform, so we already have that built. We were able to own everything soup to nuts as it relates to the MVNO. We don't outsource anything, from all the way from the payment being made at the store.

Speaker 2

It's our platform. It's our ACH. It comes to us. Everything we own every component of the product delivery All the way to the actual tower where the service is provided. So it's a whole lot better than my original business plan because of ACP and then utilizing ACP to grow the prepaid wireless brand.

Speaker 2

And I think we've talked about this before, but ACP is limited 1 per household that qualifies. A prepaid wireless brand, there's no limits. There's 4 or 5 smartphones in that household on prepaid wireless. And keep in mind, there's over 100 prepaid wireless consumers out in the United States now. It presents a huge opportunity without limits for us to piggyback on our technology layered platform and ACP that we're using to get into these neighborhoods.

Speaker 2

So we expect this to be a big hit and we're looking forward to Talking about the subscriber growth on LinkUp Mobile and hopefully we can have a good discussion about that on our next call.

Speaker 5

All right. Thank you very much and congratulations again.

Speaker 2

Thanks, Michael.

Operator

Our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Speaker 3

Yes, congratulations on the quarter and the profitable quarter. My question is, you seem to have the macro environment seems to be steady, Inflation is coming down. Job growth is still relatively high. What are you seeing and hearing from the convenience store owners with obviously third Core customer base, are there any significant changes from the last couple of months?

Speaker 2

Hey, Ed. Thanks for the question. It's I've talked about this for years years now. It is a little bit interesting. Lower income people are still lower income people.

Speaker 2

I think some of the macroeconomic things out there More affect the middle to middle upper class, maybe a little bit more than lower income folks who are already on government assistance. I think there's a scenario where more people might actually pull into our potential customer Base, whether it be folks that are a little bit challenged financially with, let's say, too much month, not enough check Or immigrants coming in. Like I said, we have a bilingual operation center and all of our products are in both English and Hispanic. Our potential customer base does increase by the day. I don't look at that we've talked about this a lot.

Speaker 2

I don't look at that As wishing any type of economic downfall on folks, but we do provide Significant essential services to folks that may be in these situations. And I think you're always going to have that lower income prepaid market. And for us to be able to provide them a savings on their wireless services, these are central services now. A savings on most of the services that we offer, It does free up cash to spend on other things that they might have. So I think from the convenience store perspective and the convenience store owner, We stated earlier, they are getting bit quite a bit on the interest rates for the inventory they have in their store.

Speaker 2

So they're definitely not looking at bringing in new inventory, new products or anything that's not proven. So if we were rolling out with a kiosk of new products or had a freestanding rack or something like that and it required the store owner to come out of pocket For new product launches, that will be a little bit difficult for us to do. It'd be a tough sell right now. But Quite on the contrary, we're coming to the store with a, I call it the 1st dollar you take and the 1st dollar you make product, Where there's no inventory requirements, they're making it on the transaction. And the great thing about these transactions is those customers Have to come in the store to make the transaction.

Speaker 2

So they've got foot traffic, they've got reoccurring foot traffic, and they're providing a service to their community. And word-of-mouth gets up really fast that, hey, number 1, hey guys, you don't have to go way back down the street to that A plus plus Wireless store to make your wireless payments. You can go down to the C store, the convenience store now. And then say, oh, by the way, I also, while I was down I switched my service, I get to keep my same number and now I'm saving $10 a month. That word gets around real fast in An economic category where that $5 to $10 means a lot.

Speaker 2

And traditionally hourly workers on government assistance But savings means a whole lot more to people when things are tight. So those are what we're hearing. We think it's a perfect window of opportunity. Sometimes when things are going great and money is falling through the cracks and people and store owners don't really care because things are so fantastic, They're not as open to new products or services because they're a little content. It's one of our downfalls as humans, not always looking to better ourselves or better ourselves Financially, we are comfortable.

Speaker 2

So I think because things are a little bit odd out there right now, a little bit challenging, it's a wonderful time For a company like surge pace, it's a compelling opportunity and a compelling platform, if you will, for the store owners to not only make more money, but to help their communities.

Speaker 3

Great. Well, thank you and I'm sure all your customers appreciate your products and services. Thank you very much and good luck.

Speaker 2

Thanks, Ed. Appreciate it.

Operator

This concludes our question and answer session. I would like to turn the conference back over to hang up for any closing remarks.

Speaker 2

Thank you, operator. Thank you, everyone, for joining us on the call today. We look forward to continuing to report our team's execution in the near future. Have a good evening.

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Key Takeaways

  • SurgePay delivered record Q3 net income of $7.1M and EBITDA of $7.5M, turning a y/y loss into profitability with $17M YTD net income, $12M cash, and minimal debt.
  • They eliminated the non‐core Logix IQ lead‐generation business to streamline operations, leading to a +$2M y/y revenue gain in wireless and fintech despite a 6% drop in total revenue.
  • Growth is driven by convenience‐store distribution via the Affordable Connectivity Program (ACP), with new store sign‐ups now a key performance metric.
  • To boost in‐store conversions and cross‐sell, SurgePay has deployed customer‐facing LCD POS screens at checkout (100 live, 1,000 more arriving) to activate ACP accounts and promote other services.
  • SurgePay will soon launch its own prepaid wireless carrier, Link Up Mobile, offering $5–$10/month savings to customers and higher commissions for store owners.
AI Generated. May Contain Errors.
Earnings Conference Call
SurgePays Q3 2023
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