Welcome to the SurgePays First Quarter 2023 Earnings Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Brian Prenoveau. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays first quarter 2023 earnings webcast and conference call. Today's date is May 11, 2023. 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 a 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, 2023 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. First of all, I'd like to thank our shareholders and those interested in SurgePays for joining the call. As we have expanded and are continuing to expand our audience, I'd like to give a brief overview of who we are, what we do, and our target market. SurgePays brings financial and telecom products to the underbanked and underserved populations of the United States where they live and where they shop. Our goal is to build the largest direct distribution network of underbanked products and services in the country. The underbanked do the majority of their financial transactions at their trusted local convenience store closest to their home. SurgePays utilizes these stores as the points of distribution into these communities. As we onboard stores to the fintech software platform, we enable the clerk at that store to perform transactions such as prepaid wireless activation and payments, along with reloading debit cards and other financially enabling services to improve the daily lives of those without traditional access to banks, credit, and checking accounts. One of the really great things is that our revenue is directly tied to how many essential services we provide to those who need it most. The Affordable Connectivity Program, or ACP, has been the revenue driver for SurgePays' growth over the last two years, taking us from a company with $50 million in revenue in 2021 to $121 million in 2022 with roughly breakeven profitability. In 2023, we are guiding to $190 million of sales with positive cash flow. The ACP offers a federal subsidy for a tablet device and a monthly cellular broadband Internet service to recipients of any other income-based government benefit such as Medicaid, veterans pension, Section 8, and most notably, the program historically called food stamps or EBT, but now goes by the name SNAP. There are several wireless companies out there with licenses to offer the ACP program to the public. However, we are uniquely positioned as the only ACP company that owns its own customer relationship management software platform, that's integrated with the FCC's database and also AT&T and T-Mobile. Further, we're the only ACP company that owns one of the few prepaid transaction platforms that has a nationwide network of convenience stores. This trifecta competitive advantage paves the way for us to be the only ACP company able to do brick and mortar sign-ups inside convenience stores, which means store owners can earn revenue by helping those in their underserved community get connected. We are utilizing this great ACP program as the enticing catalyst to build what is now over 25,000 stores to be onboarded with a staging target of less than 12 months. In some areas, more than 30% of the transactions at convenience stores and supermarkets involve using a SNAP card, which is the government benefit. Every customer who pulls out that card in the store is eligible for ACP. What's even more exciting is that ACP is limited to one per household, and through our surveys, we know that each household has three to four smartphones on another prepaid wireless company. With our presence in these stores where these customers shop and the ability for these customers to pay their monthly prepaid wireless bills at the same store, it's a fantastic launching pad for our non-ACP prepaid wireless subscriber push later this year. Another exciting facet of our business is that the store owner is making money directly in partnership with helping his community, and we are the company enabling this. Because of this, I've never seen a warmer reception for upselling and distributing other products to a store. Not only does our software platform have a navigation interface similar to a website for doing these transactions, it also has a wholesale marketplace back office where store owners can order high-margin products that are in-demand directly from the manufacturer. These products are the impulse consumables by the register that maybe store owners in rural areas especially have difficulty obtaining, or the minimum orders from their local distributors are just too high. Using ACP to add stores to our network by the tens of thousands grows our ACP subscriber base, our prepaid top-up and payment revenue, and gives us points of distribution for selling other third-party products into these communities nationwide. This is the mindset or the driving force for parlaying the success of the ACP program into exponential revenue growth in our other verticals. We are piggybacking this hot reception by store owners to access this offering. Even with the majority of our team's energy focused on this longer-term growth model, I'm pleased to announce that the first quarter of 2023 continues the profitability trend we began to see at the end of 2022, delivering net income of $4.5 million and EBITDA over $5 million. With our funding in place, we've secured a consistent supply of tablets at a significantly lower cost and, in the meantime, we've built out the infrastructure to distribute them in the most efficient means possible. We should no longer see periods of throttling growth due to running out of devices. We expect revenue to ramp higher in future quarters. As I mentioned in the last quarter's call, the key metric is new stores on our platform going forward. More stores on our platform means more ACP sign-ups, more prepaid wireless subscribers, more products on the shelf, more transactions over our fintech platform, and more sales per individual store. As always, we're focused on managing our cash and our cash flow while deploying that cash to maximize growth. We expected first quarter revenues to align with fourth quarter 2022 revenues, and that is precisely what happened, but with strong positive cash flow. We anticipate the full benefit of our lending facility to be realized toward the end of the second quarter with growth accelerating quickly and continuing into the second half of the year. We still expect 13,000 stores to operate on the SurgePays network by the end of the year and see positive operating cash flow during the year, looking only to raise capital for a defined opportunistic purpose. I don't normally enjoy preparing for these calls, but stopping for a minute to see the fruits of your labor has changed my mind a bit, considering how the fruit looks now. I think our next couple of calls will continue elevating my smile as we're able to continue shifting gears upward. Until then, thanks go out to the SurgePays team for pushing forward and delivering on a daily basis. I'll turn the call over to Tony to review our financial results briefly before summarizing today's call. Tony?

Thank you, Brian, and good afternoon, everyone. I will begin my overview of the first quarter's financial results. For the quarter, we reported revenues of $34.8 million compared to $21.1 million in the first quarter of 2022, representing an increase of 64%. The increased sales for the quarter were primarily attributable to subscriber growth in our mobile broadband business. Gross profit increased 192% in the first quarter, to $7.7 million compared to $2.6 million in the year-ago period. First quarter gross margin also showed significant improvement, up to 22.1% versus the 12.5% in the first quarter last year. SG&A expenses decreased by 22% year-over-year, primarily driven by a decrease in compensation expense of $875,000 from Q1 2022 to Q1 2023. Income from operations was positive for the quarter at $4.7 million compared to a loss of $1 million for the year-ago period. Net income for the quarter was $4.5 million or a gain of $0.32 per basic share, compared to a net loss of $1.2 million or a loss of $0.10 per basic share in 2022 Q1. Of the $4.5 million gain in the first quarter of 2023, we showed an increase of gross margin of 13% over Q1 of 2022. Other income included a 33% gain on our investment in Centrecom. Turning to the balance sheet liquidity and cash flow. Our cash balance as of March 31 was $8.9 million compared to $7 million at the end of year-end 2022. Accounts receivable have increased by $400,000 from year-end 2022 to $9.7 million. The receivable is from the U.S. government for the mobile broadband subsidy. Payment usually occurs on the last day of the month following the verification of a new customer with USAC. Given our strengthening financial position, higher cash balance and capital structure, our cash allocation priorities focus on investing in the business and maintaining ample liquidity for future growth. I'll now pass the call back to Brian for some closing remarks. Brian?

Thanks, Tony. Hopefully, it's clear what we are building here at SurgePays. We've succeeded and continue to succeed in making significant advances in the financial profile of the company while doing our best to protect shareholder interest. We are poised to create one of the largest direct distribution networks of underbanked products and services in the country, and a vast market with tremendous growth potential awaits. These results have proven we can do that while delivering positive cash flow. Thank you so much for your time today. We will now open up the call to questions. Operator?

Thank you. Our first question today will come from Ed Woo with Ascendiant Capital.

Yes. Congratulations on the quarter. My question as the economic environment continues to get weaker. Have you noticed any change with your convenience store partners or with your customer base?

Yes, good question Ed. Thanks for dialing in. I've been involved with convenience stores and delivering underbanked products for 20 years now. One of the things that I've noticed, and it is proportionate to the macro environment, is there's two components there. The stores are looking for ways to be more efficient with their capital. And then consumers are looking for ways to obviously get more from their capital, rather their income. So, this always presents a really unique opportunity for us because considering that, like we talked about, we have the competitive advantage where we're normally the value-based deliverable product, and we're delivering the best value at the best cost directly to them. When you have moments in time like this where people are aware and they take a step back and evaluate things instead of just staying in that same rut financially, it's always good for value-based companies like us delivering a better cost product. So, it's not so much that all of a sudden you see more people moving into an underbanked, underserved neighborhood because there's typically not a whole lot of houses for rent. Those neighborhoods are usually pretty packed already. So I don't think that all of a sudden there's this explosion of customers. It's the customer's awareness that changes. And it's the store's awareness, if we have a way for that store owner to make more money without having to put out capital for inventory, because most of our products are just transactions. So, for example, he takes down the number, helps us enroll someone for ACP. That store owner just made $12. He didn't put out any money to earn that money. So that's why it's such a hot product for him. Our other transaction products, he doesn't have to lay out money for products that sit on the shelf and then wait 30, 60 days to upsell that product with the risk of the inventory going bad. So, it's a really strategic time for us. And I think it's one of those windows of time that we really want to take advantage of because when times get better, these products are still going to be there and we're still going to have these relationships. So, I think that's the opportunity and that's the window of time for us related to the macroeconomic situation.

Great. That's a very good answer to my question. I wish you guys good luck. Thank you.

Thanks, Ed.

Your next question will come from Adam Waldo with Lismore Partners.

Hi. Good day, gents. Thanks very much for taking my questions. I hope you can hear me okay.

Yeah. Hey, Adam. We hear you.

Great. Thanks, Brian. So I wanted to just get a little bit to see to what extent you guys could provide a little bit of guidance on the balancing of continued hyper growth of the business through the ACP on one hand and improving profitability by EBITDA margins and free cash flow on the other. So obviously, you had a very nice quarter here in the first quarter in that regard. Some of that was due to timing around the device delivery cadence. You've given guidance for the full-year for operating cash flow to be positive and haven’t given margin guidance in your press release, but can you talk a little bit to what you would see the progression of margin structures and cash flow looking like over the year as you try to continue to balance both scaling up subscribers and improving profitability and cash flow?

That's a great question, and I appreciate it. On average, Tony, our CFO, and I spend about 30 minutes to an hour each day discussing our strategy. It’s a methodical process focused on ensuring we make money, as we are a public company. Our executive team comes from a background that prioritizes profit and margin expansion. The stores offer significant advantages for us in distributing ACP and serving our MVNO subscribers, as well as selling our other products. The ACP program acts as a gateway for us. It's more than just the operational model; it's also about cost efficiency. When we have people setting up pop-up tents, that’s their sole income, and they require higher payments. In contrast, transactions at stores are simple; we just need their phone number to engage the customer via chat through SMS, making the activation process easier for us. We only pay store owners between $10 to $12 compared to $50 in the field. By leveraging our borrowing capacity and considering our global strategy, we assess whether we should focus on short-term numbers or sustained growth over one to two years. For example, if our devices used to cost $93 and are now around $65, and our field sales cost is $50 while store costs are only $12, mathematically, we can find four customers at a store for every three through field sales. This allocation of resources supports our focus on margins and improving customer retention. Field sales that move from town to town leave customers without support, whereas store owners who customers visit regularly have a better chance of retaining those customers. Store owners have an incentive to assist customers and guide them to our support services. This permanent engagement is vital for retention and cost reduction. We're currently seeing a reduction in device costs by $25 to $27, which is contributing to our margins and cash flow.

Right. The unit economics are clearly improving, which is encouraging. As we approach the end of 2023 and aim for 0.5 million subscribers, could we see EBITDA margins reaching double digits in the fourth quarter despite this growth? We achieved a mid-teens EBITDA margin in the first quarter.

I don't want to provide specific EBITDA guidance. While I have an idea of what it might be, I'm hesitant to share it because it might sound unrealistic. However, conservatively, I believe you can take our first-quarter performance and project it upward. I expect customer and store growth to increase significantly in the third and fourth quarters. Currently, as we expand with new stores, it’s crucial to distribute point-of-sale materials, like posters and stickers, that raise awareness about government benefits. Training is also essential; our development team has created short training videos to prepare store owners and employees, as we lack the staff to train all the new stores directly. These training materials will soon be put into action. We're committed to rapid growth, but we aim to do it correctly. Each quarter should show an increase in stores because we're becoming more efficient, and we're learning what specific training each type of store requires. For example, a supermarket with many clerks needs different training compared to a bodega where the owner is directly involved in every transaction. We have some exciting integrations in the works, particularly with an ATM company. When customers use a reloadable debit card, we plan to ask them if someone in their household is receiving government benefits and to collect their mobile numbers. We believe these initiatives will gain momentum, especially in the third and fourth quarters.

That's very helpful. I appreciate that. That's helpful color. Will you permit me one more quick one? And if you will, can you give us a little bit of an update on what you've been seeing in terms of average monthly customer attrition in recent months? Is that improving, or is that pretty stable around your historical levels?

It's stable, but it makes me anxious thinking about it because I'm very focused on retaining customers once we've acquired them. My business model has always revolved around recurring revenue from a subscriber base. We're implementing various strategies, including reward systems, to encourage customers to stay and use the product. Right now, we're testing a program that reimburses for a tablet device, and we also have access to smartphones, although we don't get reimbursed for those. Offering a smartphone could make customers more long-term. If we provide a SIM card, they can use it in their existing phones. Customer retention is critical, especially since the recent purchase of net mobile for over $1 billion, which highlights the increased valuation for prepaid wireless subscribers. We're optimistic about this trend and believe our stores will significantly reduce attrition. Customers frequently visit these stores, and there's a personal connection since they buy other items there. They see the store person as someone they trust for their service, not just a faceless company. We expect this relationship to enhance customer loyalty and drive growth. While our attrition rates are currently historical, we have a dedicated team focused on data analysis and business intelligence to keep us competitive in the industry. This is a personal priority for me as well.

Okay. Thanks very much. Best wishes for the rest of the year.

Thanks, Adam.

Our next question will come from Michael Diana with Maxim Group.

Hey, Michael.

So you've focused on stores as being extremely important here. And I've heard you mention a few numbers. I think you said 13,000 by the end of the year and then the release it says over 25,000 within 12 months. Could you tell us, like, how many active stores do you have now? And is that the program, 13,000 by the end of the year, and 25,000 by mid-year next year?

It's exactly what that's allowing us time to set. I had a conversation with Jeremy, our fintech subsidiary president, and we discussed the importance of growing the right way. This means ensuring that stores have the necessary materials. Even if there are 20,000 transactions happening in a store each week, without the right materials on display, customers won't ask about our products at the register. This includes other products as well, like prepaid Boost and MetroPCS bill payments. The point of sale materials are crucial; they must not only be shipped to the stores but also properly displayed. We have partnerships with distributor companies like H.T. Hackney, who have many salespeople across the southeast and Midwest. We incentivize these salespeople to set up the stores and send us pictures of the point of sale materials displayed, rewarding them for each picture. We are testing various strategies, such as working with a 200-store chain without dedicated salespeople, where the store owners must determine what works best. We are actively learning from these experiences and implementing what proves effective. In response to your question, I believe we will surpass 13,000 stores by the end of the year; our conservative estimate is that we currently have around 8,000. However, this figure can change rapidly. We are open to exploring potential acquisitions of networks, where we can take over existing relationships with numerous stores and offer our full range of products. This strategy dramatically increases the value of those networks for us. Therefore, we're aiming for 25,000 stores staged over the next year and at least 13,000 by year-end, and I believe we can exceed that target.

Okay. That's great. Thank you very much.

Sure. Thanks. Good talking to you, Mike.

And there are no further questions at this time. We will now conclude today's conference. Thank you for joining, and have a pleasant day.