Q4 2023 Surgepays Inc Earnings Call

Participants

Quinn Callanan; IR; Surgepays, Inc.

Brian Cox; President and CEO; Surgepays, Inc.

Thony Evers; CEO; Surgepays, Inc.

Curtis Shauger; Analyst; Watertown Research LLC

Ed Woo; Analyst; Ascendiant Capital Markets LLC

Andrew Scott; Analyst; SLS Group

Presentation

Operator

Good afternoon, everyone, and welcome to today's surge Bay's Fourth Quarter and Full Year 2023 earnings conference call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Also, today's call is being recorded, and I will be standing by should anyone need any assistance.
And now at this time, I'll turn things over to Mr. Quinn Callon and Investor Relations. Clint, please go.

Quinn Callanan

Thank you, operator, and good afternoon, everyone. Welcome to the search page Fourth Quarter and Full Year 2023 Earnings Webcast and Conference Call. Today's date is March 12th, 2024 and on the call today from search phase or Bryan Cox, President and Chief Executive Officer, Tony Evertz, 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 sorry, face most recent financial filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update these statements to reflect the events that occur after this call.
Also during the course of today's call, the Company will be discussing one or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release. We issued this afternoon. Copies of today's press release or are accessible on search page Investor Relations website, ir dot search pages.com. In addition to search based Form 10-K for the year ended December 31st, 2023, will also be available on search fees, Investor Relations website.
And now I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.

Brian Cox

Thanks, Quinn. I want to start off by thanking all of our shareholders, especially our long-term shareholders and recent investors for your patience while watching our business model evolve. I believe our management team has done an outstanding job executing our growth strategy and delivering record financial results. Simultaneously, our stock has been pushing record highs recently, and we want that trend to continue. We are in the best financial position ever with over $40 million in cash, and I'll explain more about that later now for our results, our core mission is to provide financial technology and prepaid wireless services to the underbanked and underserved populations at the grassroots level where they live and shop studies have shown that the underbanked to do most of their financial transactions at the trusted local convenience store closest to their home. We believe we are making tremendous strides on this front. And I think the numbers primarily speak for themselves. 2023 was the most profitable year in the Company's history, delivering our highest ever net income of $20.6 million EBITDA of $22.3 million. Revenue for the year was $137.1 million, the highest we've seen as a company. Gross profit increased to $35.6 million, the highest we've seen as a company.
Our cash flow from operations is in the black. For the first time. Profitability was a focus for the company with the most significant catalyst being the increase in our ACP subscribers and the reduced enrollment costs paid on the ACP subscribers as we move transactions away from the tent and into brick and mortar stores. Early in 2023, we pulled down about $19 million from an inventory line of credit. As we forecasted, we utilized internally generated cash flows to pay off the line by years and looking a bit more deeply at what we did in 2023, we transitioned our sales force, our sales force from parking lot sales to online and in-store during the year. We've touched on this in prior calls, but the economics of running sales online or through the store counter is so compelling that with the short term growth slowed down during the transition period, made it well worth. We signed an agreement with clear Line Mobile toward the end of 2023 and ultimately acquired their technology in early 2024.
We integrated our search pays platform with the customer facing touch screen tablets next to the registry and convenience stores and are actively working to get these point-of-sale devices in all of our transacting stores on the network. This will enable real-time marketing of our products and services to customers as they check out and our servers controlled this marketing remotely touch screen equipment at the register opened several verticals. Our development team is already pursuing. We feel this technology, combined with the launch of linkup mobile, our own prepaid wireless company will give us such a competitive advantage that we're separating from the pack of competitors in terms of our suite of products and services, aggressive growth strategy and support team, our focus is now on building in-house and indirect sales channels and distribution. We made some key hires during the year. Just outside of 2023, we introduced Jeremy geese, who at the time was tasked with focusing on our prepaid fintech platform. Jeremy is now fully integrated with the team and was promoted to President of search page, Jeremy's contribution in 2023 has laid the groundwork for future growth. During the year, we hired Gary chicken as Head of Revenue Assurance and financial technology.
Since joining search phase, Gary has been leveraging his extensive telecom background to prepare the runway for our linkup mobile business. Search pays next big step additions like these implemented during 2023 and after planted the seeds for profitable growth in 2024. As we continue building our team, we are focusing on direct and indirect sales leaders. We are constantly evaluating new opportunities to ensure they fit our strategic approach. We entered the year with a strong balance sheet and improved cash balance of over $14.6 million and minimal debt. We have since bolstered the balance sheet further through a successful equity raise of $15 million in January, which included some fantastic new institutional investors. We have also been happy to see warrants from our previous raise in 2021 being exercised, which adds to our cash balance of over $40 million in the bank.
2023, indeed compares well to 2022 when we lost $0.7 million on the bottom line and had minimal cash on hand. Search plays has achieved tremendous profitability, which afforded the Company, some opportunities and a war chest to maximize those opportunities. I'll now turn the call over to Tony to review our financial results before summarizing today's call. Tony?

Thony Evers

Thank you, Brian, and good afternoon, everyone. I'll begin my overview of the fourth quarter and full year 2023 financial results. For the year, we reported revenues of $137.1 million compared to $121.5 million in 2022, representing an increase of 11%. The increase was primarily due to revenues related to providing mobile broadband and wireless service to low income subscribers. Through the ACP, which increased 34% to $118.6 million in 2023. Revenue for the quarter totaled $32.3 million compared to $36.2 million in the fourth quarter of 2022. Gross profit increased 165% in the year to $35.6 million compared to $21.6 million in the year ago period.
During the fourth quarter of 2023, gross profit increased 14% to $7.4 million compared to $6.5 million in the year ago period. Fourth quarter gross margin also showed improvement up to [30] 23.0% versus 18.1% on fourth quarter of last year. SG&A expenses increased by [30.7] year over year. The increase was primarily driven by compensation expenses, as Brian has talked about, the additional hires we had in 2023 and contractor and consultant fees over the course of the year.
Income from operations was positive for the year at $18.9 million compared to a gain of $0.6 million in the year ago period. Net income for the year was $20.6 million or $1.39 per share compared to a net loss of $0.7 million or a loss of $0.05 per share in 2022. The $20.6 million in net income year included much lower interest expense than year-ago period and included $110,000 gain on investments in-center comm.
Turning to the balance sheet and liquidity and cash flow, our cash balance as of December 31st was $14.6 million compared to $7 million a year ago year ended 2022. Funds receivable have increased by $306,000 from year end 2022 to $9.5 million. Receivable 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. Subsequent to the year end, our secondary offering raised approximately [$15 million] in cash and $8.6 million came in from exercising of warrants since January 1. Given our strengthening financial position, cash balance and capital structure, our cash allocation priorities focused on investing in the business and maintaining ample liquidity for future growth I'll now pass the call back to Brian for closing remarks.

Brian Cox

Thanks, Toni. We believe surge pays is now on solid financial footing with a significant cash balance consistent earnings and growth. This disposition contrasted by some economic uncertainty in our market and country has made search pays an attractive destination for some of the best sales talent in the industry. We are adding in-house and indirect salespeople monthly. These folks bring networks of sales opportunities and relationships with them. We believe we are poised to create one of the country's largest direct distribution networks of underbanked products and services and a vast market with tremendous opportunity and growth awaits. I look to increase revenue growth through organic sales, key hires and as opportunities arise. Complementary acquisitions that are synergistic and accretive to our business model. Our track record shows we maximized management effective ratios and can make difficult decisions that produce results and deliver positive cash flow. Our interests are aligned with our shareholders. Thank you so much for your time today. We will now open up the call to questions.

Question and Answer Session

Operator

(Operator Instructions) Curtis Shauger of Watertown Research.

Curtis Shauger

Yes, hi, guys. Thanks for taking my call. First, both great face of the year and some interesting point there.
It looks like the wireless business finished at $30 million for the quarter, which is trending down, I guess in light of the ACP seems like a pretty good controlled trajectory there in light of the stop taking new customers, what can you say about the clear Line Mobile at launch, they could give investors some encouragement that that we continue to have a smooth transition from BCP. two to the more traditional wireless wireless business. In the event that ACP delays are we continue to see funding issues with the government?

Brian Cox

No, hi, Curtis. Thanks for the question. Yes, those are things that my team meets daily and goes over. We definitely have an all hands on deck approach right now. And when you don't know what your lineup is going to be for Game Time in respect to ACP, you have to have contingencies and audibles on hand. So we definitely have all of these factored in on one of the things that we've been focused heavily on, as we've spoken of before, link-up mobile and utilizing our buying power because of what ACT has allowed us to achieve to offer a proof brand through the convenience store where folks are shopping and closest to where they live, that would be significantly lower than any of the other competition out there. And the reason is because of our ability to take payments for ourself. Essentially, every other wireless company utilizes a third party to process payments. We're one of the only companies out there that we know of actually we're the only company that is a wireless company and is a fintech transaction company. So we're clear line comes in clear line the customer facing tablets at the register, a point-of-sale register just imagine that eight inches full-color moving ads constantly promoting our product. So when you have the volume of foot traffic in convenience stores and 9 times out of 10, every customer that comes in these targeted community convenience stores are going to be prepaid wireless customers. Again, there's over 100 million of out there that opportunity to offer people a chance to save money on the wireless bills and then offering that store owner and usually owner operator behind the register an opportunity to make transactional profit off of that customer coming back in every month is pretty astounding. So we're clearly it comes in handy again, is the ability to promote those products to go to change our ads, constantly putting different rotator isn't. And then as we bring in other products to the stores, as we're always looking for other high margin products that would cater to the same people group.
That's where we feel like we're the clear line piece will be the strongest. And look, we're I think we touched on it deploying these. We've got a whole subset of our support reps right now that are actively calling our existing stores, our legacy stores and I got to call it the R&R, the rekindle and retrofit. We reengage the store, remind them who we are remind them of the products that we have to offer them. And then let's get the clear line point of sale out to the store. We don't charge the store for that. We want that to be out in the store. That's pre-marketing constantly for us.
And for example, I made a quick call before I hopped on today's call, and we've already shipped out for to know, which is a great day today of stores that want that they're hungry for more revenue, especially where they don't have to come out of pocket for consumable goods that sit on the shelf. And so we're finding our stores very receptive and it's being adopted well, and we look forward to that continuing. And in case there is a little downturn in ACP, we're very hopeful. But if there is downturn, what we can read position, all of those resources currently being used to sell and support ACP two going full throttle with Lincoln mobile and getting the clear line POS out to our stores.

Curtis Shauger

Excellent. Thank you.

Brian Cox

Thanks for the question.

Operator

Thank you.
We will next now to Ed Woo of Ascendiant Capital.

Ed Woo

Yes, congratulations on your performance in 2023. My question is more on a macro issues. Like you said, it seems like the economy is really brought in at the lower end of the economic ladder now, how is that helping or hurting your business and your our customers those stores, they have the touch bases with these customers?

Brian Cox

Yes, Ed. Thank you for the question. I'm going to answer your question, used a little bit different words than what you use. It's motivating to us because we know that our market doesn't necessarily benefit from upturns, but takes a little bit of a beating in downturns and some of the most receptive time that people are to making a change for their wireless provider or changing any habits. They may have as they normally would just go through the same route every day when things are fine, there's an awareness and there's an openness, both sub consciously or unconsciously now because people are struggling a little bit. So we offer products and services to this community this group, but it's almost a third of our country now where they can save money and not only save money, but it's convenient for them to pay, whether it's the closest store to their home or they don't have to go out of their way or go to a bill payment center, if you will on we've looked at check all the boxes for the reasons number one, while we can obtain the customer and then number two, how we can secure them as a long-term customer.
And it's usually on a couple of things. Number one is price.Number two is proximity for payment and then number three support. And as we've talked about before, I take a tremendous amount of pride in our support center in over 100,000 people working there to make sure that we offer first-class support to our customers. So I think when you look at it from that perspective and now let me throw in a little bit of a curveball. It's not just our customer base. The target customer base.
Remember, we have a unique business model where we serve clients the store to ultimately obtain customers who visit the store. So the store owners who are getting squeezed by interest rates for the lines of credit for the goods on ourself and have already got their stores maxed out floor-to-ceiling to be able to offer these stores a fantastic way for them to help make more bottom line money in this type of environment.
Now they're listening as a matter fact, we have because we have our product suite put together now in a really compelling offering in our sales teams. I believe we've got four we've got boots for conventions that cater to convenience stores just in April alone. So we're only in the outbound part, the reception that our folks are getting, it's fantastic. There's definitely an open U.S. People are hungry. These business owners are hungry to bring these products. And number one they know that they will sell. And number two, everybody wins off of it. So it's been a really good deal. So we again, I always want to stress, I never pray or hope for tough financial conditions. Nobody does. But when they do hit companies like us to cater to and serve and thrive from serving this group of people, we usually do.

Ed Woo

Really well, very well, thank you for answering my questions, and I wish you good luck. Thank you.

Brian Cox

Thanks for the question.

Operator

And ladies and gentlemen, just a reminder, any further questions this afternoon, please press star wanted to.
[Andrew Scott, SLS Group].

Andrew Scott

Hey, Brian, congratulations to you and your team on a great year. You guys have come a long way from watching the stock during the aftermarket, a little bit of a head scratcher, but I guess everybody's got something to do. Can you just go over again?
I think I heard the number right. What how much cash do you guys carry right now and on what do you have any idea on what you plan on doing with it sounds like you have a lot of options, not much cast.

Brian Cox

Hey, Andrew. Thanks for the question. Yes, we do have options because of the cash and that cash is cumulative for U.S. Compounding profit month over month. In addition to the, um, the again, the raise that we talked about that we did with Titan in January. And then we've had just shy of [2 million] warrants from our 2021 race to get financed that we've had just [2 million] shy warrants exercised over the past couple of months. So that's ultimately led to us having over $40 million cash in the bank. And really from a strategic standpoint right now, I'm never going to say that we're sitting on the sidelines, but we're in a little bit of we're watching what's going on in Washington as Congress. The funding for ACP has gotten stuck behind a lot of I guess you call it more important global items that the folks in Washington are debating on the our consultants and our legal folks up in that neck of the woods are all giving us good vibes thumbs up, but I don't want to fully take a step in a direction assuming anything. So we obviously have our contingency plans put together.
And maybe let's just touch on a couple of those ACP gets funded, like we hope and expect we're going to push pretty hard in the ACP arena and utilize the profits from that to really focus on growing our core business model of the fintech platform and convenience stores and pushing out our MVNO prepaid wireless company, legal. So that's really a pretty simple, high level if it doesn't. We know that there's profitable accretive businesses out there that we could take and plug them into our distribution mechanism and definitely get a lot more output from some of the companies that are product companies that depend on third parties to sell their products and being able to push that through our own distribution network and control our own output, we think would be extremely profitable for us. But right now, we're going to wait and see over the next couple of weeks to see how things shake out. I kind of wish this call was 30 days later it would have given me a little bit more at least see the Army Men on the table that we're dealing with. But that is the strategy that we're taking, but either way, look, we're still we're constantly adding salespeople. We're constantly adding on sales development folks, independent IS. They're called ISO.s in our industry, independent sales organizations, very similar to the credit card, our merchant account companies that go door-to-door selling merchant accounts and same ISO. model. And we're also adding in-house salespeople that are bringing networks with them. So the feedback we're getting from conventions is great. The feedback we're getting from a lot of salespeople who work for competitors that are looking for something different has been great. So we're going to stay on this. Stay on this.

Andrew Scott

Great job. You got a lot options. Great job to you and your team.
Thank you, Barry.

Curtis Shauger

Thanks for the question, Andrew.

Operator

Thank you. And ladies and gentlemen, that is all the time we have for questions this afternoon. So that will bring us to the conclusion of today's conference call. And again, we'd like to thank you all so much for joining us this afternoon and wish you all a great evening. Good bye.