Greetings. Welcome to SurgePays' Second Quarter 2024 Earnings Conference 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, Doug Lane, Investor Relations at SurgePays. Doug, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays second quarter 2024 earnings webcast and conference call. Today's date is August 13, 2024, 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. 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, 2024 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, Doug. Thank you for joining today's call and your continued interest in SurgePays. I want to start by reiterating our unwavering commitment to providing financial technology and prepaid wireless services to the underbanked and underserved populations at the grassroots level where they live and shop. This commitment is at the core of our mission and guides all of our actions. Over the past few years, we have successfully acquired over 250,000 subscribers to our mobile virtual network operators, or MVNO, business, which at its peak accounted for over 90% of our consolidated sales. This was made possible by offering plans subsidized by the federally-funded Affordable Connectivity Program, or ACP. We were aware that this program's funding could run out in the first half of this year, which it did. However, the uncertainty lay in whether Congress would authorize additional funding for the program, which unfortunately, as of this date, did not happen. We want to ensure you we are fully informed about the challenges we face. But as said on the last call, we can no longer wait around to find out. We had contingencies and had already begun implementing a non-subsidized MVNO business, LinkUp Mobile, which was launched in early June. We aim to offer our subscribers the option to remain on a free monthly plan subsidized by a sister subsidy program, or transition them over to LinkUp Mobile, which we priced to be attractive to our target customer. We also hired Joe Gomez, a senior telecommunications industry executive for the newly created position of Vice President of MVNO Operations. Joe spent over 18 years at AT&T and brings a wealth of experience to the team. He is charged with helping to develop innovative products and services for the value market segment where we believe our competitive position is enhanced in a non-subsidized market environment. Stay tuned for further developments to come in our ongoing efforts to build out our prepaid wireless MVNO business. In the meantime, we are going through a transition phase in the business. It would have been an easy short-sighted decision to let our subscribers go once the ACP funding ran out. That's losing sight of the fact that we now have an existing subscriber base of 250,000 customers, not to mention a distribution network of thousands of local convenience stores and bodegas where our customers shop every day. Those are huge and valuable assets. Therefore, to hold on to these valuable assets during this transition period, we chose to keep our subscribers active, absorb the wholesale costs, and put our strong balance sheet to work to replace the cash flow we lost once ACP funding ran out. But rest assured, this is only temporary. We do not like talking about cash burn rates around here and we plan to put that in the rearview mirror by the time we close the year in December. So, when looking at the second quarter 2024 results, our sales were $15.1 million compared to $35.9 million in the year-ago quarter, which were about as expected with the ACP program winding down mid-quarter and Congress declining to provide it with new funding, at least as of yet. Our MVNO revenues were $12.5 million versus $30.2 million in the same quarter of last year when ACP was fully funded throughout the quarter. Also impacting sales were the operational changes made by management in Surge Logics lead generation services, which had $2.8 million in sales in the year-ago quarter, but did not contribute sales this quarter. What was not expected in our planning coming into 2024 was that the second quarter gross profits would be a loss of $3.4 million versus a $10 million profit in the year-ago quarter. This was due to the double whammy of Congress letting the original ACP funding run out and not immediately renewing the program, coupled with our decision to have our balance sheet take on the funding to maintain continuity within our subscriber base. So, why would we continue to provide wireless services and absorb the costs? For three main reasons. Number one, Congress could renew the ACP program at any time. And if we terminated service, we would have to go out and reacquire customers from a standing start, which would cost tens of millions of dollars. Number two, if Congress delayed or didn't fund the program, we had as a backup plan to acquire a company with licenses to provide a similar subsidy program to our customer base and recapture a lower, but viable and sustainable recurring revenue stream. This is in conjunction with incentivizing customers to switch over to LinkUp Mobile, our non-subsidized prepaid wireless brand. Number three, we know how critical a role broadband service plays in everybody's life and we believe it was simply the right thing to do. As we evolve, we want to become a more increasingly important provider of goods and services to our convenience store and bodega partners. While prepaid wireless and fintech are the main products we now provide, we look to expand our offerings to these points of distribution in the community since we know that our customer base of underbanked and underserved consumers conduct most of their financial transactions at their trusted local convenience store. We recognize that the delay in ACP funding has adversely impacted our business and stock price. Therefore, we feel it's an opportunistic time to announce a corporate stock buyback, so our long-term investors know our interests are aligned. We have announced a buyback of up to $5 million of SurgePays' common stock in the open market over the next six months. We are in a transition phase and are looking to get back to generating positive free cash flow by the end of this year through the following initiatives: 1. Continue to grow our ACP revenue stream should Congress continue to fund it. 2. Offer our subscriber base a sister subsidy program while enticing customers with a cost-saving LinkUp prepaid wireless plan. 3. Scale up our third-party wholesale transactions for other prepaid wireless company payments at convenience stores. This initiative has been necessary because it's a relationship gateway product for LinkUp activations and subscriber growth at convenience stores. 4. Expand our offerings outside of wireless. For instance, we recently launched our ClearLine customer engagement platform for convenience stores at last month's RetailNOW Conference in Las Vegas. 5. Expand product and service offerings to the same nationwide network of convenience stores we are building by exploring and executing prospective partnering or product distribution opportunities. 6. Identify unique market opportunities that represent potential positive short-term cash flow. As I said at the outset, we knew that the ACP funding could run out and we were not waiting around for Congress to provide additional funding. Many initiatives are underway to expand SurgePays' footprint among the underbanked and underserved who remain our key customers. Stay tuned for more news on this front as we move into the back half of 2024. I'll turn the call over to Tony to review our financial results before summarizing today's call. Tony?

Thank you, Brian, and good afternoon, everyone. I will begin my overview of the second quarter's financial results. For the second quarter, we reported revenues of $15.1 million compared to $35.9 million in 2023, representing a decrease of 58%. The decrease was primarily due to the lack of additional federal funding for the ACP. April was the last month that ACP households received the full ACP benefit as they had in prior months. Some ACP households received a partial benefit in May and effective June 1, households were no longer receiving an ACP benefit. Additionally, similar to the first quarter, we received no revenues from our lead generation services consisting of LogicsIQ in Q2 of 2024 versus the $2.8 million received in Q2 of 2023. This was a result of operational changes by management. Gross profit swung to a $3.4 million loss in the second quarter from a $10 million profit in the year-ago period due to our strategic decision to utilize our strong balance sheet to protect our ACP subscriber base and distribution network while we transition over to a non-subsidized MVNO business model. Additionally, the deemphasis of our lead generation business resulted in lower gross profits in that segment as well. SG&A expenses increased by 101% year-over-year. The increase was primarily due to additional non-cash stock compensation for management. The stock compensation relates to employment agreements signed in late 2023. We also incurred additional expenses for contractor and consulting fees. The company engaged several contractors to overhaul the financial platform to allow for the conversion to a tablet-based transaction at the store level from the outdated VeriFone terminal. The company also engaged with consultants to provide advisory services, specifically in the area of investment relations to identify opportunities to increase our shareholder value. Loss from operations was $10.9 million during the second quarter compared to a $6.2 million profit in a year-ago period. Our reported net loss and loss per share were $12.9 million, a loss of $0.66 per share. Our loss and loss per share were adversely impacted primarily by the ending of the federally-funded ACP for our customers during the quarter. Turning to the balance sheet, liquidity, and cash flow. Our cash balance as of June 30, 2024, was $38.4 million compared to $42.9 million at the end of the first quarter. Our cash from operations was $4.1 million, used in the second quarter versus a $4.0 million source in the first quarter, a large negative swing due to the winding down of the federal ACP funding to our customers during the quarter, which we picked up and funded with our cash on hand. Accounts receivable decreased by $6.9 million in the second quarter to $1.4 million from $8.3 million at the end of the first quarter. The ACP stopped accepting new subscribers in February of 2024, resulting in much lower receivables from the US government. Given our cash balance and capital structure, our cash allocation priority is in financing the transition from a federally-subsidized MVNO model to one fully funded by our customers. I will now pass the call back to Brian for some closing remarks.

Thanks, Tony. I believe the four key components to a company's success are the team, the products, the distribution, and the funding. I believe we have assembled the best and most experienced team in the history of prepaid wireless products. We currently have the most compelling offering in our market. We own our own distribution and have $38 million cash in the bank as of June 30, 2024, to execute our transition. I believe SurgePays has the foundation for long-term success despite the short-term disruption caused by the ACP funding situation. Thank you so much for your time today. We will now open up the call to questions. Operator?

Thank you. And the first question today is coming from Anja Soderstrom from Sidoti. Anja, your line is live.

Hi. Thank you for taking my questions. First, of course, the ACP. How optimistic are you that that's going to be refunded? And do you have any sort of idea of any timeline there?

Thanks for the question, Anja. It’s been a week-to-week feedback process for us. Our optimism is fading as time passes. We had initially set August 1st as a deadline to take action, anticipating a positive outcome from the ACP. If that doesn’t happen, we’ll consider it time to shift to Plan B. We're still hearing that there are discussions happening in Congress, and even those who were initially skeptical about the program are now more favorable towards it, especially with JD Vance as the Republican Vice President pick, who supports the program. However, we can't delay any longer. We need to take action. After considerable discussions, we are looking to transition our customers. They will have the option to stay on a free service subsidized by the Lifeline program or, for those who want more robust broadband service similar to a regular wireless plan, we will offer a discounted LinkUp Mobile plan. This way, they can choose to remain on the Lifeline service if they need assistance, or start paying for a service that's more aligned with what they want.

And do you have any sort of initial read on who's going to opt for the Lifeline program, who's going to opt for the LinkUp Mobile?

My instincts would tell me that the majority of folks, once something is free, they're going to maintain and stick with the free program. And then, it would be over the course of, let's say, three to four months, the transition would take place to bump to a paid plan. I don't think people out of the gate would opt for a paid plan until they've experienced the free plan first.

Okay. And then, in terms of the ClearLine customer engagement platform, what are you seeing initial reads there?

I've spent a lot of time with our team on the ClearLine side of things. I'm really pleased that we acquired ClearLine. For those who might not be familiar, we acquired ClearLine primarily because they had excellent technology that enabled us to handle ACP enrollments at convenience stores. They allowed us to move away from refurbished VeriFone terminals, which are the small credit card machines with keypads, to touch screens that enable users to sign with their finger. This offers a much more advanced technological interface in the store and opens up future possibilities, like scanning QR codes and conducting transactions. One of our goals for the future is to become the go-to option for digital transactions at convenience stores for underbanked individuals. The acquisition of ClearLine was beneficial as it not only met an immediate need but also brought along ongoing projects that were slightly underfunded. They had a great team that was close to completing several projects, and we encouraged those individuals to join us, transforming their entrepreneurial spirit into focused efforts without the operational distractions of running a business. Nate, who manages this initiative for us, has introduced some impressive products. The primary goal of ClearLine is to boost customer engagement at the store level, and they have developed various products to achieve this. I don't want to delve too deep into specifics, but to illustrate, over the next year or two, you'll start noticing big screen TVs instead of traditional posters in convenience stores, featuring dynamic advertising that engages customers. This won’t just be static images; it will also include QR codes that can be tracked and redeemed directly at the register, with ClearLine overseeing the entire process. We are currently launching this in several chains. I hesitate to call it a beta test because we are confident in its functionality, but it serves as an initial market engagement with highly profitable products for us. These initiatives target the same convenience store market and serve as relationship-building tools. For example, with the ClearLine TV displaying multiple ads, customers can scan QR codes with their smartphones, go to the register, and redeem coupons in real-time. This data will be formatted in a user-friendly report for store or chain owners, helping them understand the effectiveness of their in-store and hyperlocal marketing. Additionally, this system will support our prepaid transactions and third-party prepaid top-ups for any wireless provider. It will also facilitate activations for LinkUp Mobile, turning convenience stores into important distribution points for us and our other products. The ClearLine acquisition not only solved an immediate problem but also introduced a wealth of fantastic opportunities that we may not have fully recognized at the time of purchase, and we are now leveraging those opportunities.

Thank you. You mentioned returning to free cash flow positive this year. How do you plan to achieve that without the ACP being refunded, and how much do you rely on that for reaching a free cash flow positive position?

Yeah. No, I appreciate that question. Our goal of being cash flow positive by the end of the year is assuming ACP is gone. I'm not going to do any modeling or projections or any, even on my own spreadsheets, old school pro forma, I'm not going to factor in any ACP. I'm going to assume that's behind us. The cash flow positive, by the end of the year, would be taking into account transitioning those customers who want to remain on a free product over to a Lifeline product. That would be the third-party wireless transactions we talked about that are really a gateway product to the store. It's the lead product to where a convenience store owner could take payments for every prepaid wireless company out there using our platform. That is ramping up significantly right now. The ClearLine product picking up for us, and then by the end of the year, LinkUp Mobile getting its traction and starting to contribute as well.

Okay. Thank you. I'll get back in queue.

Thank you. The next question is coming from Curtis Shauger from Water Tower Research. Curtis, your line is live.

Yeah. Hi, guys. Can you hear me?

Yes. Hey, Curtis.

Yeah, awesome. Thanks for taking my question. I think what usually comes to mind for me is, are there any opportunities with the carriers to help mitigate the cost that you're experiencing to keep the ACP customers alive?

That's a good question, and I appreciate it because it gives me a chance to discuss some of the challenges Tony, our management team, and I have been thinking about. Initially, the discounts and potential cost reductions that the carriers mentioned were much more aggressive back in April when this first came up, but they reduced those expectations due to their strong belief that ACP would be funded. It was quite chaotic; every day brought something new, making it feel like a soap opera. That’s one reason we had to be firm in deciding our direction. If ACP returns, great; if not, we've had a good run. The carriers currently do not want to lose subscribers, especially considering that other companies have lost significant numbers. T-Mobile and AT&T are particularly motivated not to lose their subscribers. I believe we will see some assistance in the form of discounted rates to provide Lifeline service, which is a subsidy program that has existed since the Reagan era. While it’s not as substantial as ACP, it is still a viable option. The issue with Lifeline has been that the pricing for service wasn't adequate to offer consumers a decent product; it was almost like an emergency phone. However, I think the carriers are going to offer something akin to a regular plan for basic phone users, including talk, text, and data, which would be implemented in Lifeline. That's where I expect them to increase their support. They have provided discounts over the past few months, and if they hadn't, it could have accelerated our progress. We did take these factors into account, and while they have made some effort, I wish they had contributed more. They were entirely convinced that funding was imminent, as did we and others involved in this situation. Everyone was somewhat surprised when it didn't happen. But now we’ve reached this point, and that's why we've decided on August 1st to outline our Plan B, aim to achieve positive cash flow, and move forward.

Awesome. Thank you. I'll get back in the queue.

Thank you. The next question will be from Andrew Scott from 395 Group. Andrew, your line is live.

Hey, Brian. Hey, Tony. I understand that you're facing a really tough time right now. Many of my questions have been answered about how you can quickly return to positive cash flow and break even. It seems like you've covered that in the call, and it looks like you have sufficient cash to achieve that. I have heard you mention Lifeline frequently, but have you considered looking into any other acquisitions that could complement your business models? Perhaps in other areas of payment processing? I'm just suggesting ideas, but have you thought about additional acquisitions besides Lifeline?

Thank you for the question, Andrew. We're continually evaluating our options, which involves careful consideration of potential acquisitions. Right now, it's important to recognize the unique macro environment we’re in, especially for a company with cash reserves. We don’t want to pursue acquisitions just for the sake of it or simply to boost revenue. I believe it’s better to have less cash in the bank with growing cash flow than to hold more money while watching cash flow decline. Growth is essential, and that's a mindset shaped by my entrepreneurial background where survival was a necessity. While the current environment is challenging, it also presents transition opportunities. I believe our team thrives during tough times, and we see possibilities ahead, especially for customers seeking alternative wireless communication solutions. The bilingual and prepaid wireless sectors, particularly among Hispanic communities, present significant opportunities, as there are currently not many players in that space. Our team consists largely of former entrepreneurs who have built businesses from the ground up, giving us resilience and vast networks. We've also welcomed talents from larger carriers who bring a corporate perspective to our operations. If ACP had persisted, we might have cited different circumstances, but looking back, we recognize that the focus on ACP led us to be a one-product company, which wasn’t our intention. While we took on $200 million in obligations, it strengthened our balance sheet, empowered our team, and allowed us to pursue acquisitions. Ultimately, we are open to any acquisitions that would enable us to grow. We are more than just an ACP or wireless company, as we aim to expand into convenience stores. The changing landscape has prompted us to reassess our identity, goals, and direction over the past couple of months. Although I wish ACP was still active, this process has turned out to be a beneficial opportunity for us to clarify our long-term vision.

I got it. Guys, nice touch on the corporate buyback. I thought that was a really good idea. I'm good. Thank you, guys.

Okay. Thank you. Thanks for the question.

Thank you. And the next question will be from Ed Woo from Ascendiant Capital. Ed, your line is live.

Yeah, thanks for taking my question. My question is, you guys have a direct relationship with the underserved market through the convenience stores. What are you hearing in terms of the economic outlook? And has it really changed? And how has that impacted your business and obviously with the underserved customers? Thank you.

Thank you for the question. One of the areas we've been focusing on is gathering specific feedback related to the wireless sector, as consumers are seeking more engaging experiences. Regarding the economy, it remains stable, especially for the underbanked segment, which isn’t significantly impacted by broader economic indicators like the Dow Jones or GDP. This market remains consistent in both good and bad times, but there has been a lack of compelling service offerings for these consumers over the past several years. Looking at the prepaid brands, we’ve seen considerable consolidation among major carriers, with companies like Sprint, T-Mobile, Verizon, and AT&T acquiring several key players. As a result, we see substantial opportunities for value-added prepaid wireless services beyond just competing on price. While we can provide competitive plans efficiently, entering a price war with competitors is not our goal. We have unique elements to enhance our offerings, such as using a coupon redemption company linked to our services, which allows us to send coupons to customers when they pay their bills. This differentiation is crucial for us. Additionally, we are receiving feedback indicating the need to improve our international offerings. It's evident that many users still prefer direct dialing rather than using apps like WhatsApp or Telegram for long-distance calls. We're working to strengthen this aspect and aim to have an updated offering within the next 30 to 60 days. Another point of feedback has highlighted the importance of number portability for prepaid customers. A decade ago, a phone number wasn’t as critical, but today it is essential for various services, like receiving text messages to recover passwords. We are intensifying our efforts in this area to attract subscribers. We're focused on executing a strategy based on feedback from master agents and stores to achieve our year-end goals. With the potential for 150,000 monthly activations, we're committed to taking the necessary steps to capture this market. It's not just about listening; we're actively working to maximize these insights. Furthermore, we have the largest prepaid convention of the year coming up in two weeks, where we will launch our products. Our team is fully prepared, and we are determined to position ourselves as a leading player in the industry. Thank you for your question, and I look forward to our next conversation.

Great. Well, thank you.

Thank you. And this is the end of our Q&A session today. And that does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.