Greetings. Welcome to the SurgePays, Incorporated First Quarter 2022 Financial Results Call. At this time all participants are in a listen-only mode, a question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Prenoveau, Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to the SurgePays first quarter 2022 Earnings Webcast and Conference Call. Today's date is May 16, 2022. 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. 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 March 31, 2022, will also be available on the SurgePays Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Thanks, Brian, and good morning and thanks to everyone who's joining our call today. We're really excited to be able to demonstrate the success of the mobile broadband subscriber business with the financial results that are more fully reflecting the trajectory of the company. Revenue growth accelerated in a meaningful way in the first quarter of this year. As expected, net loss and EBITDA loss narrowed considerably in the quarter when compared to the first quarter of last year. The Affordable Connectivity Program or ACP, which started off as the temporary emergency broadband benefit program is now a permanent part of the government budget. Just last week, as many of you noticed, the White House made formal public remarks about this program for the first time. I was excited to see this underserved market that I've worked in for almost 20 years being brought into the mainstream. For SurgePays to ultimately achieve favor in the stock market, I believe we must be considered a relevant provider of important products to a large group of people who not only want our products, but need and depend on them. I've been asked several questions over the last week regarding the mention of large companies in the White House speech. I think it's important to note that these companies have always had the ability to provide subsidized telecom services to the underbanked, going back to 1985. The fact is it's not economically enticing for these companies to provide services to this market, or the literal definition of our market would not be called the underserved. The ACP program is intended to bridge the digital divide to low income households, who previously did not have reasonable or affordable access to high speed mobile broadband or internet. While most of us on this call probably…

Thank you, Brian. Good morning, everyone. I will begin my overview of the first quarter's financial results. For the quarter we reported revenues of $21.1 million, compared to $9.9 million in the first quarter of 2021, representing an increase of 92%. This was primarily attributable to subscriber growth and our mobile broadband business. Gross profit increased 133% in the first quarter to $2.6 million compared to $1.1 million in the year ago period. SG&A expenses increased 14% in the first quarter compared to the first quarter of last year. The increase in the quarter was primarily driven by higher compensation paid to Management in the first quarter along with a higher cost center costs related to the subscribers in the ACP program. Loss from operations narrowed considerably to a loss of $1.1 million from $2.1 million and last year's first quarter. Net loss for the first quarter was $1.2 million, or a loss of $0.10 per share, compared to a net loss of $4.8 million, or a loss of $1.85 per share, first quarter of 2022. As we discussed on our year end call in March, we believe EBITDA is a useful measure of the performance of the ongoing business that excludes many non-reoccurring items. EBITDA improved to a loss of $873,000 in Q1 '22 compared to an EBITDA loss of $4 million in Q1 '21. As Brian mentioned earlier, while the growth in revenue and profitability from higher margin customers and products, we would anticipate becoming EBITDA positive by the second quarter of this year and generate at least $15 million in 2022 for the year. Turning to the balance sheet liquidity and cash flow. Our cash balance as of March 31, was $3.4 million, compared to $6.3 million at the end of 2021. Accounts receivable has increased almost 74% as wireless subscriber growth increases. The receivable is from the U.S. government for the mobile broadband subsidy. Payment usually occurs approximately 30 to 60 days after a new customer is verified and signed up. Inventory continues to be an area of investment as we push the hyper growth of our mobile broadband business. We have minimal debt to unrelated parties of just over a million dollars as we spent much of 2021 cleaning up the balance sheet to position us for growth and improved performance. Given our strength and financial position in capital structure, our cash allocation priorities now focus on investing in the business and maintaining ample liquidity for future growth. I will now pass the call back to Brian for some closing remarks. Brian.

Thanks, Tony. I spent a lot of time over the past six to eight months talking with investors, analysts and various stakeholders about the opportunity in the mobile broadband business and how the Affordable Connectivity Program works and provide SurgePays with the substantial growth avenue. As we've completed the first quarter, we started to see those results reflected in the financial statements. Whereas before, we were talking mostly about cleaning up the balance sheet and what would happen in the future, we're now able to demonstrate the progress and it shows in the financial statements. I believe everyone, and every company has a plan or goal. But I'm excited to show how our team differentiates itself by being a real company built by folks who execute daily and understand how to scale a company. I expect this double digit growth to continue with accelerated progress and improvements in our financial statements. I want to stress again, I will not throttle our big picture growth plans for a short term financial report. We're laser focused on this underbanked land rush. Our team has worked tirelessly building a foundation for this type of growth, and it's starting to bear fruit, the underbanked and the underserved have been overlooked for far too long. Our goal is to provide access to mobile broadband and essential financial services to these households and communities. We believe we are cornering the underbanked market both at home and where these consumers shop. And we will continue to make moves to add to our ability to scale and increase our competitive advantages. We couldn't be more excited about the opportunities ahead, and we look forward to sharing our progress with our shareholders, employees and partners. I would like to thank all the employees on the SurgePays team. Lastly, I'd greatly appreciate the support and interest of our shareholders as we continue this journey of growth. We will now open up the call to questions. Operator.

[Operator Instructions] Our first question is from Michael Diana with Maxim group, please proceed.

So based on what you said about your larger companies, I take it that you don't really regard them as competition for what you're doing that they just aren't as focused. Is that correct?

You know, Michael, that's a good question. I think over the years I've seen and actually discussed with representative of these companies. And the challenge, it's really twofold. On one hand, if you consider that this is a third of the market out there, this lower income, then you've got to assume that this market is living in lower income housing, which is usually going to be older and have in many cases requirements for wiring updates. And the big companies would have to roll a truck out, they've got to update the wiring to the network interface device outside the residence. The consumer is responsible for the wiring into no residence to eject to be able to now put a modem in. And the question is who's going to now pay for the modem? And the other components that would be associated with the IT customer support for providing WiFi inside the customer's house and affixed to our situation. That's one of the economical challenges for a larger company. The second is that most of these companies, as they told us, are not geared for the prepaid upsell. And what I mean is, they're geared for the combination combo products that would be set up on auto pay for consumers like us on this call. And where there's always an upsell potential of other products add-ons. And it's all based on just simply adding things to your credit card. They're not positioned for a prepaid transaction, which again would need to be paid in cash at a local corner store of someplace of convenience to this consumer group. So again, the mere definition of underserved does qualify in the situation. And one of the reasons why the government has always put on let's call it awareness programs, and incentivize these larger companies to hold to create that awareness amongst people who are without access to telecommunications, is simply because these companies don't push it. They don't create awareness because it's not an economically sound product for them.

Okay, great. Thanks. Let me let me ask you about one other thing is, as you mentioned, you have a cash flow negative situation for two months, so that raises the possibility that may be borrowing for short term to cover this cash flow negativity makes sense. Is that something you're considering?

Yes, it is. And what's really interesting is once the receivable from the FCC, or USAC, which is the division of the FCC who actually funds this program, once that receivable achieved, or eclipsed, better said, 5 million a month, it's like, night and day, it became now we have a 5 million receivable ongoing from the government. So that asset is what we're going to leverage what we're in the process of leveraging to get lines of credit, to where we can continue to kind of bust through that ceiling of theirs -- the rule of numbers, buy the tablet, pay the commission, receive the compensation 45 days later. We want to be able to accelerate that and kind of pop up a couple of levels by gaining access to capital through those lines of credit. So that is something we're going to do to take advantage of now being able to deploy people nationwide, but also and maybe to use your question to expound on what I mean by lowering our cost of acquisition. The numbers that were coming in that we're seeing online, is a cost of about $20 to $25, compared to a $45 commission in the field. So we're hoping that continues. And we're able to look at more of a blended cost per acquisition, somewhere in the $30 to $35 range, which is would significantly, and estimates a 25% drop in our cost per acquisition by being able to go direct online.

Okay, great. Thanks very much.

Thank you.

Our next question is from Ed Woo with Ascendiant Capital, please proceed.

Yes, thanks for taking my question. I was wondering, has there been any issues with churn with customers leaving this program after they sign up with you?

I'm not going say there's an issue, there's always a component of churn or attrition. When factoring, when you're building your pro forma your business model, and this goes all the way back to I mean, long distance, dial tone, the early days of wireless all the way till now and that's a component of the business. One of the unique things that I like about this specific program, the ACP is that customers are limited to one tablet per year, reimbursement. So that means that if you enroll for Torch Wireless today, you can't just go enroll with another company and get another tablet in four months. So you're with us. So that's why when people hear me say landrush, you do want to get to that consumer first. It is it's very important that that grassroots level to be that place where you secured that community. The second part of that is your ability to provide service in rural areas will decrease attrition, which is why we're really excited that we've now gotten fully integrated with the AT&T Network. Because there's not a lot of competition out there on the AT&T network. Most of the competition is in the urban areas, and it runs over the T-Mobile Network. I expect attrition to be ballpark 8% to 10% ongoing, which is also why once you start hitting that rule of large numbers, once you have a large subscriber base, you have to continue to grow higher numbers per month to see your overall customer base continue to increase, which is why the access to capital using a line of credit based on our receivable is very important.

Great, then my next question is, have you had any issues with supply chain either to get these tablets? Or have you had any impact from inflation on rising costs or labor shortages, to get salespeople?

That's a really good question and I get that often and I don't have a magic the crystal ball to know why it has not. But it really hasn't. I've got -- or I should say we've got great relationships with folks that bring these devices into the country. And as it sits right now, we're one of the first come first serve folks to get called. And we're looking -- also looking at manufacturing our own. So that, like I said, said earlier, we've got 35,000 devices already out in the field right now, that will be activated, we expect in the next couple of weeks. Well, maintaining that supply is very important, because the salesperson cannot run out of tablets, or they will bounce to another competitor. So to be able to do that 30,000 40,000 50,000 a month, you really need an excess of 20,000 tablets. So one of the things that Tony, and our sales directors are doing is actively every week, modeling this out, and making sure that we have plenty of devices out there. And we never get throttled. So if we see something coming down the pipe in 30 days, you know, maybe a little bit, hey, this is you guys are only going to be able to supply us with x tablets. Then we've got, somebody that we can call and get a backup and make sure and we'll fulfill that number will be fine. But now we have not seen the price increase substantially. It's like a fish market prices go up and down a couple of bucks, but nothing more than a couple of dollars. We're still looking in that $83 range per device. We don't, and we really haven't been throttled. The only time that we've had to throttle is when we've had a huge sales burst. And I'll give an example. Let's say that there's great weather coast to coast, and sales just explode. For example, last week, we had a day where we did over 2000 enrollments in one day. If you have a couple of those days in a row, then it's more the cash flow challenge to get those devices than it is supply chain or inflation.

Great. Well thanks for answering my questions. And I wish you guys good luck. Thank you.

Thanks, Ed.

[Operator Instructions] Our next question is from Adam Waldo with Lismore Partners, please proceed.

Yes, Good day, Brian. And Tony, thanks very much for taking my questions. I hope you can hear me okay.

Yes. Hey, good morning, Adam.

Good morning. Before my three topics, I just quickly want to clarify something you said Brian, in response to the prior questionnaire. You talked about 8% to 10% attrition, so 90% to 92% retention. And that's an annual rate, right? You'd expect 8% to 10% annual subscriber attrition in the ACP business. So 90% to 92% annual retention is that correct?

That's based off traditional, I shouldn't say traditional but historical in this market, that's usually what we've seen is 8% to 10%. With us only having six, seven months under our belt, ballpark, probably what it's going to be, I normally like to have a year, a full year, under our belt to see. Because there's also again, there's a couple of different factors that you got to incorporate. Again, in rural, you see less churn online. And this is opposite from what most people think an online customer normally lasts about 1.5 times longer than a customer who went to a physical location and enrolled, it's a little backwards in what you think. And you also have an increased engagement. Because if you signed up online, for example, using our bot, we know your Facebook profile. So we have the ability to communicate directly with you through messenger, which is we're finding out is a lot more effective than email for this market base. So, with us just launching online, and just rolling out in the more rural areas, I really need at least another 90 or 120 days to give you a more accurate, in my opinion, more accurate, long term attrition rate.

That's fair. So we'll check back on the second quarter call in August. In terms of three topics I'd wanted to cover first is sort of financing in the negative float right and working capital from the tablets, which you touched in your prepaid remarks on prior question, but I want to take that conversation slightly different way. And the second is to get an update on the logics IQ pending tax free dividend spin off to the existing shareholders. So on the working capital side, Brian had a couple of conferences you've hinted at looking at vendor financing as one option they're obviously on the call today, Tony and you talked about looking at I presume some sort of either AR securitization or factoring facility, as another way to address the issue. So can you can you talk a little bit more specifically about whether we're talking about vendor financing AR factoring or some combination of the two for financing, that call it 45 days? Negative working capital flow?

Sure, no, it's a good question. It's both. It's a combination. The vendors that we have are great folks. We have a personal relationship with them, we meet them in person, talk to them constantly. They are definitely profit partners who are incentivized for us to move devices, especially in a crazy time. Right now, if we're calling you pick up the phone, because we're ordering by the 10s of 1000s. So that, needless to say, that's a good relationship for us. The second part of your question, which is a combination, it's not so much a factoring approach, I've never been a huge fan of factoring just by way of the really the flow of the money in factoring. I like controlling our cash. I do not ever like -- let me rephrase it, I have never given up the reins to all of our cash ever. So I don't see me ever allowing us our money to go into someone else's lockbox. And hope and pray they do the right thing and that money ends up in our account the next day, I'm just not a factoring guy. It is what it is we are where we are. But using the receivable as an asset for more traditional bankability. And also keeping in mind to know this time last year, I'm trying to -- we're trying to raise money on the OTC we're completely upside down, we're burning capital, we were a different company. Now we can clearly show, our cash flows, what we're doing, we got this receivable 5 million plus from the government. So we're far more bankable, and which is one of the reasons why Tony has done a great job scouring different types of instruments, institutions, and ways for us to gain access to capital to grow without diluting ourselves by having warrants in stock and coupons and other components like that of a normal public company, access to capital, we're going traditional banking to really keep the same type.

Okay, that's really helpful. So thank you. And clearly, obviously with the trajectory of the business, on the growth curve that it's on and the AR being a top quality from Uncle Sam, it sounds so accessing the bank market for financing receivables. So it looks very promising. And then finally, I guess, with respect to LogicsIQ, so on the first quarter conference call on March 24, you all confirmed publicly, for the first time, that business has a run rate or unexpected 2022 revenue in the low $20 million with EBITDA dot margins in the mid to high teens. So call it $3 million to $4 million, then EBITDA. Is that business still on track to deliver that performance? And then where do you feel you stand in terms of the timeline previously communicated as a probable timeline of being able to complete that dividend tax free spin off to existing shareholders sometime during the second half of this year?

Sure, I can elaborate on that. We do fill in the only backup the Logics business cycle is a unique calendar cycle based of the mass tort lawsuits, and which suits are coming to fruition and the ramp up and amp up prior to that. We do see where there's quite a few big hits that are coming this summer. And by hits I mean very positive, even since the posting of the quarter, last month was a phenomenal month for Logics. So one of the things that we're working on right now with the management team at Logics, which by the way, we have reorganized as we talked about on the last call, Anthony Nuzzo was the was running the CEO of Logics, and with his untimely passing, we've had to restructure some things, promote folks reorganize the team. Once that was accomplished, we do feel like the trajectory of the business will end up by the end of the year meeting the projections that we put in place. So we're pretty excited about that. We're working with the management team right now to also how to say this, not reduce the dependency on the ups and downs, the create more consistent cash flow through ancillary products through some of their software development products they're providing. And then also not only depend on law firms for those signed retainer cases, which can be dependent on what big cases upcoming. For example, last year, Roundup was a huge case that really drove a tremendous amount of capital and revenue to the company. Being able to provide things on a more consistent level and achieve that cash flow, breakeven. And then everything they do in the mass tort business would just be icing on the cake. We instead of, hey, we…

Well, that's great news. Obviously, that type of business in the public market typically trades at two to three times revenue, given the margin profile, and obviously, the variability is based on the growth prospects, which look pretty solid here. So I mean, obviously, you have that asset, being probably valued in the public market in excess of where the whole company is valued in the public market today. So we look forward to that in the second half of the year, and thanks for taking my questions as always.

Thank you, Adam.

We have reached the end of the question and answer session and this will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.