Good day, and welcome to the SurgePays Second Quarter 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 Prenoveau, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays second quarter 2023 earnings webcast and conference call. Today's date is August 10, 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 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 statements 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 ir.surgepays.com. In addition, SurgePays Form 10-Q for the quarter ended June 30, 2023, is also available on SurgePays's Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Thanks, Brian. First, I'd like to thank our shareholders and those interested in what we're building at SurgePays for joining the call. As we continue to expand our audience, I'd like to give a brief overview of who we are, what we do and our addressable market. SurgePays brings financial and telecom products to the underbanked and underserved populations at a grassroots level where they live and shop. Our fintech platform empowers clerks at thousands of convenience stores to provide a suite of prepaid wireless and financial products to lower income and underbanked consumers. Our prepaid wireless companies provide service to hundreds of thousands of subscribers. With this profitable suite of underbanked products and services, we are well positioned to grow our footprint and owner-operator convenience stores nationwide, with the goal of building the largest direct distribution network of underbanked products and services in the country. The underbanked are almost a third of the country and do most of their financial transactions at their trusted local community store that's closest to their home. The real influencer in these neighborhoods is the clerk behind the counter. SurgePays utilizes these convenience stores as the points of distribution into these communities. As we onboard the store to our software platform, we enable the clerk at the register to perform transactions such as prepaid wireless activation and payments, along with activating and reloading debit cards and other transactional services with the motive of improving the daily lives of those without traditional access to banks, credit and checking accounts. In other words, provide essential products and services people need and want. One of the motivating aspects of our business case is that our revenue is directly tied to how many essential services we provide to those who need the most. The Affordable Connectivity Program, or ACP, has been the revenue driver for SurgePays growth the last two years. When this program was stamped into the infrastructure bill, we shifted the majority of our short-term bandwidth to growing our base of subscribers to accomplish the goals of profitability, debt reduction and stability. ACP offers a federal subsidy for a tablet device and monthly wireless service to recipients of any income-based government benefit, such as Medicaid, Veterans Pension, Section 8, and most notably, the program historically called food stamps or EBT, which now goes by the name SNAP. Several wireless companies have licenses to offer the ACP program to the public. However, we are uniquely positioned as the only ACP company with its own customer relationship management software (CRM) platform integrated with the FCC's clearinghouse database and also into the AT&T and T-Mobile networks. Further, we are the only authorized ACP company that owns one of the few prepaid transaction platforms that has a nationwide network of convenience stores. These competitive advantages paved the way for us to be the only ACP company able to initiate brick-and-mortar sign-ups for ACP inside convenience stores. Store owners are always looking for more foot traffic and ways to create loyalty in their community. The industrial logic we applied to our platform is inescapable and so compelling that our intake team is working on a pipeline of over 25,000 stores that will soon have a SurgePays presence with a staging target of less than 12 months. Our research shows in some areas, more than 30% of convenience stores and supermarket transactions use the SNAP EBT card. Every customer who pulls out that card is eligible for free service through ACP. Our research has also shown each one of these households that is qualified for ACP also has, on average, three to four smartphones on another prepaid wireless company plan. With our presence in these stores where these customers shop and the ability to pay their monthly prepaid bills at the same store, it's a fantastic launch pad for our non-ACP prepaid wireless subscriber push coming in the few months ahead of us. In this macro environment, where interest rates on store inventory lines of credit are squeezing small business profits, the profitable relationship between SurgePays and the convenience store owner-operator has created big opportunities where these owners are readily receptive to selling additional SurgePays products distributed to their store. The key phrase we focus on constantly is that a beneficial relationship with the store owner creates endless opportunities for sales. Our developers have been working to separate us further from the pack of convenience store fintech software companies. We are now testing customer-facing LCD touch screens at the register to promote our products, activate wireless subscribers and create customer engagement. I'm really excited to transition into this equipment phase of what I think will be the flywheel of our business plan. This customer-facing touchscreen at the register connected to our servers, further solidifies our roots and abilities inside the store. It provides us with a 24/7 marketing opportunity to promote our products and enable customers to enter their own information as needed for various transactions. This opens many doors down the road for us and is the next step in advancement and a part of our strategy to solidify SurgePays as the innovative market leader in our space. Even with most of the team and developers' energy focused on growth, I'm pleased to announce that the second quarter of 2023 continues the profitability trend that we began to see at the end of 2022, delivering net income of $6 million and EBITDA of $6.4 million. This puts us over $10 million in net income for the first two quarters with the expectation to continue this trajectory. As I mentioned in last quarter's call, the key metric is future new stores on our platform. More stores on our platform mean more wireless subscribers, more products on the shelf, more transactions over our fintech platform and more sales for individual stores. SurgePays is now reaching beyond stores for ACP sign-ups, leveraging the workforce of new partner organizations. You might have seen some of our announcements during the quarter. Our first partnership was with ParichuteConnect, a social impact investor looking to drive ACP sign-ups, leveraging the SurgePays platform. ParichuteConnect is an arm of a larger investment firm that is devoting time, resources and social media platforms to raise money for worthy causes. Through ParichuteConnect, we can sign up ACP enrollees in city and state school systems, community service organizations, and public service organizations. We recently announced that we are partnering with the Boys & Girls Clubs on native lands to get those eligible household population signed up. This setup allows Boys & Girls reps to leverage our platform, expanding our reach at minimal expense to SurgePays. It's through the ParichuteConnect relationship that we began working with the Boys & Girls Club. Lastly, on the partnership front, in July, we announced a new partnership with LeadEx. This partnership allows us to communicate directly on an ATM with individuals who might qualify for the ACP through tens of thousands of LeadEx ATMs. Most of these ATMs are located in owner-operated convenience stores. In this case, if you're using an EBT card or other benefit card or reloadable debit card, you might see an ACP prompt from SurgePays for free wireless service via a full screen ad on the ATM. At this point, we've just begun to scratch the surface of the potential means SurgePays has to drive additional subscribers and stores. As always, we're focused on managing our cash and cash flow and deploying that cash to maximize growth with discipline. We expected second quarter revenues to align with first quarter revenues, precisely what happened, but with even stronger positive cash flow. We anticipate the full benefit of these new partnerships beginning to bear fruit towards the end of the third quarter, with growth accelerating quickly and continuing in the year's second half. We 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.

Thank you, Brian, and good afternoon, everyone. I'll begin my overview of the second quarter's financial results. For the quarter, we reported revenues of $35.9 million compared to $28 million in the second quarter of 2022, representing an increase of 28%. The increased sales for the quarter were primarily attributable to the subscriber growth in our mobile broadband business. Gross profit increased 358% in the second quarter to $10 million compared to $2.2 million in the year-ago period. Second quarter gross margin also showed significant improvement up to 28%, versus 8% in the second quarter last year. SG&A expenses increased by 26% year-over-year. The increase was primarily driven by one-time bonuses paid to various management personnel which were paid out in Q1 of 2022. Income from operations was positive for the quarter at $10.9 million compared to a loss of $1.9 million in the year-ago period. Net income for the quarter was $6 million or a gain of $0.40 per share compared to a net loss of $973,000 or a loss of $0.08 per share, last year. Of the $6 million gain, the second quarter included lower interest expense than a year ago as our overall debt has decreased significantly from that period. Turning to the balance sheet, liquidity and cash flow. Our cash balance as of June 30 was $5.2 million compared to $7 million at the year-end 2022. The accounts receivable have increased by $1 million from year-end 2022 to $10.3 million. Receivables from the US government for the mobile broadband subsidy. Payment usually occurs approximately 30 to 60 days after a new customer is verified and signed up. Given our strengthened financial position, cash balance and capital structure, our 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.

Thanks, Tony. SurgePays is now on sound financial footing with a healthy balance sheet, a great team assembled consistent earnings and growth. We are in complete control of our own destiny and 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 ahead. These results have proven we can accomplish our goals with discipline and persistence while delivering positive cash flow. Thank you so much for your time today. We will now open up the call to questions.

We will now begin the question-and-answer session. Our first question comes from Ed Woo with Ascendiant Capital. Please go ahead.

Congratulations on the quarter. With your strong track record and success, has that attracted others to enter your market or has there been any change in the level of competition?

Hey, Ed, I appreciate the question. I assume you're talking about the ACP business…

Yes, the ACP business.

… or just talking about overall model.

Mainly the ACP business.

Yeah. No, good question. I appreciate it. I think that it's not just our strength in the ACP, but it's also what the assumption is of the longevity of the program with Congress setting aside $80 million in awareness money last October to get more adoption into the program. And then also as recently as last week, where Congress worked with the FCC to expand payments on ACP in certain rural areas of the country. I think there's the understanding now that there's — the program is going to be around or they wouldn't be expanding the program that they don't plan on continuing to fund in the budget each year. So I think that has brought competition. But as we've talked about, and hopefully, people have picked up on it, we're using ACP as a tool to accomplish our overall business goals. We never want to be labeled as just an ACP company. And so it's been a great product for us to expand our company and accomplish the short-term goals we've talked about. But leveraging the ACP program to accomplish our greater goal, which builds a moat. It really does, not just a metaphor, but it actually does because us being the only ACP company that's a part of a broader software company, opens up so many different verticals and doors for us where we're not just stacking subscribers on top of each other that really have no value. There's no upsell. There's no roots in the community using the ACP program to build relationships that kind of unfurl other opportunities and further our business thesis was really the goal all along. So is there companies out there that can go pop up a tent and sign up ACP consumers? Yes. Are there companies that can do what we're doing and take millions of dollars of development and years of development and use ACP as a tool to get into convenience stores and have competition in our business use case? No.

Great. Well, thank you for answering my questions and I wish you guys good luck. Thank you.

Thanks, Ed.

Our next question comes from Michael Diana with Maxim Group. Please go ahead.

Okay. Hey, Brian. So it sounds like you're really leaning into building out the convenience store network. I'd like to ask about a few of the things you mentioned inside the store. One being your LeadEx solutions, did you say that most of their ATMs are actually in convenience stores?

Yes. LeadEx is a provider of software for independent networks of ATMs. These are the ATMs located in convenience stores, grocery stores, and retail locations, rather than those operated by large banks like Regions, Bank of America, or Wells Fargo. Typically, these ATMs can be found in settings similar to convenience stores or bodegas.

Okay. Okay. That's great. And so when someone uses the ATM, are you saying you're going to have an ad trying to introduce them to ACP?

Yes, this has been a learning experience for us. When you use your ATM card, the machine instantly recognizes the bank and the type of card. A lot happens in that moment. We believe there are categories of users who might be considered underbanked. For example, individuals with benefit cards would easily fit into that category. Additionally, those with reloadable debit cards likely don't have regular bank accounts, which suggests they may also lack credit. Typically, someone without a checking account and debit card probably has a household member on income-based benefits. These individuals are identified as they insert their card during the transaction process. While the transaction is processing, there is often a visual of money being counted, which captures the user's attention. This presents a great opportunity for engagement. A message can appear on the screen asking if the user or anyone in their household is receiving government benefits such as SSI, Medicaid, Veterans Pension, or EBT SNAP. If they respond affirmatively and enter their phone number, our team will reach out to them to continue the engagement and help them with the sign-up process.

Okay. That sounds great. So is everything ready to go? Is it already in place?

We are currently rolling that out and monitoring the numbers, and we're pleased with the leads we're seeing. What we need to fine-tune is the method of following up when a consumer enters their number. Right now, we find that the timing isn't optimal for outreach. There is a crucial window for follow-up that we need to hit, as consumers may not respond effectively when they are at an ATM withdrawing cash. They are unlikely to engage in a conversation or fill out an enrollment form at that moment since they are focused on securing their cash and getting to their car. Therefore, we're working on the best timing for follow-up and whether to use a mix of phone calls and text messages. We have implemented this at ATMs, and I am happy with the number of leads we're generating. However, I am very focused on converting those leads into sales. A customer who shows interest is qualified, and now we need to establish an effective protocol to onboard them.

Okay. So almost every convenience store has an ATM machine. The next thing you mentioned is your own device with an LCD screen. Would this be something you would need to supply that is specifically for you?

Yes, we would own this equipment, which would be placed on the counter next to the register. To visualize it, think of the coffee shops where they flip the screen toward us, prompting us to tip more because they are watching us. Our setup uses similar technology but will be facing outward all the time. It can run different advertisements around the clock on a 10-inch LCD screen, promoting our ACP and prepaid wireless brand, which aims to compete with brands like Track Phone and Boost, among others. Not only can we continuously advertise our products, but it also allows the consumer to manage parts of their transaction, like entering their phone number for payment. Furthermore, it provides real-time marketing control. Anyone familiar with a distribution network knows that keeping point of sale materials updated—like posters and stickers—can be challenging, especially with competition for space. This technology allows us to manage it instantly from our servers, enabling us to promote any new products we launch. Besides focusing on the ATM while it counts your money, the cash register is the other key moment in a convenience store, particularly a low-income one, where impulse buys typically occur. So, we are very excited about this development. It has always been part of our business plan, though I didn't expect it to happen right now. However, recent significant changes in the market have opened opportunities for us unexpectedly, and we intend to capitalize on them. That's one of the advantages of having cash flow and profitability; it allows us to act on such opportunities as they arise.

Okay. Now I take it this strategy would depend heavily maybe upon the convenience store owner-operator assisting you, right? I mean, they'd have to let you put the screen there, and then they could help you actually direct people's attention there, I would imagine.

It's actually a support for the owner-operator, whether they're behind the counter or serving customers. The success of a chain store often relies on the clerk. If the clerk is not making money on every transaction, they aren't motivated to promote other products or engage with customers. They might miss opportunities like saying, "Hey, let me help you save on your wireless bill." Without engagement, they are just focused on clocking in and out. Having that LCD screen to showcase products will increase earnings for the store owner. It will also streamline training, as the LCD can help customers input their information. This allows clerks to concentrate on their roles and expedite transactions, enabling customers to take on some aspects of the checkout process. Convenience store owners have responded positively, especially given the tight credit lines for inventory. We are offering a way for them to earn money on transactions without upfront costs. Each payment they process contributes to their earnings, so they profit while adding money to the register. They do not need to worry about selling shelf items when working with SurgePays. This relationship is unique; we are among the few vendors whose transactions are beneficial for store owners.

Yeah. No, that's all very, very interesting. So if you can disclose it for competitive reasons, sort of what percentage of your total ACP sign-ups last quarter or in the last month or whatever the appropriate period is, have come through convenience stores?

As we reduce our field sales efforts, we are carefully managing the process, much like adjusting a soundboard, due to acquisition costs and competitive factors. I believe the percentage of total ACP sign-ups from convenience stores is likely less than 10%. We've been implementing this strategy gradually on a store-by-store basis while ensuring compliance and meticulously managing the rollout. It is frustrating when we notice shrinkage or missed leads, especially with the ATM situation. We are committed to doing everything possible to sign up qualified customers who express interest. As we continue this rollout and add more stores, we have expanded our team in Memphis to handle the fulfillment of point-of-sale materials and provide training to stores. This area of sales intake is demanding but it is also crucial for our company’s success. We are actively looking to hire more people and improve our process for onboarding stores.

Okay. And I think you said the target for the end of the year is 13,000 convenience stores. If you hit that target, what percentage, what part of your ACP sign-ups would you imagine would then be made through the convenience stores?

That's a good question. I aim to achieve a 50-50 split by the end of the year, but it's important to note that this shift is not just about division; it's also about increasing subscribers through our stores. Our field sales should remain stable while we work on boosting sales at each location. Ideally, we want to see a net increase in subscribers beyond our current figures, all while synchronizing these efforts. One of the aspects I'm most enthusiastic about, which is integral to our overall valuation, is our non-ACP subscribers. We are accelerating that rollout and are having weekly meetings. I've brought in experienced individuals who have managed MVNOs or prepaid wireless companies, and they have my full support to expedite this initiative. I'm currently overseeing the branding and other startup necessities for our prepaid wireless company. What sets us apart is that we already own the essential software platforms that typically require third-party developers. Additionally, we have significant buying power with AT&T and T-Mobile due to our large subscriber base. This positions us uniquely in the market, allowing us to upsell to stores that are already financially successful with us. Our relationship with store owners is solid; they see us as a profit partner, unlike others who might push inventory without consideration for their space. We plan to leverage this advantage effectively.

All right. That’s all very, very interesting. Thank you, Brian.

Thank you, Michael. Appreciate the questions.

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

Sure. Again, I appreciate everyone for joining the call. Thank you, shareholders, and thank you for those of you who are interested in SurgePays and look forward to talking to you next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.