Greetings. Welcome to the SurgePays, Incorporated First Quarter 2022 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Prenoveau, Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to the SurgePays first quarter 2022 Earnings Webcast and Conference Call. Today's date is May 16, 2022. And on the call today from SurgePays are Brian Cox, President and Chief Executive Officer; and 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 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 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 one or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release we issued this afternoon. Copies of today's press release are accessible on SurgePays' Investor Relations website. In addition, SurgePays' Form 10-Q for the quarter ended March 31, 2022, will also be available on the SurgePays Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Thanks, Brian, and good morning and thanks to everyone who's joining our call today. We're really excited to be able to demonstrate the success of the mobile broadband subscriber business with the financial results that are more fully reflecting the trajectory of the company. Revenue growth accelerated in a meaningful way in the first quarter of this year. As expected, net loss and EBITDA loss narrowed considerably in the quarter when compared to the first quarter of last year. The Affordable Connectivity Program or ACP, which started off as the temporary emergency broadband benefit program, is now a permanent part of the government budget. Just last week, as many of you noticed, the White House made formal public remarks about this program for the first time. I was excited to see this underserved market that I've worked in for almost 20 years being brought into the mainstream. For SurgePays to ultimately achieve favor in the stock market, I believe we must be considered a relevant provider of important products to a large group of people who not only want our products, but need and depend on them. I've been asked several questions over the last week regarding the mention of large companies in the White House speech. I think it's important to note that these companies have always had the ability to provide subsidized telecom services to the underbanked, going back to 1985. The fact is it's not economically enticing for these companies to provide services to this market, or the literal definition of our market would not be called the underserved. The ACP program is intended to bridge the digital divide to low income households, who previously did not have reasonable or affordable access to high speed mobile broadband or internet. While most of us on this call probably take quality internet service for granted, lower income households do not. In the age of COVID, with closed schools or limited access to health care professionals, those without reliable broadband access were at a disadvantage. It was harder for school-aged children to attend Zoom or online classes. It was harder for sick people to get access to telemedicine. With inflation as high as it's been in nearly 40 years, paychecks often can't cover the rising costs of housing, food, utilities, including internet or phone service. The ACP is set up to help millions of households across the country and allow them to stay connected and maintain online access to education, employment, and health care. In addition to the fund, to reach these individuals and families, it was reported that the FCC is prepared to spend $100 million on ACP outreach programs over the next five years. We're excited that the market of the underbanked and underserved are no longer in the shadows. Initially, SurgePhone Wireless was licensed to offer this program in 14 states. As we grew our enrollment from zero customers in August of last year to over 100,000 in those 14 states, each subscriber provides $30 of monthly recurring revenue. This includes the cost of equipment and commissions paid to sales. Our gross margin is approximately 40% per subscriber. Last month with our announcement of the acquisition of Torch Wireless, we are now licensed to offer this program in all 50 states. We were especially excited that we're able to complete this acquisition without diluting shareholders. I believe this acquisition will also provide us the ability to initiate our online enrollment effort nationwide, using a broad scope, which should drive subscriber acquisition costs lower and increase subscribers per day. We've developed a BOT that communicates with people through Facebook and Instagram messenger. After someone clicks on one of our ads, the BOT communicates with them through messenger and asks some questions, while their answers are securely used to populate an ACP application. This happens automatically. We've achieved over 1,000 successful compliant enrollments online during our testing and expect to ramp this up immediately. Today, our biggest challenge is managing cash flow and growth. We are expanding our sales force into these new markets while the sales teams that started with us last year are growing just as quickly. We have ramped up the ordering of phones and tablets. The hyper growth that we're going through has two primary challenges that I want to quickly discuss. One, a new subscriber is cash flow negative for the first two months after signing up. We need to purchase the tablet and pay a sales commission all before we begin receiving the subsidy payment from the government. So we're actively managing the cash flow from the business and reinvesting in order to buy new tablets and phones while getting those in the hands of our sales team to sign up customers and subscribers. As an example, we have 35,000 tablets currently in the hands of our sales teams nationwide. Challenge number two is managing and predicting EBITDA. Faster growth today means lower EBITDA today, but higher EBITDA later along with higher long-term shareholder value. The upfront costs depress EBITDA in the near term because of the two-month negative carry but will level out and accelerate positively as the subscriber base continues to increase and reoccurring revenue stair steps monthly. Our philosophy is to maximize the growth opportunity while we have it. I'm not going to shortchange the sales team's potential by limiting their ability to sign up new subscribers simply to show better EBITDA in the short term. We do believe that given our higher subscriber base recurring revenue and growth rates, we should show positive EBITDA in the second quarter. We believe we are uniquely positioned to take advantage of this once-in-a-lifetime opportunity. Our company was uniquely poised to best serve this market through the grassroots approach I've utilized for over 20 years. To be successful in reaching this customer group, you must have boots on the ground in the neighborhoods and communities. And this is done by having relationships with local store owners. The true influencers for this underserved market don't originate from Silicon Valley; they are the people standing behind the counter at the corner store, which is normally visited five to seven times a week by lower-income consumers. Being a licensed provider of mobile broadband is a perfect complement to our existing business of providing financial services to the unbanked and underserved communities. Our suite of financial and prepaid products essentially converts corner stores and bodegas into tech hubs for the underbanked neighborhoods. These corner stores, bodegas, and local convenience stores are profit partners that provide prepaid debit card, wireless minutes top-ups, and cash to digital currency conversions, as well as capture data and build a loyal customer base. You might think that the variety of the store interactions wouldn't happen at the corner store, but they do. Corner stores, convenience stores, bodegas, whatever name they're referred to, are all integral parts of this community. They provide necessary goods to the community, and they are sometimes the only option for fresh food. And as we discussed, they provide financial services that people often can't access either because they don't have a checking or savings account, or bank branches aren't located in their neighborhoods. Even the CDC has published research about the importance of bodegas to local communities. To quote from a recent CDC research report published a few years ago, owners agreed the role of the corner store was to provide for the local community. Most store owners explained their main priority was to provide whatever goods their surrounding community needed and wanted. As one owner stated, well, it's a convenience store. It's a convenience for the neighborhood that they have everything close and accessible. They emphasize the importance of variety and of providing goods that would otherwise be difficult for this community to find. We feel this fits our model perfectly. As I've said earlier, we believe we are uniquely positioned to best offer these products and services to the unbanked and underserved, because for so long, these communities have been overlooked by larger corporations. We still have a goal to reach a billion dollars in annual sales with profitable growth in communities that haven't been adequately addressed. We are now operating a business that has the ability to grow organically and through accretive acquisitions while simultaneously making money across our core revenue channels. I'll turn the call over to Tony to provide a brief review of our financial results before summarizing today's call.

Thank you, Brian. Good morning, everyone. I will begin my overview of the first quarter's financial results. For the quarter, we reported revenues of $21.1 million, compared to $9.9 million in the first quarter of 2021, representing an increase of 92%. This was primarily attributable to subscriber growth and our mobile broadband business. Gross profit increased 133% in the first quarter to $2.6 million compared to $1.1 million in the year-ago period. SG&A expenses increased 14% in the first quarter compared to the first quarter of last year. The increase in the quarter was primarily driven by higher compensation paid to Management in the first quarter along with higher costs related to the subscribers in the ACP program. Loss from operations narrowed considerably to a loss of $1.1 million from $2.1 million in last year's first quarter. Net loss for the first quarter was $1.2 million, or a loss of $0.10 per share, compared to a net loss of $4.8 million, or a loss of $1.85 per share, in the first quarter of 2022. As we discussed on our year-end call in March, we believe EBITDA is a useful measure of the performance of the ongoing business that excludes many non-recurring items. EBITDA improved to a loss of $873,000 in Q1 '22 compared to an EBITDA loss of $4 million in Q1 '21. As Brian mentioned earlier, while the growth in revenue and profitability from higher margin customers and products, we would anticipate becoming EBITDA positive by the second quarter of this year and generate at least $15 million in 2022 for the year. Turning to the balance sheet liquidity and cash flow. Our cash balance as of March 31 was $3.4 million, compared to $6.3 million at the end of 2021. Accounts receivable has increased almost 74% as wireless subscriber growth increases. The receivable is from the U.S. government for the mobile broadband subsidy. Payment usually occurs approximately 30 to 60 days after a new customer is verified and signed up. Inventory continues to be an area of investment as we push the hyper growth of our mobile broadband business. We have minimal debt to unrelated parties of just over a million dollars as we spent much of 2021 cleaning up the balance sheet to position us for growth and improved performance. Given our strength in financial position and capital structure, our cash allocation priorities now focus on investing in the business and maintaining ample liquidity for future growth. I will now pass the call back to Brian for some closing remarks.

Thanks, Tony. I spent a lot of time over the past six to eight months talking with investors, analysts, and various stakeholders about the opportunity in the mobile broadband business and how the Affordable Connectivity Program works and provides SurgePays with the substantial growth avenue. As we've completed the first quarter, we started to see those results reflected in the financial statements. Whereas before, we were talking mostly about cleaning up the balance sheet and what would happen in the future, we're now able to demonstrate the progress, and it shows in the financial statements. I believe everyone and every company has a plan or goal. But I'm excited to show how our team differentiates itself by being a real company built by folks who execute daily and understand how to scale a company. I expect this double-digit growth to continue with accelerated progress and improvements in our financial statements. I want to stress again, I will not throttle our big picture growth plans for a short-term financial report. We're laser-focused on this underbanked land rush. Our team has worked tirelessly building a foundation for this type of growth, and it's starting to bear fruit. The underbanked and the underserved have been overlooked for far too long. Our goal is to provide access to mobile broadband and essential financial services to these households and communities. We believe we are cornering the underbanked market both at home and where these consumers shop. And we will continue to make moves to add to our ability to scale and increase our competitive advantages. We couldn't be more excited about the opportunities ahead, and we look forward to sharing our progress with our shareholders, employees, and partners. I would like to thank all the employees on the SurgePays team. Lastly, I'd greatly appreciate the support and interest of our shareholders as we continue this journey of growth. We will now open up the call to questions.

Our first question is from Michael Diana with Maxim Group, please proceed.

So based on what you said about your larger companies, I take it that you don't really regard them as competition for what you're doing that they just aren't as focused. Is that correct?

You know, Michael, that's a good question. I think over the years I've seen and actually discussed with representatives of these companies. And the challenge, it's really twofold. On one hand, if you consider that this is a third of the market out there, this lower income, then you've got to assume that this market is living in lower income housing, which is usually going to be older and have, in many cases, requirements for wiring updates. The big companies would have to roll a truck out, they've got to update the wiring to the network interface device outside the residence. The consumer is responsible for the wiring into the residence to eject to be able to now put a modem in. And the question is who's going to now pay for the modem? And the other components that would be associated with the IT customer support for providing WiFi inside the customer's house and afixed to our situation. That's one of the economical challenges for a larger company. The second is that most of these companies, as they told us, are not geared for the prepaid upsell. What I mean is, they're geared for the combination combo products that would be set up on auto pay for consumers like us on this call. And where there's always an upsell potential of other products add-ons. And it's all based on just simply adding things to your credit card. They're not positioned for a prepaid transaction, which again would need to be paid in cash at a local corner store or someplace of convenience to this consumer group. So again, the mere definition of underserved does qualify in the situation. And one of the reasons why the government has always put on, let's call it awareness programs, and incentivize these larger companies to hold to create that awareness among people who are without access to telecommunications, is simply because these companies don't push it. They don't create awareness because it's not an economically sound product for them.

Okay, great. Thanks. Let me ask you about one other thing. As you mentioned, you have a cash flow negative situation for two months, so that raises the possibility that maybe borrowing for short term to cover this cash flow negativity makes sense. Is that something you're considering?

Yes, it is. What's really interesting is once the receivable from the FCC or USAC, which funds this program, exceeds $5 million a month, the situation changes dramatically. We now have a consistent $5 million receivable from the government. We plan to leverage this asset to obtain lines of credit, allowing us to overcome the challenges we face, such as purchasing tablets, paying commissions, and receiving compensation 45 days later. We want to be able to accelerate that and kind of pop up a couple of levels by gaining access to capital through those lines of credit. So that is something we're going to do to take advantage of now being able to deploy people nationwide, but also and maybe to use your question to expound on what I mean by lowering our cost of acquisition. The numbers that were coming in that we're seeing online is a cost of about $20 to $25, compared to a $45 commission in the field. So we're hoping that continues and we're able to look at more of a blended cost per acquisition, somewhere in the $30 to $35 range, which would significantly represent a 25% drop in our cost per acquisition by being able to go direct online.

Okay, great. Thanks very much.

Our next question is from Ed Woo with Ascendiant Capital, please proceed.

Yes, thanks for taking my question. I was wondering, has there been any issues with churn with customers leaving this program after they sign up with you?

I'm not going to say there's a problem; there's always a degree of churn or attrition. When you are developing your pro forma and business model, this has been a part of the industry since the early days of long distance and wireless. One of the aspects I appreciate about the ACP program is that customers can only receive one tablet reimbursement per year. This means that if you sign up for Torch Wireless today, you can't just enroll with another company and receive another tablet in four months. So you're committed to us. So that's why when people hear me say land rush, you do want to get to that consumer first. It is very important that that grassroots level to be that place where you secured that community. The second part of that is your ability to provide service in rural areas will decrease attrition, which is why we're really excited that we've now gotten fully integrated with the AT&T Network. Because there's not a lot of competition out there on the AT&T network. Most of the competition is in the urban areas and it runs over the T-Mobile Network. I expect attrition to be ballpark 8% to 10% ongoing, which is also why once you start hitting that rule of large numbers, once you have a large subscriber base, you have to continue to grow higher numbers per month to see your overall customer base continue to increase, which is why the access to capital using a line of credit based on our receivable is very important.

Great, then my next question is, have you had any issues with the supply chain either to get these tablets? Or have you had any impact from inflation on rising costs or labor shortages, to get salespeople?

That's a great question, and I hear it frequently. Unfortunately, I don’t have a definitive answer for why we haven't seen progress. However, we do have strong relationships with the partners that bring these devices into the country. Currently, we are among the first to be called when devices become available. Additionally, we are exploring the possibility of manufacturing our own devices. As I mentioned earlier, we have 35,000 devices that are already out in the field and we anticipate they will be activated in the next couple of weeks. Maintaining that supply is very important because the salesperson cannot run out of tablets or they will bounce to another competitor. So to be able to do that 30,000, 40,000, 50,000 a month, you really need an excess of 20,000 tablets. So one of the things that Tony and our sales directors are doing is actively every week, modeling this out and making sure that we have plenty of devices out there. And we never get throttled. So if we see something coming down the pipe in 30 days, you know, maybe a little bit, hey, this is you guys are only going to be able to supply us with x tablets. Then we've got somebody that we can call and get a backup and make sure and we'll fulfill that number; we'll be fine. But now we have not seen the price increase substantially. It's like a fish market prices go up and down a couple of bucks, but nothing more than a couple of dollars. We're still looking in that $83 range per device. We don't, and we really haven't been throttled. The only time that we've had to throttle is when we've had a huge sales burst. And I'll give an example. Let's say that there's great weather coast to coast, and sales just explode. For example, last week, we had a day where we did over 2,000 enrollments in one day. If you have a couple of those days in a row, then it's more the cash flow challenge to get those devices than it is supply chain or inflation.

Great. Well, thanks for answering my questions. And I wish you guys good luck. Thank you.

Thanks, Ed.

Our next question is from Adam Waldo with Lismore Partners, please proceed.

Yes, Good day, Brian. And Tony, thanks very much for taking my questions. I hope you can hear me okay.

Yes. Hey, good morning, Adam.

Good morning. Before my three topics, I just quickly want to clarify something you said, Brian, in response to the prior questionnaire. You talked about 8% to 10% attrition, so 90% to 92% retention. And that's an annual rate, right? You'd expect 8% to 10% annual subscriber attrition in the ACP business. So 90% to 92% annual retention is that correct?

That's based off traditional, I shouldn't say traditional, but historical data in this market. That's usually what we've seen is 8% to 10%. With us only having six or seven months under our belt, it's probably what it's going to be. I normally like to have a year, a full year under our belt to see. Because there's also, again, there are a couple of different factors that you've got to incorporate. Again, in rural, you see less churn online. And this is opposite from what most people think; an online customer normally lasts about 1.5 times longer than a customer who went to a physical location and enrolled. It's a little backwards in what you think. And you also have an increased engagement. Because if you signed up online, for example, using our bot, we know your Facebook profile. So we have the ability to communicate directly with you through messenger, which is we're finding out is a lot more effective than email for this market base. So, with us just launching online, and just rolling out in the more rural areas, I really need at least another 90 or 120 days to give you a more accurate, in my opinion, more accurate long-term attrition rate.

That's fair. So we'll check back on the second quarter call in August. In terms of three topics I'd wanted to cover first is sort of financing in the negative float right and working capital from the tablets, which you touched in your prepaid remarks on prior question, but I want to take that conversation slightly different way. And the second is to get an update on the Logics IQ pending tax-free dividend spin-off to the existing shareholders. So on the working capital side, Brian had a couple of conferences you've hinted at looking at vendor financing as one option they're obviously on the call today. Tony, you talked about looking at, I presume some sort of either AR securitization or factoring facility as another way to address the issue. So can you talk a little bit more specifically about whether we're talking about vendor financing, AR factoring or some combination of the two for financing that call it 45 days, negative working capital flow?

Sure, no, it's a good question. It's both. It's a combination. The vendors that we have are great folks. We have a personal relationship with them, we meet them in person, talk to them constantly. They are definitely profit partners who are incentivized for us to move devices, especially in a crazy time. Right now, if we're calling you pick up the phone, because we're ordering by the 10s of thousands. So that, needless to say, that's a good relationship for us. The second part of your question is a combination, but it's not really a factoring approach. I've never been a big fan of factoring because of how it affects cash flow. I prefer to have control over our cash. I've never relinquished control of our funds, and I don't plan on letting our money be placed in someone else's custody, hoping they'll manage it correctly and that it will be available in our account the next day. I'm just not in favor of factoring. It’s simply our current situation. Using the receivable as an asset for more traditional bankability is important. Last year at this time, we were attempting to raise money on the OTC, were in a difficult position, and were burning through capital; we were not the same company. Now we can clearly demonstrate our cash flows, and we have a receivable of over $5 million from the government. This makes us much more bankable, which is one reason why Tony has successfully explored various instruments, institutions, and methods to help us access capital for growth without diluting our equity with warrants, stock, and other elements typical of public companies. We are turning to traditional banking to maintain our approach.

Okay, that's really helpful. So thank you. And clearly, obviously with the trajectory of the business, on the growth curve that it's on and the AR being a top quality from Uncle Sam, it sounds so accessing the bank market for financing receivables. So it looks very promising. And then finally, I guess, with respect to LogicsIQ, so on the first quarter conference call on March 24, you all confirmed publicly, for the first time, that business has a run rate or unexpected 2022 revenue in the low $20 million with EBITDA margins in the mid to high teens. So call it $3 million to $4 million in EBITDA. Is that business still on track to deliver that performance? And then where do you feel you stand in terms of the timeline previously communicated as a probable timeline of being able to complete that dividend tax-free spin-off to existing shareholders sometime during the second half of this year?

Sure, I can elaborate on that. We do feel the only backup the Logics business cycle is a unique calendar cycle based on the mass tort lawsuits and which suits are coming to fruition and the ramp up and amp up prior to that. We do see where there's quite a few big hits that are coming this summer. And by hits, I mean very positive, even since the posting of the quarter; last month was a phenomenal month for Logics. So one of the things that we're working on right now with the management team at Logics, which by the way, we have reorganized as we talked about on the last call. Anthony Nuzzo was the CEO of Logics, and with his untimely passing, we've had to restructure some things, promote folks, reorganize the team. Once that was accomplished, we do feel like the trajectory of the business will end up by the end of the year meeting the projections that we put in place. So we're pretty excited about that. We're working with the management team right now to also, how to say this, not reduce the dependency on the ups and downs, but create more consistent cash flow through ancillary products through some of their software development products they're providing. And then also not only depend on law firms for those signed retainer cases, which can be dependent on what big cases are upcoming. For example, last year, Roundup was a huge case that really drove a tremendous amount of capital and revenue to the company. We aim to provide more consistent results and achieve cash flow breakeven. Any contributions from the mass tort business will be an added bonus. Instead of experiencing fluctuations in our performance, we want to maintain steadiness. Regarding the IPO of the spinoff that we've mentioned, we've had positive interactions with the SEC. While those filings are not yet public, we are encouraged by the feedback we've received. The latest updates to the S-1 document have resulted in fewer than ten comments from the SEC. Most of those are accounting and other items in the filings that we knew we would get comments on, for example, who's going to be your CEO, who's your independent board, those types of clarifications. So everything is on track. We're very excited, we're very pleased. We're really looking forward as well, to the market understanding that if you're a shareholder of SurgePays, you're going to get a dividend of stock from this spinoff IPO. That's a really it's an up and coming company that should have a pretty tight float and be ready to make a run itself. So we're looking forward to once we're able to really get that out there more publicly. And yes, so that was a good question, but everything has progressed exactly as we had hoped when we talked last time.

Well, that's great news. Obviously, that type of business in the public market typically trades at two to three times revenue, given the margin profile, and obviously, the variability is based on the growth prospects, which look pretty solid here. So I mean, obviously, you have that asset, being probably valued in the public market in excess of where the whole company is valued in the public market today. So we look forward to that in the second half of the year, and thanks for taking my questions as always.

Thank you, Adam.

We have reached the end of the question and answer session and this will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.