SurgePays, Inc. (NASDAQ:SURG) Q2 2022 Results Conference Call August 11, 2022 5:00 PM ET
Company Participants
Brian Prenoveau – IR
Brian Cox – President and CEO
Tony Evers – CFO
Conference Call Participants
Michael Diana – Maxim Group
Ed Woo – Ascendiant Capital
Operator
Good day, and welcome to the SurgePays, Inc. Second Quarter 2022 Earnings Call. Today’s convention is being recorded.
At this time, I’d like to show the convention over to Brian Prenoveau. Please go forward.
Brian Prenoveau
Thank you, operator, and good afternoon, everybody. Welcome to the SurgePays Second Quarter 2022 Earnings Webcast and Conference Call. Today’s date is August 11, 2022, and on the decision at this time from SurgePays are Brian Cox, President and Chief Executive Officer; and Tony Evers, Chief Financial Officer.
Before we start, I’d prefer to remind everybody that this name might comprise ahead-wanting statements as they’re outlined underneath the Private Securities Litigation Reform Act of 1995. These statements are topic to sure dangers and uncertainties that would trigger precise outcomes to vary materially from these expressed within the ahead-wanting statements. For a dialogue of such dangers and uncertainties, please see SurgePays’ most up-to-date filings with the SEC.
All ahead-wanting statements made at this time replicate our present expectations solely, and we undertake no obligation to replace any assertion to replicate the occasions that happen after this name.
Also, through the course of at this time’s name, the corporate might be discussing a number of non-GAAP monetary measures. Reconciliations of those non-GAAP monetary measures to essentially the most instantly comparable GAAP measure are included within the press launch we issued this afternoon. Copies of at this time’s press launch are accessible on SurgePays’ Investor Relations web site, ir.surgepays.com. In addition, SurgePays’ Form 10-Q for the quarter ended June 30, 2022, may also be accessible on SurgePays’ Investor Relations web site.
And now I’d like to show the decision over to President and Chief Executive Officer, Brian Cox.
Brian Cox
Thanks, Brian. We had been tremendously busy within the second quarter of this yr, and the arduous work of the group is translating to not simply development, however development with a strategic path. Revenue exceeded $28 million for the second quarter, which is a 146% enhance in comparison with final yr. The income trajectory is consistent with the expansion path that we laid out earlier this yr. So we’re thrilled with the progress we have been making, however much more enthusiastic about the place the corporate can go sooner or later.
Last month, we introduced that we had eclipsed 150,000 subscribers in our cellular broadband enterprise by means of the Affordable Connectivity Program. Our goal by the tip of the yr was 200,000 prospects, which I consider we’ll exceed. But I wish to take time to talk extra of the large image about rising our enterprise and the lengthy-time period alternative that is accessible to us.
The ACP program continues to supply reasonably priced broadband Internet entry to low-earnings households. Estimates differ, however we consider wherever from 30 million to 50 million households are eligible for this program. This is all to say that whereas 200,000 subscribers is a pleasant purpose for 2022, we consider there’s important room for development past that, and we have to be strategic and lengthy-time period minded in our determination-making and the way we function the enterprise.
Growth and progress are by no means linear, and we’re working tirelessly to advantageous-tune our operations, analyze efficiency and tighten the screws the place vital. As an instance, in a few of our latest evaluation, we observed that our larger knowledge customers had been driving up common utilization prices. So we went again to our carriers. We negotiated a brand new wholesale plan, which might be certain that no consumer may use past the price of $15 per 30 days to us. By pushing heavy customers to this plan, we are able to now hedge prices, which ought to enable us to drive our common value again right down to round $12 per 30 days. Our estimates present this could be a right away impression of roughly $100,000 in financial savings per 30 days.
We’re not merely seeking to get the best subscriber stage as rapidly as potential. We’re seeking to construct a profitable enterprise to maximise the chance that is been offered to us. One space the place that is paramount is managing our money and money circulation, deploying that money in the most effective method potential. I’d like to take a look at present property as a gauge for the place we have been, the place we’re and if we’re on goal.
Accounts receivable has steadily elevated all year long from $3.2 million on the finish of 2021 to $5.6 million on the finish of the primary quarter to $8.3 million on the finish of the second quarter. At the tip of the second quarter, we had $8.7 million of money in comparison with $3.4 million on the finish of the primary quarter. The June 30, 2022, money complete consists of the ultimate money funds made for the acquisition of Torch Wireless. Where this accessible money may have been used to purchase tablets and add subscribers, we consider, and nonetheless consider, that the acquisition of Torch offers us with a significantly better lengthy-time period development alternative.
Recall that with SurgePhone Wireless, we had been solely licensed to supply this program in 14 states. With the acquisition of Torch Wireless, we are able to now provide this system in all 50 states and may considerably ramp up wi-fi subscribers on-line. Torch has the extra advantage of additionally being a licensed lifeline provider in sure states as effectively.
In addition to Torch Wireless, within the second quarter, we bought a shopper relationship administration, or CRM, software program platform that we had been utilizing as a central nervous system for managing our wi-fi enterprise. The CRM homes buyer info, is built-in with underlying wi-fi carriers, manages the plans and metering, the customer support, compliance, billing and is linked to the FCC’s database clearing home. We had been expensed for this service on a per subscriber foundation. And as subscribers elevated, our prices additionally elevated.
Looking on the development alternative and our inside objectives for subscribers over the following few years, we made the strategic determination to purchase the system outright and consider it is going to be cheaper to purchase now than what the annual expense can be at 500,000 to 600,000 as much as 1 million subscribers. The CRM platform has been rebranded as ShockWave, and events can test it out by visiting shockwavecrm.com. That’s shockwavecrm.com.
We’re doubly excited concerning the ShockWave CRM as a result of it may be licensed out to different firms as effectively and be one other income for the corporate. The CRM at present has 6 different ACP and lifeline firms utilizing the system and offers excessive-margin Software-as-a-Service income to our enterprise. This is not the principle focus of SurgePays, nevertheless it does present good ancillary income stream to the corporate.
I wished to focus on these alternatives to exhibit how our group is considering the general potential of this enterprise. The money used for Torch Wireless and to buy the CRM may have simply been used to purchase extra tablets, join subscribers and pump our numbers for the second quarter. However, we consider that is brief-time period considering.
In our evaluation, the money used to purchase Torch and the CRM present a far larger payoff down the street. We have the flexibility to supply ACP in all 50 states. We can handle our buyer base extra effectively. We consider we are able to decrease prices, all whereas proceed to develop our subscriber base at a very spectacular charge.
Going ahead, we proceed to steadiness the necessity for development with the money circulation supplied and the money alternatives. We’ve mentioned varied financing alternatives previously, and we’re near acquiring a receivables financing line. We consider a extra important line of credit score, backed by the U.S. authorities receivable, will enable us to ramp our wi-fi subscriber development over an extended time frame with much less dilution.
Yes, this was in all probability not the simplest route and has created extra pressure on the administration group than a easy fairness increase. However, we expect the arduous work and longer time-frame is price it as we are able to increase cash to fund development whereas not diluting shareholders and preserving float primarily the identical as the place it was after we listed on the Nasdaq.
I truthfully could not be extra enthusiastic about the entire progress we have made as an organization, but in addition how rather more we are able to obtain. I’m extraordinarily happy with how a lot we have been capable of accomplish in a brief period of time and that the outcomes are beginning to be demonstrated in our monetary outcomes.
Revenue development is accelerating. We’re studying increasingly more about our subscriber base every month. We have additional cash to fund the expansion and extra instruments at our disposal at this time than we did 3 or 6 months in the past to drive development even additional.
As I’ve stated earlier than, we consider we’re uniquely positioned to finest provide these services and products to the underbanked and underserved as a result of for therefore lengthy, these communities have been neglected by bigger companies. The ACP program is a superb authorities initiative that gives invaluable Internet entry to households that beforehand couldn’t afford it. We wish to gauge success by rising income and revenue, clearly, but in addition consider we are able to do that by offering precious providers that the majority of us on this name take as a right.
Being a licensed supplier of cellular broadband is an ideal complement to our present enterprise of offering monetary providers to underbanked and underserved communities. We nonetheless have a purpose to achieve $1 billion in annual gross sales with worthwhile development and in communities that have not been adequately addressed. We are actually working a enterprise that has the flexibility to develop organically or by means of accretive acquisitions and higher serve our prospects.
I’ll flip the decision over to Tony to supply a short assessment of the monetary outcomes earlier than summarizing at this time’s name. Tony?
Tony Evers
Thank you, Brian, and good afternoon, everybody. I’ll start by overview of the second quarter’s monetary outcomes. For the quarter, we reported revenues of $28 million in comparison with $11.4 million within the second quarter of 2021, representing a rise of 146%. This was primarily attributable to the subscriber development in our cellular broadband enterprise, as Brian has mentioned.
Gross revenue elevated 65% within the second quarter to $2.2 million in comparison with $1.3 million within the yr in the past interval. SG&A bills elevated 11% within the second quarter in comparison with the second quarter of final yr. The enhance within the quarter was primarily pushed by the skilled charges and different prices related to the corporate’s transfer to Nasdaq in November largely insurance coverage — largely made up of insurance coverage premiums.
Loss from operations narrowed to a lack of $847,000 from a $1.4 million loss in final yr’s second quarter. Net loss for the second quarter was $973,000 or a lack of $0.07 per share in comparison with a web lack of $214,000 or a lack of $0.07 per share within the second quarter of 2022 — or second quarter of 2021.
The second quarter of 2021 benefited from a number of nonrecurring gadgets, together with a $646,000 profit from a change within the truthful worth of liabilities. We additionally had a $701,000 achieve on settlement of liabilities and a $1.9 million profit from amortization of debt low cost, all within the second quarter of 2021. For quarter 2 2022, EBITDA was a lack of $85,973 near breakeven.
Turning to the steadiness sheet, liquidity and money circulation. Our money steadiness, as Brian has talked about, as of June 30 was $8.7 million in comparison with $6.3 million on the finish of 2021. Accounts receivable has elevated by over $5 million as wi-fi subscriber development elevated to $8.3 million. The receivable is from the U.S. authorities for the cellular broadband subsidy. Payment often happens roughly 30 to 60 days after a brand new buyer is verified and signed up.
As Brian briefly talked about in his remarks, we made money funds of $800,000 to finish the Torch Wireless acquisition and $300,000 fee for the CRM system. Given our strengthened monetary place, larger money steadiness and capital construction, our money allocation priorities are centered on investing within the enterprise and sustaining ample liquidity for future development.
I’ll now go the decision again to Brian for some closing remarks Brian?
Brian Cox
Thanks, Tony. As an organization, our North Star is constructing a profitable group that gives entry to cellular broadband and important monetary providers to households and communities the place they are not readily accessible. We consider we’re cornering the underbank market each at house, round their native communities and within the native shops the place they store. If we do that efficiently, we’ll faucet into an enormous market with great development potential.
The arduous work our group has completed is beginning to actually present in our monetary outcomes. We’ve demonstrated how the expansion in income is trending in the direction of profitability and the way the corporate is producing additional cash. With additional cash, we are able to reinvest within the enterprise to realize wi-fi subscribers, enhance our geographic attain and enhance the general efficiency of the corporate. We aren’t centered on making every quarter look as rosy as potential.
We are considering long term about the place this firm may be 2, 3, 5 years down the street with a considerably bigger buyer base and the flexibility to broaden our income streams inside this market. We could not be extra excited concerning the alternatives forward of us, and we’re wanting ahead to sharing our progress with shareholders, staff and companions. I wish to thank all the workers at SurgePays. Lastly, I vastly recognize the help and curiosity of our shareholders as we proceed this journey of development.
We will now open up the decision to questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] And our first query will come from Michael Diana with Maxim Group.
Michael Diana
So you talked about 30 million to 50 million households doubtlessly eligible for ACP. And I do know at earlier investor conferences and all you have talked about actually rising not simply this yr however persevering with to develop subsequent yr. So what provides you confidence that these potential subscribers are nonetheless going to be there subsequent yr or 2 years from now?
Brian Cox
Thanks, Michael. I recognize the query. What I feel what provides me essentially the most confidence is the demand that we see after we go into these areas that — and I do not wish to have the cliche underserved and to the place we simply type of wash over that phrase. When we go into these communities and we — our salespeople arrange these tents and the road wraps across the nook till the oldsters there on the tent run out of gadgets, that lets me know, clearly, there is a want. And I feel there’s an intersect of the truth that it is a product that folks need and wish. So I feel that is how we have hit somewhat little bit of a synergistic house run.
There’s completely different markets that I feel you are going to see on-line in terms of what extra of the White House and different persons are referring to. And I feel a whole lot of these firms are going to be focusing on present prospects, like, say, for instance, the aged who’re already paying for providers that now would simply get a reduction to their service. I do not know that essentially there’s a big group of oldsters, thousands and thousands of oldsters in low-earnings neighborhoods who’re going to be browsing on White House internet pages to seek out entry to cellular broadband.
So I feel the truth that we truly roll up our sleeves and go into these communities, the place we already are, by the best way, and that is our house, and we go in there and we set that up, that is how I consider it is cornering utilizing our — somewhat bit — I do not wish to name it a aggressive benefit, nevertheless it’s extra house to us. And that is the place we — and we’re additionally not a giant cable firm simply attempting to get, once more, go on reductions to present prospects. We consider that our market is transient. Most of our buyer base does not have broadband fastened wired Internet. So that is why I consider that there is such a big uptick.
And as I referenced in my — a few of my factors there. The second quarter was an introspective quarter of, okay, hey, that is — we have proved out this mannequin. This goes to work. If we’re at 0.5 million subscribers, what would I do at this time, what would I look again on and see what are the incremental prices that we are able to keep away from akin to — like we talked about shopping for ShockWave. What are a number of the issues we are able to do now to not look again. I imply, we may have saved a few million {dollars} had we completed it this fashion.
So that is actually what — we lastly received a big sufficient pattern as soon as we geared up 100,000 subscribers to actually begin diving in and in addition geographically coast-to-coast as a result of buyer utilization patterns are usually not the identical in several components of the nation. So that is what provides me the assumption that we are able to — positively, which we have talked about this far exceeds a number of the numbers that we have put on the market, however accomplish that in a solution to maximize the revenue that we are able to make from every subscriber.
Michael Diana
Okay. And requested somewhat other ways and based mostly on what you simply stated. So I feel you are saying there aren’t that many, if any, different firms on the market doing precisely what you are doing?
Brian Cox
I feel there’s all the time going to be firms that — I imply, anytime you are profitable, there’s going to be folks mimicking what you do. I feel what’s actually attention-grabbing, the businesses who’re capitalized like us are going to be your bigger firms that do extra of a set line or fastened, I name it, fastened wire broadband, the standard go within the aspect of the home of the residence and have a modem in the home. Those are going to be the bigger capitalized firms.
The wi-fi firms who’re making an attempt to do it the identical means we’re not capable of do it on the scale that we’re as a result of they are not capitalized like we’re. So we very hardly ever, if ever, that is the stories we get again from our frontline of us, very hardly ever will we ever see or, as an instance, we get boxed out or stumble upon rivals on the market on the road. And then you have got fairly a couple of of the opposite wi-fi firms which are doing SIM solely, which — and simply — I do not wish to glaze over that.
These are gadgets, which is a pill, which is the best way that we — that we put the service out. We have an 8-inch pill, 8- to 10-inch pill and it will also be used as a hotspot. Some of the opposite bigger wi-fi firms are usually not going to pill route. They’re merely doing the SIM solely, after which hoping that people have already got a pill that they might put that SIM card in and use that to get their entry to the Internet. I consider this market is an immediate gratification market. Anytime anyone may see a pill that is valued at $150 or so, and if you happen to stroll away with that pill in hand, I feel we’ll all the time get that buyer.
Operator
And the following query will come from Ed Woo with Ascendiant Capital.
Ed Woo
Yes. Congratulations on the quarter and on the expansion. My query is, as we head into some unsure financial atmosphere, do you suppose that, that really helps what you are promoting or hurts what you are promoting with the weakening macro atmosphere?
Brian Cox
Thanks, Ed, for the query. That’s an attention-grabbing one. I get requested that loads. And I all the time wish to navigate that fastidiously as a result of I clearly by no means wish to want arduous instances on anybody. That’s positively not how we now have constructed our firm. It’s to supply important providers and issues that folks want to assist folks.
But what it does is, I consider it will increase our potential buyer pool as a result of it provides — the best way that the economic system, inflation, fuel costs and what have you ever, it is clearly, as we have seen a number of the — from the nationwide numbers right here, it is rising the people who find themselves dropping down into our, let’s simply name it, the socioeconomic standing of qualifying for our service.
So I all the time wish to watch out on how I say robust instances for folk. I do not wish to sound it is a beneficiary, however quite, it provides us the chance to assist these of us. So I do not see — it positively does not create a hindrance. I imply, it will increase our potential buyer pool. Likewise, the — one of many — one in all my challenges in taking a look at a number of the authorities numbers for potential of this program, it is very troublesome to pinpoint the immigrants.
I do not know that there is a good dialed in variety of what number of immigrants there are on the market which are undocumented. And this is without doubt one of the few authorities packages. It’s the one communication program that — the place you’ll be able to qualify as an undocumented immigrant, underneath the WIC program, which we have talked about that earlier than. It’s a program that folks can qualify for to be sure that their youngsters have child system, diapers and what have you ever. It’s the WIC, W-I-C.
So if you happen to’re on WIC, you qualify for this program. So that is one purpose why I feel my private opinion is I feel that the potential for the market is larger than what we even mentioned on the decision. But — so the extra immigrants that come into the nation and the extra of us which may be having somewhat little bit of problem, sure, I feel it will increase our buyer pull. But once more, I do not wish to have a good time that, nevertheless it is a chance for us to assist extra of us.
Ed Woo
Well, I positively know that your prospects are appreciative of the product that you just guys give. And then my final query is on provide — longer-time period provide chain after which inflation. Any impression on what you are promoting long term, particularly presumably getting extra tablets?
Brian Cox
Ed, I’m truly glad you requested that query. I wasn’t going to get into this at this time as a result of there’s — there’s clearly issues that we’re taking a look at as we talked about tightening the screws is type of the best way I all the time inform my guys. Find methods to maintain the screws tight. Find methods to make more cash on the identical drops of sweat that we’re already dropping in order that we are able to attain extra tomorrow.
One of these — one of many huge the explanation why I could not be extra enthusiastic about acquiring this — the road of credit score based mostly on receivables is it is going to enable us to purchase tablets prematurely. And for these of you guys on this market of merchandise and world sourcing, simply-in-time buying is all the time going to be the costliest kind of buying since you’re mainly getting what’s accessible proper then on the value it is accessible for, and that is why we’re seeing wherever from $80 to $88 a pill.
If we now have the capital — and the explanation we’re doing that’s as a result of we’re money flowing and we’re being very cautious what I name redline development. We’re hitting our numbers internally, after which we’re working out of tablets that month. We hit our numbers and typically, we hit them too quick and we run out too quickly. But I used to be by no means prepared to do a capital increase and dilute the corporate and simply to realize extra gross sales.
So with us getting access to capital, no, it will not — the availability chain does not have an effect on us in any respect. It truly will improve our capability to get these tablets for much less as a result of if I can put in an order with a deposit at this time, and I can get — I can wait as a result of I haven’t got to just do in time as a result of I’m not utilizing the cash we made yesterday to purchase tablets for tomorrow, then I can look and see a value that is nearer to $72 to $75, which is large.
It does not sound like a lot saving $10 to $15 a pill, however while you’re taking a look at 30,000, 40,000, 50,000 a month, that is a big distinction. So once more, we’re a beneficiary as lengthy. As we are able to pay that cash upfront and so long as we do not want that cash tomorrow and I can wait and get these tablets subsequent month, the availability chain is definitely serving to us out. And I feel that we have leveraged {our relationships} with the distributors. We are the primary name that these guys make.
Michael requested a name about a number of the different firms. Numerous the businesses who do the mannequin we do are smaller. Well, if I’m shopping for 30,000 tablets from you a month and a smaller firm is shopping for 2,000 tablets from you, you name me first. So that is 1 purpose that we have — we do not run out of tablets due to provide chain. We run out of tablets as a result of we have hit our max allocation of tablets we’re prepared to buy for that month.
Ed Woo
Sounds nice, and I want you guys good luck.
Brian Cox
Thanks, Ed.
Operator
Thank you. And that does conclude the query-and-reply session. I’ll now flip the convention again over to you for any further or closing remarks.
Brian Prenoveau
Thank you, everyone, for becoming a member of us at this time. You can now disconnect.