SurgePays Announces Second Quarter 2024 Financial Results

Rhea-AI Summary

SurgePays (NASDAQ: SURG) announced Q2 2024 financial results, marking a transition phase due to the end of ACP funding. Key points:

- Q2 sales: $15.1 million, down from $31.4 million in Q1 2024 and $35.9 million in Q2 2023
- Gross profit: ($3.4) million loss, compared to $10.0 million profit in Q2 2023
- Strategic decision to maintain subscriber base despite ACP funding end
- Initiatives to regain positive cash flow by year-end
- $5 million share repurchase program authorized until December 31, 2024

The company aims to expand its footprint among underbanked customers through various initiatives, including growing ACP revenue if refunded, offering alternative plans, scaling third-party transactions, and expanding product offerings beyond wireless services.

Positive

• $5 million share repurchase program authorized until December 31, 2024
• Strategic initiatives to regain positive cash flow by year-end
• Expansion of offerings beyond wireless services
• Launch of ClearLine customer engagement platform for convenience stores

Negative

• Q2 sales decreased to $15.1 million from $31.4 million in Q1 2024 and $35.9 million in Q2 2023
• Gross profit in Q2 2024 was a loss of ($3.4) million compared to a profit of $10.0 million in Q2 2023
• End of government's ACP funding in mid-May significantly impacted revenues
• Transition phase with uncertain future revenue streams

Financial Analyst

SurgePays' Q2 2024 results paint a challenging picture. Revenue dropped to $15.1 million, down 52% from Q1 2024 and 58% YoY, primarily due to the end of ACP funding. More concerning is the $3.4 million gross loss, a stark contrast to the $10 million profit in Q2 2023. The company's decision to maintain service for ACP subscribers at its own expense is a significant gamble, potentially straining cash flow.

The $5 million share repurchase program seems ill-timed given the financial pressures. While it may signal management's confidence, allocating capital to buybacks instead of operations or growth initiatives is questionable. The company's transition strategy, including expanding into non-wireless offerings and third-party transactions, is important but faces execution risks in a competitive market.

Telecom Industry Expert

SurgePays' heavy reliance on the ACP program has left it vulnerable. The abrupt end of funding exposes a lack of diversification in their business model. Their strategy to retain ACP subscribers through self-funding is risky but could pay off if the program is renewed or if they successfully transition users to other services.

The pivot towards LinkUp Mobile and expansion into non-wireless offerings like the ClearLine platform shows adaptability, but success isn't guaranteed. The focus on convenience stores as a distribution channel is smart, leveraging existing relationships. However, the telecom market for underserved communities is increasingly competitive and SurgePays will need to differentiate its offerings to maintain market share and profitability.

Market Research Analyst

SurgePays' target market - the underbanked and underserved - remains a significant opportunity. However, the company's over-reliance on government programs has proven to be a double-edged sword. The transition to non-subsidized services like LinkUp Mobile will be challenging, as price sensitivity is high in this demographic.

The expansion into non-wireless offerings and third-party transactions is a smart diversification move. The ClearLine platform for convenience stores could open up new revenue streams if executed well. However, the company needs to move quickly to establish itself in these new areas before competitors. The next two quarters will be critical in determining if SurgePays can successfully pivot and regain profitability in this new landscape.

$5 Million Share Repurchase Authorized

BARTLETT, Tenn., Aug. 13, 2024 /PRNewswire/ -- 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 second quarter ended June 30, 2024.

Management Commentary

Chairman and CEO Brian Cox commented on the quarter's results, "The second quarter of 2024 begins a transition phase for SurgePays.  ACP funding has run out and there is no guarantee it will return.  Fortunately, in the first quarter we shored up our balance sheet and began implementing growth initiatives outside of the ACP program to continue to pursue our strategic goal of being one of the country's largest providers of prepaid wireless and underbanked financial technology services.

"Second quarter sales of $15.1 million were about as expected, but were well below the first quarter 2024 revenues of $31.4 million and the year ago second quarter 2023 revenues of $35.9 million due to the ending of the government's ACP funding in mid-May, which we knew was coming.  Both the first quarter of 2024 and the second quarter of 2023 had full ACP funding.

"Gross profits in the 2024 second quarter were a loss of ($3.4) million compared to a profit of $10.0 million in the year ago quarter as the original ACP funding ran out mid-quarter. Additionally, we made the strategic decision to have our balance sheet take on the funding to maintain continuity within our subscriber base for three main reasons: 

1. Congress could renew the ACP program at any time, and if we terminated service, we would have to go out and re-acquire customers from a standing start, which would cost tens of millions of dollars.
2. If Congress delayed or didn't fund the program, we had plan B to acquire a company with licenses to provide a similar wireless subsidy and offer our subscribers the option to remain on a free monthly plan subsidized by a sister program. This is in conjunction with incentivizing customers to switch to LinkUp Mobile, our non-subsidized prepaid wireless brand. 
3. We know how critical broadband service is in everybody's life, and we believe it was simply the right thing to do. 

"We are in a transition phase and are looking to get back to generating positive free cash flow by the end of this year through the following initiatives:

1. Continue to grow our ACP revenue stream should Congress begin funding it again.
2. Offer our ACP subscriber base a free monthly service plan utilizing the Lifeline program while enticing customers with a cost-saving LinkUp Mobile prepaid wireless plan.
3. Scaling up our third-party wholesale transactions for other prepaid wireless company payments at convenience stores. We believe this initiative is necessary because it is a relationship gateway product for LinkUp Mobile activations and subscriber growth.
4. Expand our offerings outside of wireless.  For instance, we recently launched our ClearLine customer engagement platform for convenience stores at last month's RetailNOW Conference in Las Vegas.
5. Expand product and service offerings to the same nationwide network of convenience stores we are building by exploring and executing prospective partnering or product distribution opportunities.
6. Identify unique market opportunities that represent potential positive short-term cash flow.

"As we said last quarter, we knew that the ACP funding could run out, and we are not waiting around for Congress to provide additional funding. Many initiatives are underway to expand SurgePays's footprint among the underbanked and underserved, who remain our key customers. We recognize that the expiration of ACP funding has adversely impacted our business and stock price. Therefore, we feel it's an opportune time to announce a corporate stock buyback so our long-term investors know our interests are aligned. Until December 31, 2024, we will implement a buyback of up to $5 million (the "Maximum Amount") of SurgePays common stock in the open market. Repurchases may be made from time to time at management's discretion. The program will end upon the earlier of 6 months after the commencement of the program or the date upon which the Maximum Amount has been purchased and can be discontinued at any time. No shares have been repurchased under the program to date. There can be no assurance as to the timing or number of shares of any repurchases."

Second Quarter 2024 Results Conference Call

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 on the company's investor relations website at ir.surgepays.com, or by registering at the following link: Second Quarter Financial Results Call. 

Telephone access to the call will be available at 877-545-0320 (in the U.S.) or by dialing 973-528-0002 (outside the U.S.). Participant access code is 650138.

A telephone replay will be available approximately one hour following completion of the call until August 27, 2024. To access the replay, please dial 877-481-4010 (in the U.S.) or 919-882-2331 (outside the U.S.). Replay passcode is 51057.

Share Repurchase Authorization

As indicated above, SurgePays's board of directors has authorized the company to repurchase up to $5 million of common stock through the open market until December 31, 2024.

About SurgePays, Inc.

SurgePays, Inc. is a technology and telecom company focused on the underbanked and underserved communities. SurgePays' technology-layered platform empowers clerks at over 8,000 convenience stores to provide a suite of prepaid wireless and financial products to underbanked customers. SurgePays prepaid wireless companies provide services to over 250,000 low-income subscribers nationwide. The company ranks as the 345th fastest-growing tech company in North America according to the 2023 Deloitte Technology Fast 500. Please visit SurgePays.com for more information.

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," "attempting," 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 Management Commentary 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 including but not limited to, our plans to expand our prepaid wireless company and the stock buyback program,  our ability to retain our subscribers on a free monthly plan subsidized by a sister program, our ability to obtain a company that has the license to subsidize our subscribers through a sister program and our expanded service and offerings. 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, whether the ACP is funded again, our ability to obtain a company that has the license to subsidize our subscribers through a sister program, 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, 2023. 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.

SurgePays, Inc. and Subsidiaries
Consolidated Balance Sheets
		30-Jun-24		31-Dec-23
		(Unaudited)
Assets
Current Assets
Cash		$	38,434,580	$	14,622,060
Accounts receivable - net			1,412,177		9,536,074
Inventory			8,363,434		9,046,594
Prepaids and other			507,927		161,933
Total Current Assets			48,718,118		33,366,661
Property and equipment - net			221,075		361,841
Other Assets
Note receivable			176,851		176,851
Intangibles - net			1,799,716		2,126,470
Internal use software development costs - net			428,010		539,424
Goodwill			4,166,782		1,666,782
Investment in CenterCom			498,273		464,409
Operating lease - right of use asset - net			396,475		387,869
Deferred income taxes - net			-		2,835,000
Total Other Assets			7,466,107		8,196,805
Total Assets		$	56,405,300	$	41,925,307
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses		$	4,297,557	$	6,439,120
Accounts payable and accrued expenses - related party			499,853		1,048,224
Accrued income taxes payable			100,000		570,000
Deferred revenue			-		20,000
Operating lease liability			96,332		43,137
Note payable - related party			1,606,654		4,584,563
Total Current Liabilities			6,600,396		12,705,044
Long Term Liabilities
Note payable - related party			2,730,796		-
Notes payable - SBA government			474,758		460,523
Operating lease liability			317,470		356,276
Total Long Term Liabilities			3,523,024		816,799
Total Liabilities			10,123,420		13,521,843
Stockholders' Equity
Common stock, $0.001 par value, 500,000,000 shares authorized 19,431,549 and 14,403,261 shares issued and outstanding, respectively			19,435		14,404
Additional paid-in capital			72,967,169		43,421,019
Accumulated deficit			(26,827,373		(15,186,203
Stockholders' equity			46,159,231		28,249,220
Non-controlling interest			122,649		154,244
Total Stockholders' Equity			46,281,880		28,403,464
Total Liabilities and Stockholders' Equity		$	56,405,300	$	41,925,307

 

SurgePays, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2024				2023				2024				2023
Revenues		$	15,085,699			$	35,886,433			$	46,514,834			$	70,662,876
Costs and expenses
Cost of revenues			18,528,774				25,860,705				41,775,243				52,942,665
General and administrative expenses			7,432,978				3,823,227				13,863,783				6,812,648
Total costs and expenses			25,961,752				29,683,932				55,639,026				59,755,313
Income (loss) from operations			(10,876,053)				6,202,501				(9,124,192)				10,907,563
Other income (expense)
Interest expense			(116,722)				(156,267)				(249,305)				(348,593
Other income			636,868				-				636,868				-
Gain on investment in CenterCom			17,711				10,713				33,864				43,742
Total other income (expense) - net			537,857				(145,554)				421,427				(304,851
Net income (loss) before provision for income taxes			(10,338,196)				6,056,947				(8,702,765)				10,602,712
Provision for income tax benefit (expense)			(2,547,000)				-				(2,970,000)				-
Net income (loss) including non-controlling interest			(12,885,196)				6,056,947				(11,672,765)				10,602,712
Non-controlling interest			(19,431)				90,955				(31,595)				90,379
Net income (loss) available to common stockholders		$	(12,865,765)			$	5,965,992			$	(11,641,170)			$	10,512,333
Earnings per share - attributable to common stockholders
Basic		$	(0.66)			$	0.42			$	(0.63)			$	0.74
Diluted		$	(0.66)			$	0.4			$	(0.63)			$	0.71
Weighted average number of shares outstanding - attributable to common stockholders
Basic			19,431,549				14,191,083				18,562,416				14,154,163
Diluted			19,431,549				15,076,466				18,562,416				14,811,785
The accompanying notes are an integral part of these unaudited consolidated financial statements

 

SurgePays, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Three and Six Months Ended June 30, 2024
(Unaudited)
		Common Stock						Additional		Accumulated			Non-Controlling			Total
								Paid-in								Stockholders'
		Shares				Amount		Capital		Deficit			Interest			Equity
December 31, 2023			14,403,261			$	14,404	$	43,421,019	$	(15,186,203)		$	154,244		$	28,403,464
Stock issued for cash			3,080,356				3,081		17,246,913		-			-			17,249,994
Cash paid as direct offering costs			-				-		(1,395,000)		-			-			(1,395,000
Exercise of warrants - cash			1,860,308				1,861		8,797,396		-			-			8,799,257
Exercise of warrants - cashless			40,238				41		(41)		-			-			-
Stock issued for services			47,386				48		411,692		-			-			411,740
Recognition of stock based compensation - unvested shares - related parties			-				-		1,497,417		-			-			1,497,417
Recognition of stock-based compensation - related party			-				-		6,196		-			-			6,196
Non-controlling interest			-				-		-		-			(12,164)			(12,164
Net income			-				-		-		1,224,595			-			1,224,595
March 31, 2024			19,431,549				19,435		69,985,592		(13,961,608)			142,080			56,185,499
Recognition of stock based compensation - unvested shares - related parties			-				-		2,981,577		-			-			2,981,577
Non-controlling interest			-				-		-		-			(19,431)			(19,431
Net loss			-				-		-		(12,865,765)			-			(12,865,765
June 30, 2024			19,431,549			$	19,435	$	72,967,169	$	(26,827,373)		$	122,649		$	46,281,880
SurgePays, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Three and Six Months Ended June 30, 2023
(Unaudited)
		Common Stock						Additional		Accumulated			Non-Controlling			Total
								Paid-in								Stockholders'
		Shares				Amount		Capital		Deficit			Interest			Equity
December 31, 2022			14,116,832			$	14,117	$	40,780,707	$	(35,804,106)		$	127,535		$	5,118,253
Stock issued for services			60,082				60		307,398		-			-			307,458
Recognition of stock based compensation - stock options			-				-		9,294		-			-			9,294
Non-controlling interest			-				-		-		-			(576)			(576
Net income			-				-		-		4,546,341			-			4,546,341
March 31, 2023			14,176,914				14,177		41,097,399		(31,257,765)			126,959			9,980,770
Stock issued for services			64,927				65		311,121		-			-			311,186
Recognition of stock based compensation - stock options			-				-		9,294		-			-			9,294
Exercise of warrants for cash			43,814				44		207,196		-			-			207,240
Non-controlling interest			-				-		-		-			90,955			90,955
Net income			-				-		-		5,965,992			-			5,965,992
June 30, 2023			14,285,655			$	14,286	$	41,625,010	$	(25,291,773)		$	217,914		$	16,565,437

 

SurgePays, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
		For the Six Months Ended June 30,
		2024				2023
Operating activities
Net income (loss) - including non-controlling interest		$	(11,672,765)			$	10,602,712
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations
Depreciation and amortization			467,520				467,519
Amortization of right-of-use assets			46,995				21,494
Amortization of internal use software development costs			111,414				64,530
Stock issued for services			411,740				618,644
Recognition of stock based compensation - unvested shares - related parties			4,478,994				-
Recognition of share based compensation - options - related party			6,196				18,588
Interest expense adjustment - SBA loans			19,750				-
Right-of-use asset lease payment adjustment true up			(97,346)				-
Gain on equity method investment - CenterCom			(33,864)				(43,742
Changes in operating assets and liabilities
(Increase) decrease in
Accounts receivable			8,123,897				(1,059,014
Inventory			683,160				(6,900,674
Prepaids and other			(345,994)				(56,131
Deferred income taxes - net			2,835,000				-
Increase (decrease) in
Accounts payable and accrued expenses			(4,641,563)				(1,351,218
Accounts payable and accrued expenses - related party			(49,380)				(270,665
Accrued income taxes payable			(470,000)				-
Installment sale liability - net			-				(1,668,744
Deferred revenue			(20,000)				(199,910
Operating lease liability			56,134				(19,329
Net cash provided by (used in) operating activities			(90,112)				224,060
Investing activities
Capitalized internal use software development costs			-				(281,304
Net cash used in investing activities			-				(281,304
Financing activities
Proceeds from stock issued for cash			17,249,994				-
Proceeds from exercise of common stock warrants			8,799,257				207,240
Cash paid as direct offering costs			(1,395,000)				-
Repayments of loans - related party			(746,104)				(467,385
Repayments on notes payable			-				(1,520,954
Repayments on notes payable - SBA government			(5,515)				(9,213
Net cash provided (used in) by financing activities			23,902,632				(1,790,312
Net increase (decrease) in cash			23,812,520				(1,847,556
Cash - beginning of period			14,622,060				7,035,654
Cash - end of period		$	38,434,580			$	5,188,098
Supplemental disclosure of cash flow information
Cash paid for interest		$	259,765			$	209,840
Cash paid for income tax		$	-			$	-
Supplemental disclosure of non-cash investing and financing activities
Reclassification of accrued interest - related party to note payable - related party		$	498,991			$	-
Exercise of warrants - cashless		$	41			$	-
Right-of-use asset obtained in exchange for new operating lease liability		$	98,638			$	-
Goodwill (ClearLine Mobile, Inc.)		$	2,500,000			$	-
The accompanying notes are an integral part of these unaudited consolidated financial statements

 

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SOURCE SurgePays

FAQ

What were SurgePays (SURG) Q2 2024 financial results?

SurgePays reported Q2 2024 sales of $15.1 million, down from $31.4 million in Q1 2024 and $35.9 million in Q2 2023. The company also reported a gross profit loss of ($3.4) million compared to a profit of $10.0 million in Q2 2023.

Why did SurgePays (SURG) experience a decline in revenue in Q2 2024?

The decline in revenue was primarily due to the ending of the government's ACP (Affordable Connectivity Program) funding in mid-May 2024, which significantly impacted SurgePays' business model.

What initiatives is SurgePays (SURG) implementing to recover from the ACP funding loss?

SurgePays is implementing several initiatives, including offering alternative wireless plans, scaling third-party wholesale transactions, expanding product offerings beyond wireless services, and launching new platforms like the ClearLine customer engagement system for convenience stores.

Has SurgePays (SURG) announced any share repurchase program?

Yes, SurgePays has authorized a $5 million share repurchase program of its common stock through the open market until December 31, 2024.