SurgePays, Inc. (SURG) is a technology and telecommunications company dedicated to empowering underserved communities with essential financial and connectivity services. Through its innovative fintech platform and comprehensive MVNO offerings, the company is pioneering a new era of inclusive access to critical resources.
Business Overview
SurgePays was incorporated in Nevada on August 18, 2006, initially operating as an independent oil and natural gas company engaged in the acquisition, exploration, and development of oil and natural gas properties. In April 2015, the company entered into a Share Exchange Agreement with KSIX Media, which resulted in KSIX Media becoming a wholly owned subsidiary of the company. This transaction marked a significant shift in the company's focus from oil and gas operations to media and technology.
The company underwent several name changes to reflect its evolving business focus. In August 2015, it changed its name to KSIX Media Holdings, Inc. to better reflect the diversity of its operations. Subsequently, in December 2017, the company rebranded as Surge Holdings, Inc. Finally, in October 2020, it adopted its current name, SurgePays, Inc., to align with its focus on financial technology and telecommunications services.
Throughout its history, SurgePays has operated through various business segments, including Surge Blockchain, LogicsIQ, SurgePhone Wireless, SurgePays Fintech, ECS Prepaid, and Torch Wireless. The company's core mission has been to provide essential financial and connectivity services to underbanked communities through its proprietary technology platforms.
The company operates primarily in the United States, serving convenience stores, bodegas, and retail locations nationwide. SurgePays' business is divided into three main segments:
1. Mobile Virtual Network Operator (MVNO) Telecommunications: This segment includes the company's subsidized wireless offerings and its retail prepaid wireless brand, LinkUp Mobile. Prior to the expiration of the Affordable Connectivity Program (ACP) on June 1, 2024, this segment provided both subsidized and non-subsidized MVNO services.
2. Comprehensive Platform Services: This segment encompasses the company's fintech transaction platform, wireless top-up services, and ClearLine point-of-sale software-as-a-service (SaaS) solution. It generates revenue from transaction fees associated with prepaid cellular top-up services and providing ACH banking relationships and a fintech transactions platform to convenience stores.
3. Lead Generation: Operated through the subsidiary LogicsIQ, this segment primarily serves law firms in the mass tort industry. However, SurgePays is currently evaluating the fit of this business within its overall strategy and may discontinue it before the end of fiscal year 2024.
Financials
Financial Performance
For the fiscal year ended December 31, 2023, SurgePays reported total revenue of $137.14 million, representing a year-over-year increase of 12.8%. This top-line growth was primarily driven by the company's MVNO segment, which accounted for approximately 85% of total revenue during the period. Gross profit for the year came in at $35.64 million, translating to a gross margin of 26.0%.
On the bottom line, SurgePays generated net income of $20.62 million, or $1.38 per diluted share, a significant improvement from the prior year's net loss of $680,763. The company's EBITDA for the year stood at $20.08 million, with an EBITDA margin of 14.6%.
For the most recent quarter (Q3 2024), SurgePays reported revenue of $4.77 million, a substantial decrease of 86% year-over-year due to the shutdown of the Affordable Connectivity Program (ACP) federal funding. The company strategically chose to continue providing service to their previous ACP subscriber base to preserve that customer base as they transition them to either a non-subsidized MVNO offering or the Lifeline program. Additionally, the de-emphasis of the lead generation business contributed to the revenue decrease. Net income for the quarter was -$14.28 million.
The company's annual operating cash flow for 2023 was $10.29 million, with annual free cash flow of $10.01 million.
Liquidity
As of the latest quarter, SurgePays maintained a strong balance sheet, with $13.65 million in cash and cash equivalents and $10.07 million in investments. The company's total debt stood at $5.44 million, resulting in a low debt-to-equity ratio of 0.13.
The company's current ratio was 6.24 and quick ratio was 4.70 as of the latest quarter, indicating strong liquidity. SurgePays did not disclose any available credit lines or other credit facilities.
Navigating the Affordable Connectivity Program Transition
A significant portion of SurgePays' historical success has been tied to the federal government's Affordable Connectivity Program (ACP), which provided subsidies for mobile broadband services to low-income consumers. However, the program's funding ceased in June 2024, leading to a substantial decline in revenue from this segment. Prior to the ACP's expiration, the subsidized MVNO business accounted for 90% of total revenue for the three months ended September 30, 2023, and 85% for the nine months ended September 30, 2023. Following the program's end, this segment's contribution dropped to only 2% of total revenue for the three months ended September 30, 2024.
In response, the company has taken proactive steps to mitigate the impact of the ACP's expiration. SurgePays has partnered with TerraCom, Inc., a licensed Lifeline provider, to migrate its existing ACP subscriber base to the Lifeline program. This strategic move has allowed the company to retain a significant portion of its customer base while transitioning to a new government-subsidized program.
Furthermore, SurgePays has doubled down on the development and expansion of its non-subsidized offerings, such as the LinkUp Mobile prepaid wireless brand. The company has secured a direct carrier connection with the largest wireless network in the country, enabling it to offer a full suite of wireless plans and enhanced margins. The recent launch of LinkUp Mobile has been well-received, with the company expecting to quickly generate hundreds of thousands of new subscribers and establish the brand as a formidable player in the prepaid wireless market.
Alongside these initiatives, SurgePays has been actively growing its Comprehensive Platform Services segment, which includes its fintech transaction platform and ClearLine point-of-sale SaaS solution. The company has reported strong momentum in this business, with a 69% surge in revenue to $4.7 million in Q3 2024. The integration of ClearLine with leading payment terminals, such as Clover and PAX, has further expanded the company's market reach and enhanced its revenue-generating potential.
Risks and Challenges
While SurgePays has demonstrated resilience in the face of the ACP's expiration, the company still faces several risks and challenges:
1. Regulatory Uncertainty: The future of government-subsidized programs like Lifeline remains uncertain, and any changes or reductions in funding could significantly impact SurgePays' MVNO operations.
2. Competitive Landscape: The prepaid wireless and fintech sectors are highly competitive, and the company must continuously innovate and differentiate its offerings to maintain a competitive edge.
3. Integration and Execution Risks: The successful integration of new partnerships, acquisitions, and technology platforms is critical to the company's growth and profitability.
4. Dependence on Key Customers and Suppliers: A significant portion of SurgePays' revenue is derived from a limited number of large customers and suppliers, making the company vulnerable to fluctuations in their business.
Despite these challenges, SurgePays' diversified business model, strong balance sheet, and proven ability to adapt to industry changes position the company well for long-term success in the underserved telecommunications and fintech markets.
Future Outlook
SurgePays has provided several key guidance points for its future performance:
1. Lifeline Subscribers: The company expects to have around 200,000 Lifeline subscribers by the end of 2024, which they believe will bring them close to breakeven from a cash flow perspective. SurgePays anticipates their Lifeline subscriber base to potentially significantly exceed their highest ACP subscriber total of 280,000.
2. LinkUp Mobile Growth: With its partnership with the largest wireless network in the country, SurgePays expects LinkUp Mobile to quickly generate hundreds of thousands of new subscribers and establish itself as a formidable presence in the prepaid space.
3. SurgePays Prepaid Top-ups Platform: The company anticipates exponential growth in this segment, projecting to reach over $10-12 million in monthly revenue by the end of 2025.
4. ClearLine Point of Sale SaaS Platform: SurgePays believes this platform will contribute meaningfully to consolidated revenues by Q1 2025 as it gains traction in the market.
5. Industry Trends: The prepaid wireless and financial services industries targeting underbanked and underserved communities have seen consistent growth, with a compound annual growth rate (CAGR) of around 10% over the past 5 years. SurgePays is well-positioned to capitalize on these trends.
Conclusion
SurgePays, Inc. (SURG) has emerged as a trailblazer in the mission to bridge the digital divide and provide essential services to underserved communities. Through its innovative MVNO offerings, comprehensive fintech platform, and strategic partnerships, the company is revolutionizing the way individuals in these underserved markets access critical financial and connectivity resources.
While the expiration of the Affordable Connectivity Program presented a significant challenge, SurgePays has demonstrated its resilience and adaptability by swiftly transitioning its customer base to the Lifeline program and accelerating the growth of its non-subsidized business segments. As the company continues to execute on its strategic initiatives, investors can expect SurgePays to solidify its position as a leading player in the underbanked and underserved telecommunications and fintech space.