Good day, and welcome to the SurgePays, Inc. Second Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brian Prenoveau. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays Second Quarter 2022 Earnings Webcast and Conference Call. Today's date is August 11, 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 measure are included in the press release we issued this afternoon. 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, 2022, will also be available on SurgePays' Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Thanks, Brian. We were tremendously busy in the second quarter of this year, and the hard work of the team is translating to not just growth, but growth with a strategic direction. Revenue exceeded $28 million for the second quarter, which is a 146% increase compared to last year. The revenue trajectory is in line with the growth path that we laid out earlier this year. So we're thrilled with the progress we've been making, but even more excited about where the company can go in the future. Last month, we announced that we had eclipsed 150,000 subscribers in our mobile broadband business through the Affordable Connectivity Program. Our target by the end of the year was 200,000 customers, which I believe we'll exceed. But I want to take time to speak more of the big picture about growing our business and the long-term opportunity that's available to us. The ACP program continues to provide affordable broadband Internet access to low-income households. Estimates vary, but we believe anywhere from 30 million to 50 million households are eligible for this program. This is all to say that while 200,000 subscribers is a nice goal for 2022, we believe there's significant room for growth beyond that, and we need to be strategic and long-term minded in our decision-making and how we operate the business. Growth and progress are never linear, and we're working tirelessly to fine-tune our operations, analyze performance and tighten the screws where necessary. As an example, in some of our recent analysis, we noticed that our higher data users were driving up average usage costs. So we went back to our carriers. We negotiated a new wholesale plan, which would ensure that no user could use beyond the cost of $15 per month to us. By pushing heavy users to this plan, we can now hedge costs, which should allow us to drive our average cost back down to around $12 per month. Our estimates show this would be an immediate impact of roughly $100,000 in savings per month. We're not simply looking to get the highest subscriber level as quickly as possible. We're looking to build a successful business to maximize the opportunity that's been presented to us. One area where that's paramount is managing our cash and cash flow, deploying that cash in the best manner possible. I'd like to look at current assets as a gauge for where we've been, where we are and if we're on target. Accounts receivable has steadily increased throughout the year from $3.2 million at the end of 2021 to $5.6 million at the end of the first quarter to $8.3 million at the end of the second quarter. At the end of the second quarter, we had $8.7 million of cash compared to $3.4 million at the end of the first quarter. The June 30, 2022, cash total includes the final cash payments made for the acquisition of Torch Wireless. Where this available cash could have been used to buy tablets and add subscribers, we believe, and still believe, that the acquisition of Torch provides us with a much better long-term growth opportunity. Recall that with SurgePhone Wireless, we were only licensed to offer this program in 14 states. With the acquisition of Torch Wireless, we can now offer the program in all 50 states and can significantly ramp up wireless subscribers online. Torch has the additional benefit of also being a licensed lifeline carrier in certain states as well. In addition to Torch Wireless, in the second quarter, we purchased a client relationship management, or CRM, software platform that we had been using as a central nervous system for managing our wireless business. The CRM houses customer information, is integrated with underlying wireless carriers, manages the plans and metering, the customer service, compliance, billing and is connected to the FCC's database clearing house. We were expensed for this service on a per subscriber basis. And as subscribers increased, our costs also increased. Looking at the growth opportunity and our internal goals for subscribers over the next few years, we made the strategic decision to buy the system outright and believe it will be cheaper to buy now than what the annual expense would be at 500,000 to 600,000 up to 1 million subscribers. The CRM platform has been rebranded as ShockWave, and interested parties can check it out by visiting shockwavecrm.com. That's shockwavecrm.com. We're doubly excited about the ShockWave CRM because it can be licensed out to other companies as well and be another source of revenue for the company. The CRM currently has six other ACP and lifeline companies using the system and provides high-margin Software-as-a-Service revenue to our business. This isn't the main focus of SurgePays, but it does provide a nice ancillary revenue stream to the company. I wanted to highlight these opportunities to demonstrate how our team is thinking about the overall potential of this business. The cash used for Torch Wireless and to purchase the CRM could have easily been used to buy more tablets, sign up subscribers and pump our numbers for the second quarter. However, we believe that's short-term thinking. In our analysis, the cash used to buy Torch and the CRM provide a far greater payoff down the road. We have the ability to offer ACP in all 50 states. We can manage our customer base more efficiently. We believe we can lower costs, all while continuing to grow our subscriber base at a really impressive rate. Going forward, we continue to balance the need for growth with the cash flow provided and the cash opportunities. We've discussed various financing opportunities in the past, and we are close to obtaining a receivables financing line. We believe a more significant line of credit, backed by the U.S. government receivable, will allow us to ramp our wireless subscriber growth over a longer period of time with less dilution. Yes, this was probably not the easiest route and has created more strain on the management team than a simple equity raise. However, we think the hard work and longer time frame is worth it as we can raise money to fund growth while not diluting shareholders and keeping float essentially the same as where it was when we listed on the Nasdaq. I honestly couldn't be more excited about all of the progress we've made as a company, but also how much more we can achieve. I'm extremely proud of how much we've been able to accomplish in a short amount of time and that the results are starting to be demonstrated in our financial results. Revenue growth is accelerating. We're learning more and more about our subscriber base each month. We have more cash to fund the growth and more tools at our disposal today than we did three or six months ago to drive growth even further. As I've said before, we believe we are uniquely positioned to best offer these products and services to the underbanked and underserved because for so long, these communities have been overlooked by larger corporations. The ACP program is a great government initiative that provides invaluable Internet access to households that previously could not afford it. We want to gauge success by growing revenue and profit, obviously, but also believe we can do this by providing valuable services that most of us on this call take for granted. Being a licensed provider of mobile broadband is a perfect complement to our existing business of providing financial services to underbanked and underserved communities. We still have a goal to reach $1 billion in annual sales with profitable growth and in communities that haven't been adequately addressed. We are now operating a business that has the ability to grow organically or through accretive acquisitions and better serve our customers.

Thank you, Brian, and good afternoon, everyone. I will begin with an overview of the second quarter's financial results. For the quarter, we reported revenues of $28 million compared to $11.4 million in the second quarter of 2021, representing an increase of 146%. This was primarily attributable to the subscriber growth in our mobile broadband business, as Brian has discussed. Gross profit increased 65% in the second quarter to $2.2 million compared to $1.3 million in the year-ago period. SG&A expenses increased 11% in the second quarter compared to the second quarter of last year. The increase in the quarter was primarily driven by the professional fees and other costs associated with the company's move to Nasdaq in November, largely made up of insurance premiums. Loss from operations narrowed to a loss of $847,000 from a $1.4 million loss in last year's second quarter. Net loss for the second quarter was $973,000 or a loss of $0.07 per share compared to a net loss of $214,000 or a loss of $0.07 per share in the second quarter of 2021. The second quarter of 2021 benefited from several nonrecurring items, including a $646,000 benefit from a change in the fair value of liabilities. We also had a $701,000 gain on settlement of liabilities and a $1.9 million benefit from amortization of debt discount, all in the second quarter of 2021. For quarter 2 2022, EBITDA was a loss of $85,973, close to breakeven. Turning to the balance sheet, liquidity and cash flow. Our cash balance, as Brian has mentioned, as of June 30 was $8.7 million compared to $6.3 million at the end of 2021. Accounts receivable has increased by over $5 million as wireless subscriber growth increased to $8.3 million. 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. As Brian briefly mentioned in his remarks, we made cash payments of $800,000 to complete the Torch Wireless acquisition and a $300,000 payment for the CRM system. Given our strengthened financial position, higher cash balance and capital structure, our cash allocation priorities are focused on investing in the business and maintaining ample liquidity for future growth.

Thanks, Tony. As a company, our North Star is building a successful organization that provides access to mobile broadband and essential financial services to households and communities where they aren't readily accessible. We believe we are cornering the underbank market both at home, around their local communities and in the local stores where they shop. If we do this successfully, we will tap into a huge market with tremendous growth potential. The hard work our team has done is starting to really show in our financial results. We've demonstrated how the growth in revenue is trending towards profitability and how the company is generating more cash. With more cash, we can reinvest in the business to gain wireless subscribers, increase our geographic reach and improve the overall performance of the company. We aren't focused on making each quarter look as rosy as possible. We are thinking longer term about where this company can be two, three, five years down the road with a significantly larger customer base and the ability to expand our revenue streams within this market. We couldn't be more excited about the opportunities ahead of us, and we are looking forward to sharing our progress with shareholders, employees and partners. I want to thank all the employees at SurgePays. Lastly, I 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 will come from Michael Diana with Maxim Group.

So you mentioned 30 million to 50 million households potentially eligible for ACP. And I know at previous investor conferences and all you've talked about certainly growing not just this year but continuing to grow next year. So what gives you confidence that these potential subscribers are still going to be there next year or 2 years from now?

Thanks, Michael. I appreciate your question. What gives me the most confidence is the demand we observe when we enter these areas. I want to avoid using the term underserved too lightly, but when our salespeople set up tents in these communities and people line up around the corner until we run out of devices, it clearly indicates a strong need. There’s a combination of a product that people want and need, which I believe has led to a significant success for us. There are different markets that will become apparent regarding what the White House and others are referencing. Many companies are likely to target existing customers, like the elderly, who already pay for services and would just receive discounts. I don’t think there’s a large group of low-income residents actively searching through White House websites for mobile broadband access. The fact that we go into these communities where we already have a presence shows our commitment. We set up operations there, which I believe is a strategic advantage for us. We are not just a large cable company attempting to offer discounts to current customers. We believe our market is transient, and most of our customer base lacks fixed wired broadband. This is why I've seen such a significant increase. The second quarter was a time for reflection, allowing us to confirm that our model works. If we have 0.5 million subscribers, I consider what I would do differently to avoid incremental costs, like purchasing ShockWave. We learned a lot after equipping 100,000 subscribers and examined customer usage patterns across different regions. This gives me confidence that we can achieve results that exceed our previous projections while maximizing profit from each subscriber.

Okay. And asked a little differently based on what you just said. So I think you're saying there aren't that many, if any, other companies out there doing exactly what you're doing?

I believe there will always be companies trying to replicate successful models. What's intriguing is that companies with significant capital, like ours, will likely be the larger firms focusing on traditional fixed-line broadband, such as installing modems directly in homes. These larger, well-capitalized companies can operate at a scale that wireless competitors, who lack similar financial backing, cannot match. According to feedback from our frontline staff, we rarely encounter competition in the field. Moreover, many other wireless companies are focusing solely on SIM cards, which means they expect customers to already own compatible devices like tablets to access the internet. Our approach involves offering a tablet, typically valued at around $150, which we believe will attract customers seeking immediate satisfaction. Whenever someone can walk away with a tablet in hand, we think we will secure their business.

And the next question will come from Ed Woo with Ascendiant Capital.

Yes, congratulations on the quarter and on the growth. My question is, as we head into some uncertain economic environment, do you think that, that actually helps your business or hurts your business with the weakening macro environment?

Thank you, Ed, for your question. It's an interesting one, and I get asked that a lot. I want to approach it carefully because I don’t want to wish hard times on anyone, as that is not how we have built our company. Our goal is to provide essential services that help people. However, I believe that the current economic conditions, including inflation and gas prices, may expand our potential customer base. We are seeing an increase in individuals who may qualify for our services based on socioeconomic status. I want to be cautious in discussing tough times for others; I don’t want to sound as though I'm benefiting from their struggles, but it does present us with opportunities to assist more people. It certainly does not hinder us; in fact, it enhances our potential customer pool. Additionally, identifying undocumented immigrants in relation to this program is challenging. There isn't a precise number available for how many undocumented immigrants exist. This is one of the few government programs where undocumented individuals can qualify, specifically the WIC program, which supports families in need of baby formula and diapers. My personal view is that the market potential is greater than what we've discussed. Therefore, as more immigrants arrive in the country and as more individuals face difficulties, I believe our customer base increases. However, I do not want to celebrate these challenges; it simply provides us the opportunity to help more people.

I know that your customers appreciate the product you provide. My last question is about the long-term supply chain and inflation. Is there any impact on your business in the long term, particularly regarding the availability of more tablets?

Ed, I'm really glad you asked that question. I wasn't planning to discuss this today, but there are definitely aspects we're examining, as I always tell my team to keep tightening our operations. We're looking for ways to maximize profits without increasing our efforts, enabling us to achieve more in the future. One major reason I'm excited about our new line of credit based on receivables is that it will allow us to purchase tablets in advance. In the market for products and global sourcing, just-in-time purchasing tends to be the most costly approach because it means you are buying whatever is available at the current price, which is why we see tablet prices ranging from $80 to $88. With access to capital, the supply chain won't hinder us at all; in fact, it will improve our ability to secure tablets at a lower cost. By placing an order with a deposit today, I can afford to wait, as I don’t have to rely on yesterday's earnings to buy tomorrow's tablets. This enables me to find prices around $72 to $75, which is significant. Though saving $10 to $15 per tablet may not seem like much, when you're ordering 30,000 to 50,000 tablets a month, it makes a substantial difference. As long as we can pay upfront and don't need that money immediately, waiting for tablets next month allows the supply chain to be beneficial for us. We have also built strong relationships with the distributors, making us a priority for them. If I’m purchasing 30,000 tablets each month while a smaller competitor orders 2,000 tablets, I'm the one they call first. This is why we don’t face shortages due to supply chain issues; rather, we exceed our intended monthly tablet allocation.

Sounds great, and I wish you guys good luck.

Thanks, Ed.

Thank you. And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional or closing remarks.

Thank you, everybody, for joining us today. You can now disconnect.