SURG SurgePays Inc

SurgePays, Inc. (Nasdaq: SURG) (“SurgePays” or the “Company”), a technology and telecom company focused on the underbanked and underserved, today announced its financial results for the first quarter ended March 31, 2023.

First quarter 2023 Highlights

• Revenue of $34.8 million in the first quarter, an increase of 64% over the prior year period.
• Gross profit of $7.7 million in the first quarter, an increase of $5.1 million over the year-ago period.
• Net income of $4.5 million in the first quarter, compared to a net loss of $(1.2) million in the year-ago period.
• First quarter 2023 EBITDA of $5.0 million compared to a 1Q22 EBITDA loss of $(848) thousand.

Management Commentary

Commenting on the quarterly results, Chairman and CEO, Brian Cox said, “Hard work is paying off as financial results continue to exhibit the success of our multi-year strategy. As a microcap in this economic environment, to have a record-breaking quarter when our primary goal of this time frame was building for the growth later in 2023 is quite rewarding. Working diligently on efficiencies, development, and margin expansion, our team generated over $4.5 million in net income from operations and EBITDA of $5.0 million in the quarter.

“The first quarter demonstrated the cash flow and profitability of our plan, and we believe this is only the beginning with the best yet to come as we push to scale growth under this model. We’ve succeeded and continue to succeed in making significant advances in the financial profile of the company. The majority of all our departments have been focused on ramping up the number of convenience stores on the SurgePays network. Our development, sales, training, and support teams have all been progressing on enabling in-store Affordable Connectivity Program (“ACP”) wireless subscriber activations. This allows store owners to earn revenue by helping those in their underserved community get connected. We are utilizing this great program as the enticing catalyst to build what is now over 25,000 stores to be onboarded with a staging target of less than 12 months. This will create one of the largest direct distribution networks of underbanked products and services in the country.

“Handset and tablet devices started arriving in the last few weeks of the quarter, so we are seeing our inventory replenished by utilizing our non-dilutive financing facility. This has us primed for revenue expansion and coincides with accomplishing this groundwork for 2023 growth. We believe our company operations can thrive in any macro-economic climate, and posting more consecutive quarters like the earnings we are reporting today while scaling revenue higher will substantially enhance value for our shareholders,” Mr. Cox concluded.

Management Discussion & Analysis

SurgePays is a technology and telecom company focused on the underbanked and underserved communities. SurgePhone and Torch Wireless provide subsidized mobile broadband to over 250,000 low-income subscribers nationwide. The SurgePays fintech platform empowers clerks at thousands of convenience stores to provide a suite of prepaid wireless and financial products to underbanked customers.

During the first quarter ended March 31, 2023, overall revenue increased by $13.6 million or 64% as compared to the previous year. The increase was primarily due to revenues related to providing mobile broadband and wireless service to low-income subscribers through the Affordable Connectivity Program (“ACP”).

Operating income improved overall to $4.7 million in the first quarter of 2023 compared to a loss of $1.0 million in the first quarter of 2022.

Net income in the first quarter of 2023 was $4.5 million compared to a net loss of $(1.2) million in the first quarter of 2022. EBITDA increased to $5.0 million in the first quarter compared to ($848) thousand in the first quarter of 2022.

New wireless devices began arriving in March and continue to arrive weekly. The Company anticipates that the unthrottled sales capacity could result in considerably more than doubling the subscriber base in 2023. Beta testing of ACP sign ups in local convenience stores has exceeded expectations by capitalizing on our customer base paying with their SNAP (EBT) card. Management believes that the early positive results will result in higher sales at considerably lower cost per acquisition.

Business Outlook

For the full year 2023, the Company expects to achieve the following targets:

• Total revenues of at least $190 million
• Positive operating cash flow in 2023
• 13,000 stores transacting on the SurgePays Network
• Over 500,000 wireless subscribers

Conference Call and Webcast Information

The Company plans to release financial and operational results for the first quarter 2023 at market close on Thursday May 11, 2023. SurgePays management will host a webcast at 5 p.m. ET / 2 p.m. PT to discuss these results.

The live webcast of the call can be accessed at 1Q23 Webcast Link, as well as on the company’s investor relations website at ir.surgepays.com.

Telephone access to the call will be available at 877-407-9208 (in the U.S.) or by dialing 201-493-6784 (outside U.S.).

A telephone replay will be available approximately one hour following completion of the call through Thursday, May 25, 2023. To access the replay, please dial 844-512-2921 (in the U.S.) or 412-317-6671 (outside U.S.). Enter Conference ID #0151927.

About SurgePays, Inc.

SurgePays, Inc. is a technology and telecom company focused on the underbanked and underserved communities. SurgePhone and Torch Wireless provide subsidized mobile broadband to over 250,000 low-income subscribers nationwide. SurgePays fintech platform empowers clerks at over 8,000 convenience stores to provide a suite of prepaid wireless and financial products to underbanked customers. Please visit SurgePays.com for more information.

About Non-GAAP Financial Measures

The Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used to evaluate companies on the basis of operating performance and leverage.

EBITDA is not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with SEC Regulation G, the non-GAAP measurements in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Income (loss) from Operations to EBITDA” in the financial tables included in this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes express or implied statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in these forward-looking statements such as regarding our market potential along with the statements under the heading Business Outlook are reasonable, these statements relate to future events or our future operational or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, statements about our future financial performance, including our revenue, cash flows, costs of revenue and operating expenses; our anticipated growth; and our predictions about our industry. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The forward-looking statements in this press release speak only as of the date on which the statements are made. We undertake no obligation to update, and expressly disclaim the obligation to update, any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

Investor RelationsBrian M. Prenoveau, CFAMZ Group – MZ North AmericaSURG@mzgroup.us 561 489 5315

SURGEPAYS, INC. AND SUBSIDIARIESConsolidated Balance Sheets

		March 31,2023				December 31,2022
		(Unaudited)
Assets
Current Assets
Cash		$	8,862,085			$	7,035,654
Accounts receivable- net			9,659,552				9,230,365
Inventory			15,521,970				11,186,242
Prepaids			169,951				111,524
Total Current Assets			34,213,558				27,563,785
Property and equipment - net			572,991				643,373
Other Assets
Note receivable			176,851				176,851
Intangibles - net			2,616,601				2,779,977
Internal use software development costs - net			511,959				387,180
Goodwill			1,666,782				1,666,782
Investment in CenterCom			387,235				354,206
Operating lease - right of use asset - net			420,665				431,352
Total Other Assets			5,780,093				5,796,348
Total Assets		$	40,566,642			$	34,003,506
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses		$	5,645,450			$	5,784,374
Accounts payable and accrued expenses - related party			1,963,209				1,728,721
Installment sale liability			15,044,897				13,018,184
Deferred revenue			713,321				243,110
Operating lease liability			40,384				39,490
Notes payable - related parties			1,108,150				1,108,150
Notes payable - net			1,142,138				1,542,033
Total Current Liabilities			25,657,549				23,464,062
Long Term Liabilities
Note payable			42,561				53,134
Notes payable - related parties			4,026,413				4,493,798
Notes payable - SBA government			470,378				474,846
Operating lease liability			388,971				399,413
Total Long Term Liabilities			4,928,323				5,421,191
Total Liabilities			30,585,872				28,885,253
Commitments and Contingencies (Note 8)
Stockholders’ Equity
Common stock, $0.001 par value, 500,000,000 shares authorized14,176,914 and 14,116,832 shares issued and outstanding, respectively			14,177				14,117
Additional paid-in capital			41,097,399				40,780,707
Accumulated deficit			(31,257,765	)			(35,804,106	)
Stockholders’ equity			9,853,811				4,990,718
Non-controlling interest			126,959				127,535
Total Stockholders’ Equity			9,980,770				5,118,253
Total Liabilities and Stockholders’ Equity		$	40,566,642			$	34,003,506

SURGEPAYS, INC. AND SUBSIDIARIESConsolidated Statements of Operations

		For the Three Months Ended March 31,
		2023				2022
Revenues		$	34,776,443			$	21,141,372
Costs and expenses
Cost of revenue			27,081,960				18,507,741
General and administrative expenses			2,989,421				3,683,782
Total costs and expenses			30,071,381				22,191,523
Income (loss) from operations			4,705,062				(1,050,151	)
Other income (expense)
Interest expense			(192,326	)			(169,645	)
Gain (loss) on investment in CenterCom			33,029				(25,183	)
Total other income (expense) - net			(159,297	)			(194,828	)
Net income (loss) including non-controlling interest			4,545,765				(1,244,979	)
Non-controlling interest			(576	)			(32,645	)
Net income (loss) available to common stockholders		$	4,546,341			$	(1,212,334	)
Earnings (loss) per share - attributable to common stockholders
Basic		$	0.32			$	(0.10	)
Diluted		$	0.31			$	(0.10	)
Weighted average number of shares outstanding - attributable to common stockholders
Basic			14,131,276				12,063,834
Diluted			14,535,223				12,063,834

Reconciliation of Net Income (loss) from Operations to EBITDA

			Three months ended			Three months ended
		March 31, 2023			March 31, 2022
		(unaudited)			(unaudited)
Revenue		$	34,776,443		$	21,141,372
Cost of revenue (exclusive of depreciation and amortization)			27,081,960			18,507,741
General and administrative expenses			2,989,421			3,683,782
Loss from operations		$	4,705,062		$	(1,050,151	)
Net loss to common stockholders			4,546,341			(1,212,334	)
Interest expense			192,326			169,645
Depreciation and Amortization			276,710			195,020
EBITDA		$	5,015,377			(847,669	)