SurgePays, Inc. Q2 FY2025 Earnings Call

Good day, everyone, and welcome to the SurgePays 2025 Second Quarter Financial Results Conference Call. It is now my pleasure to turn the floor over to your host, Valter Pinto, Investor Relations at SurgePays. Sir, the floor is yours.

Thank you, operator, and good afternoon, everyone. Welcome to the SurgePays 2025 Second Quarter Financial Results Conference Call. Today's date is August 13, 2025. And on the call today from the company are Brian Cox, President and CEO; and Tony Evers, CFO. 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 earn 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, 2025, will also be available on SurgePays' Investor Relations website. I'd now like to turn the call over to President and CEO, Brian Cox. Brian?

Good afternoon, and thank you for joining us. Our second quarter 2025 revenue increased approximately 8.9% sequentially, bringing total revenue for the first half of 2025 to approximately $22.1 million. Subsequent to the second quarter, we saw a strong accelerating momentum across all of our business verticals. Our MVNO operations through LinkUp Mobile and our government subsidies brand Torch Wireless as well as our MVNE wholesale platform, which offers a full suite of nationwide wireless solutions to third-party wireless providers. Our SurgePays point-of-sale prepaid top-ups revenue has spiked upwards as well. Today is less about the past and more about what's happening now and what's ahead. We have visibility on our growth and full confidence in providing revenue guidance of $75 million to $90 million for 2025 and $225 million to $240 million for 2026. Let me start with the subsidized Lifeline wireless program through our Torch brand, which has scaled significantly. The Lifeline program is a government-subsidized benefit program that provides essential wireless connectivity to those who qualify. While the ramp in activations took about 60 days longer than we anticipated due to regulatory approvals and software platform adjustments, we are now 100% live and activations are steadily increasing daily. After activating 20,000 Lifeline subscribers in June, we activated 57,000 in July and are now projecting to activate 80,000 to 90,000 subscribers, approximately $3,000 per day by September. To put this into perspective, at our highest peak during ACP, we were activating roughly 3,000 per day. With Lifeline, we are approaching that level and have reached it in a significantly shorter period of time. What's even more exciting is that we're still operating well below our full capacity. Many sales channels are still being opened, so we expect continued sales growth. This positions us exceptionally well for the continued growth in the months ahead. During ACP, we made significant investments in infrastructure and operational efficiencies to support the growth we experienced. When ACP funding ended in June of last year, we immediately repurposed that infrastructure to support Lifeline and our other platforms. We successfully built upon that foundation by adding an exceptionally seasoned team, new technology, additional distribution, and most notably, a direct strategic partnership with AT&T. We signed a multiyear agreement with AT&T in November 2024 and completed full integration, including a network migration and SIM activation rollout on April 1. This partnership gives us direct access to one of the most reliable networks in the country and positions us to provide back-end telecom infrastructure to MVNOs that don't have a direct carrier relationship. Another key differentiating factor from the ACP days is that we are now uniquely diversified, not only through Lifeline but also our MVNO prepaid LinkUp platform. We fully launched LinkUp in April, activating approximately 10,000 users. In July, we more than doubled that, surpassing 20,500 activations, driven primarily by expanded retail distribution, target marketing, and competitive pricing. The grind of market adoption takes longer on the prepaid side of the wireless business, but we are seeing the expected traction. These drivers are sustainable as we continue opening new doors and building customer loyalty. The heart of this model is our proprietary point-of-sale software, which not only facilitates transactions but also drives recurring revenue from activations and replenishments right at the convenience store register. It's not just a tool; it's the backbone of our ecosystem and a true competitive advantage. Third-party prepaid wireless top-up revenue is a key indicator of future revenue growth in our other products. In July alone, we generated $4.3 million in top-up revenue and are projecting nearly $5 million in August, putting us at a run rate of over $60 million, assuming no growth. Last year at this time, we were generating approximately $1 million in monthly top-up revenue. This same channel's revenue in July 2025 is now almost 4 times higher. Our strategic initiatives, including the recent signing of several key new accounts, are expected to drive sustained recurring revenue growth. The model is working and the investments are paying off. On the wholesale side, our MVNE platform is a growing revenue engine with a robust pipeline. As an MVNE, we provide billing, provisioning, SIMs, and eSIMs to other wireless companies. A high-margin model with minimal incremental costs and low overhead. Many MVNOs in the market today are actually sub-MVNOs. We're one of the few with direct carrier access, putting us in a rare and powerful position. To date, we've onboarded 3 MVNO partners. Collectively, these partners serve thousands of subscribers and they're looking to grow quickly, providing us with a path to scale our platform and recurring revenue base. We are also in advanced talks with national convenience store distributors, each with footprints in tens of thousands of community retail store locations. Last quarter, we discussed HT Hackney, which services over 40,000 stores. Hackney is carrying our Phone in a Box product, which continues to perform well. Phone in a Box is our retail-ready grab-and-go solution that enables stores to sell and instantly activate wireless service by scanning at the register. As rollout progresses, each Hackney location becomes part of our extended ecosystem and begins to accept top-up payments for our monthly wireless plans. That means each store transforms into a new activation point for our entire product suite. Our near-term goal is to ramp to 100,000 locations operating on the SurgePays platform, driven by a combination of organic growth and distribution agreements with HT Hackney and other partners. Before I turn the call over to Tony to discuss our results in more detail, I could not be more excited about the future. July was the turning point. We have built a powerful engine that blends technology, innovation, and distribution. Today, we have the products, partnerships, and infrastructure to enter the next phase of high growth. Thank you for your support and belief in our mission. I'll now turn it over to Tony for a detailed review of our Q2 financials. Tony?

Thank you, Brian, and good afternoon, everyone. Second quarter 2025 revenue totaled $11.5 million, an increase of 8.9% sequentially as compared to $10.6 million for the first quarter of 2025. 2024 marked the end of the federally funded ACP. And as expected, year-over-year financials have been impacted. Our platform service revenue growth was robust, generating $9.2 million in the second quarter of 2025 as compared to $2.5 million in the second quarter of 2024. We have achieved strong prepaid top-up revenue growth over the past 2 quarters, reflecting the execution and leadership of our new Vice President of Sales. Our strategic initiatives, including the signing of several key new accounts, are expected to drive sustained recurring revenue growth. Gross profit was a loss of $2.7 million for the second quarter of 2025 compared to a gross profit loss of $3.4 million for the second quarter of 2024. As indicated, we continued the transition of our business model from ACP to LinkUp Mobile and Lifeline verticals. SG&A expenses decreased 45% year-over-year to $4.1 million during the second quarter of 2025 as compared to $7.4 million for the second quarter of 2024. The decrease was primarily due to a reduction in non-cash compensation to various employees, along with the reduction in contractors and consultants and professional services, partly offset by an increase in computer and internet, advertising and marketing, and other expenses. Loss from operations was $6.8 million in the second quarter of 2025 compared to a $10.9 million operating loss in the second quarter of 2024. Our reported net loss and loss per share for the second quarter of 2025 were $7.1 million and negative $0.35 per share. Our loss and loss per share continue to be impacted by this transition from ACP. Turning to the balance sheet. Our cash and cash equivalents and investment balances as of June 30, 2025, were $4.4 million compared to $11.8 million as of December 31, 2024. As Brian mentioned, we are providing revenue guidance of $75 million to $90 million for 2025 and $225 million to $240 million for 2026. At this time, I would like to turn the call back over to Brian for closing comments.

Thanks, Tony. To summarize, Q2 was about building and positioning. Post quarter, we hit the acceleration phase we've been talking about, and the numbers already reflect it. Our activation growth, expanding distribution, and scalable technology platforms give us confidence that we're on the right path to create significant shareholder value. We've addressed the challenges, proven the model, and are now focused on executing at scale. I would like to thank our shareholders for their continued support and our team for their tireless efforts in making this growth possible. Now before we take questions, I have a note here to clarify that when I refer to revenue growth being up across every vertical, I'm referencing growth trajectory quarter-over-quarter and after Q2. Operator, we will now open it to questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. Your first question today is coming from John Roy from Water Tower Research.

It looks like you've got quite an acceleration coming up in Lifeline activations. I kind of wonder what are really the key drivers that are driving that growth?

Thanks for the question, John. The current drivers are in states with the higher-margin ACP, which have similar gross margins. Our focus is on blending these across all states for profitability and returns. We previously mentioned this, but we lacked visibility into the actual implementation until recently. We've been preparing our platform for ACP, adapting it for Lifeline, and for specific state programs that offer additional funding. The experience and knowledge we've gained over the years have been instrumental. Lifeline has been in place for a long time, since the Reagan administration, and transitioned to a wireless program around 2010 or 2011. It's part of the budget, unlike ACP, which is a separate non-budgeted item. We've learned a lot and implemented numerous inventory controls and compliance components, which contributed to our delayed start. These improvements allow for faster enrollments, moving away from manual processes. While it's somewhat frustrating, it's also exciting as we continue to expand our sales channels. We aim to move quickly while ensuring we meet our targets. Over the past few years, we've forged many connections, and those partners are eager to collaborate with us again. We're also leveraging opportunities similar to ACP, including setups in front of convenience stores or Department of Human Services offices nationwide.

Great. So as a follow-up, you got Lifeline and LinkUp. How do you really balance the priorities between those 2 different businesses? It's really kind of a dollar allocation question. Are you really going to push growth here? Are you really going to push growth there, push growth everywhere? I mean you can't realistically do everything. How are you balancing those 2 different businesses?

It's an even broader question than that. You've got your top-ups, you've got your opportunities with ClearLine which we're excited to talk about in some of the upcoming quarters. You have these factors hitting, and it's all about how you allocate your resources. I think that goes back to our management team's experience. And frankly, what the upper management of our company has accomplished over their careers. In telecom, it's almost like looking at different plans. If you have different plans that are more profitable, which ones do you incentivize in the field? Well, that's the way I view subsidiaries. Right now, it’s about the path of least resistance. You have knowns and unknowns. The market adoption for LinkUp is a grind. We discussed this in the script; you put incentives out there, you shake hands, and your sales team goes to establish relationships. You hope that your plans are competitive and that customers choose you. Lifeline, however, presents a clearer revenue stream. We know that if we engage enough people with phones, there's going to be a direct return, which is why we are confident in our numbers. We have observed those numbers align over the last 90 days. To sum up, we're focusing on what we know to be successful, utilizing the historical experience we have in the Lifeline sector, and allocating most of our resources there.

Your next question is coming from Michael Diana from Maxim Group.

I have some more specific questions about Lifeline. So you just mentioned tents and stuff, but is most of this through your retail network or tents? And the other part of that is, what sort of commission, if any, are you paying to get each account?

Yes. The tents right now are allocated to the states with extra funding. I don’t want to go too far into detail on a granular level, but there are 2 components of the Lifeline program. One is federal, at $9.25, while other states, primarily some blue states, offer additional funding. In those states, we are utilizing tents. I must point out that it's very comparable to ACP margins. In the other states, we are operating online. So, it's a balance. There's not enough profit in the $9.25 to justify hiring people to run enrollment tents, but there is in the other states. We still have not opened the retail network component significantly enough because we're getting a substantial return from the tents. It's like fishing; if we are succeeding with one approach, there's little incentive to switch strategies. However, we do plan to scale as we grow, and we have been very attentive to inventory control because we must ensure we have phones available for distribution.

Okay. So for your $9.25 states, it's virtually all online, no commissions. For the more higher revenue states, you're doing tents and you have to pay what one-time upfront or?

Yes, it's usually a one-time setup fee and that varies.

And what is the additional revenue in some of these states?

For the additional revenue from states with funding, you're looking at a net of about $27 on average. What’s interesting is that while it’s comparable to ACP margins, our current contracts are more advantageous in terms of cost from AT&T which brings our costs down and keeps margins steady.

Wow. Okay. What is your monthly cost?

I can't disclose exact wholesale numbers for competitive reasons. However, our margins are very similar to ACP. This remains a focal point for us, as we are aiming to achieve cash flow positive status with a specific number of customers across some states.

And are any devices involved in any of these?

Yes. We provide smartphones at a cost of about $30 as part of our offering. This helps with customer retention, making it a smart investment. Many of our customers use it for several months until they can afford to upgrade to other models.

So are you saying you give them a $30 smartphone or they pay you $30 for a smartphone?

We provide them with a smartphone at no cost.

Your next question is coming from Ed Woo from Ascendiant Capital.

Yes. Congratulations on all the progress and definitely for the guidance. Really appreciate it and excited for you guys. My question is, how is the competitive marketplace? It seems you're ramping up a lot of these new customers. Are you taking them from someone else? And is there any risk of price competition going forward?

This is a great question, and there is always a risk of competition. We are not necessarily the new player but our method of compensating our salespeople, the talent we’ve brought on board, and how our enrollment platform functions is highly attractive to field agents. Keeping them satisfied is essential for subscriber growth as they receive numerous solicitations from other companies. We've learned that taking care of our field distributors is critical to maintaining our growth pace. While there are competitors in the market, we’ve managed to establish a niche through our hands-on approach and our proprietary enrollment platform that we control entirely. An example of this was the delays we faced in Q2 when a state regulation required picture uploads. We had to modify our software to compress images to meet compliance standards—a challenge we overcame. We aim to help our sales partners efficiently succeed and drive more enrollments.

There are no further questions in queue at this time, and this does conclude today's question-and-answer session. At this time, I'd like to pass the floor back to management for closing remarks. And we do thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.