Surgepays - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue was $18.7M, up 292% YoY and 62% QoQ; revenue modestly beat Wall Street consensus ($18.12M*) while EPS of -$0.38 missed (-$0.145* est). The quarter marked an “inflection point” led by Lifeline (Torch) and prepaid/retail channels.
• Gross profit loss improved substantially to $(2.6)M from $(7.8)M YoY; SG&A fell 32.5% YoY to ~$4.2M, reflecting cost reductions and operating leverage as volumes scaled.
• Management reaffirmed FY2026 revenue guidance at $225M (narrowed from prior $225–$240M), citing continued subscriber growth, retail expansion, MVNE partners, and ClearLine monetization as drivers.
• Strategic catalysts: (1) Growth Marketing & Data Partnerships division and launch of ProgramBenefits.com; (2) SNAP/EBT free service initiative; (3) QorPay partnership embedding ClearLine into cloud-native payments—each designed to add high-margin, recurring revenue streams and lower subscriber acquisition costs.

What Went Well and What Went Wrong

What Went Well

• Lifeline (Torch Wireless) scaled rapidly to $5.6M in Q3 revenue with 125,000+ subscribers, establishing a stable recurring base and capacity to keep growing; management highlighted synergy across channels and distribution moat.
• Prepaid/retail and POS revenue accelerated to $13.1M, driven by LinkUp Mobile and Phone-in-a-Box across major distributors like H.T. Hackney (40,000+ stores), with a near-term goal of 100,000 locations on the platform.
• Cost discipline and margin trajectory: gross profit loss narrowed to $(2.6)M (vs $(7.8)M YoY) and SG&A decreased ~32.5% YoY; CFO expects POS/prepaid gross margin to be positive by YE25, and MVNO margins to improve as scale expands.
  • Quote: “We expect the gross margin to be positive by the end of 2025 for this revenue channel… we also anticipate gross margins in the MVNO segment will increase” — CFO Tony Evers.

What Went Wrong

• EPS missed consensus by ~$0.235 as the company remains loss-making; loss from operations was $(7.0)M and net loss $(7.5)M in Q3, reflecting transition costs and investment ahead of scale.
• Cash depleted to $2.5M at quarter-end (from $11.8M YE24), with significant operating cash use; financing and convertible notes increased liabilities, highlighting near-term liquidity management needs.
• Guidance narrowed for FY2026 to a single-point $225M (from $225–$240M), implying a more conservative stance despite strong subscriber growth; Q3 did not reiterate FY2025 guidance ($75–$90M) from August.

Transcript

Operator (participant)

Welcome to the SurgePays third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Valter Pinto, Investor Relations at SurgePays. You may begin.

Valter Pinto (IR)

Thank you, Operator, and good afternoon, everyone. Welcome to the SurgePays 2025 third quarter financial results conference call. Today's date is November 12, 2025, and on the call today from the company are Brian Cox, President and CEO, 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 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 statements or reflect the events that occur after this call.

Copies of today's press release are accessible on SurgePays Investor Relations' website, ir.surgepays.com. In addition, SurgePays Form 10Q for the quarter ended September 30, 2025, will also be available on SurgePays Investor Relations' website. I would like to turn the call over to President and CEO Brian Cox.

Brian Cox (President and CEO)

Good afternoon, and thank you for joining us. As I mentioned last quarter, today is less about the past and more about what's happening now and what's ahead. The third quarter was that inflection point. During the quarter, we began to see execution across our multi-channel growth platform, which yielded strong growth year over year and sequentially. Each of our revenue channels are synergistic, not isolated initiatives that together strengthen with every subscriber, transaction, and retailer added to our ecosystem. It consists of Torch Wireless, which is subsidized under the Lifeline program; LinkUp Mobile, our prepaid offering; Hero MVNE, our wholesale offering; Prepaid Top-Up; and our Clearline SaaS point of sale. We believe our strength lies in our ability to combine cutting-edge technology with a nationwide retail distribution network, bringing telecom and fintech products directly to underserved communities where people live and shop.

This powerful combination of technology and retail provides us with a sustainable competitive advantage, positioning us as a long-term leader in a large, total addressable market that is very difficult to replicate. Our experienced team has been strategically investing and building since 2022, focusing on integration with AT&T, operational infrastructure, technology, and talent deployment. Today, the platform and development of distribution technology and new products are well established and will support high-margin revenue streams for years of sustained growth. This synergy generates recurring revenue, provides competitive advantages that are extremely difficult to replicate, and lays the foundation for significant year-over-year growth. The third quarter of 2025 represents our preparation, investment, and ability to execute on a go-to-market strategy once again. Third quarter 2025 revenue totaled approximately $18.7 million, an increase of 292% year-over-year and over 62% sequentially.

Revenue growth year-over-year was driven by an increase from virtually zero in the third quarter of 2024 to $5.6 million in the third quarter of 2025 from our MVNO brand, Torch Wireless, under the subsidized Lifeline program. The Lifeline program is a government-subsidized benefit program that provides essential wireless connectivity to those who qualify. Unlike temporary programs, Lifeline remains fully funded and unaffected by the current government shutdown, providing us with a stable, predictable recurring revenue base. Today, we have over 125,000 subscribers and growing after activating in June with only 20,000 subscribers. What's even more exciting is that we're still operating well below our current capacity. Many sales channels are still being open, so we expect continued sales growth. This positions us exceptionally well for continued growth in the months ahead.

What excites our management team even more is the new avenues for acquiring customers with little or no cost, completely flipping the front-heavy ROI portion of our model. I will speak more on this exciting development later. While we believe Lifeline will certainly be the accelerator of growth in the short term, we have full confidence that our other revenue streams will scale quickly in 2026. Point of sale and prepaid services, for example, also increased significantly year-over-year to $13.1 million, a 177% increase. This part of our ecosystem consists of LinkUp Mobile, our affordable prepaid wireless offering, and consumer products like Phone in a Box, a grab-and-go kit for convenience stores, which includes a smartphone, SIM, and 30-day service. We fully launched LinkUp Mobile in April, activating approximately 10,000 users. In July, we more than doubled that, surpassing 20,500 activations, and today we are over 95,000 recurring active subscribers.

This growth is driven primarily by expanded retail distribution, targeted marketing, and competitive pricing. The grind of market adoption takes longer on the prepaid side of the wireless business, but we are seeing the expected traction. These drivers are sustainable as we continue opening new doors and building customer loyalty. The heart of this model is our proprietary point of sale software, which not only facilitates transactions but also drives recurring revenue from activations and replenishments right at the convenience store register. It's not just a tool; it's the backbone of our ecosystem and a true competitive advantage. Third-party prepaid wireless top-ups revenue is a key indicator of future revenue growth in our other products. For Phone in a Box, we partner with distributors like H.T. Hackney, which has mass market reach and services over 40,000 stores.

We are in advanced talks with other national convenience store distributors, each with footprints in tens of thousands of community store retail locations like H.T. Hackney. Our near-term goal is to ramp to 100,000 locations operating on the SurgePays platform, driven by a combination of organic growth and distribution agreements with H.T. Hackney and other partners. On the wholesale side, our MVNE platform, Hero, is a growing revenue engine with a robust pipeline. As an MVNE, we provide billing, provisioning, SIMs, and eSIMs to other wireless companies, a high-margin model with minimal incremental costs and low overhead. Many MVNOs in the market today are actually sub-MVNOs. We're one of the few with direct carrier access, putting us in a rare and powerful position. To date, we've onboarded three MVNO partners.

Collectively, these partners serve thousands of subscribers, and they're looking to grow quickly, providing us with a path to scale our platform and recurring revenue base. In August, we had a successful show at All Wireless and Prepaid Expo with the expectation of onboarding and integrating new wholesale clients over the next six months. Lastly, we have Clearline, our SaaS marketing platform with interactive point of sale and customer engagement tools with offers, coupons, and loyalty programs. We recently announced a strategic partnership with Corpay, a next-generation payment technology provider, to integrate our Clearline marketing and customer engagement platform into Corpay's cloud-native payment processing solution. This integration brings together two complementary technologies: point of sale payments and digital marketing automation, creating a first-of-its-kind capability that enables retailers to engage with customers from the moment of the transaction and beyond.

By embedding Clearline's SaaS-based marketing tools directly into Corpay's payment ecosystem, the partnership is expected to create new recurring revenue streams for both companies while offering value-added functionality to merchants and resellers. Our strategy is to layer software and digital engagement tools on top of our existing POS infrastructure to create sticky recurring revenue while adding tangible value for our partners and their merchants. Clearline is active in 17 market basket convenience store locations today. However, there are hundreds of thousands of potential retailers beyond convenience stores from tire shops, food trucks, restaurants, and salons. SurgePays is no longer building the foundation. The foundation is built. Now it's truly all about execution, scale, and growth. Our immediate goal is to achieve profitability with minimal impact on the cap table and dilution.

Our strategy is executing precisely according to plan, and I am confident in our highly skilled team that is well-equipped to navigate this industry. We are well-positioned to continue this strategy through the remainder of 2025, heading into 2026. We've proven we can move fast, and with our diversified platform and competitive moat, we are uniquely positioned to deliver sustainable long-term shareholder value. Therefore, we remain confident in our 2026 revenue guidance of $225 million. We have built a powerful engine that blends technology, innovation, and distribution. Today, we have the products, partnerships, and infrastructure to enter the next phase of high growth. Thank you for your support and belief in our mission. I'll now turn it over to Tony for a detailed review of our Q3 financials. Tony?

Tony Evers (CFO)

Thank you, Brian, and good afternoon, everyone. Third quarter 2025 revenue totaled $18.7 million, an increase of 292% year-over-year as compared to $4.8 million for the third quarter of 2024, driven by an increase in MVNO and point of sale and prepaid services revenue. Gross profit loss narrowed to $2.6 million for the third quarter of 2025, compared to a gross profit loss of $7.8 million for the third quarter of 2024. We expect to continue the improvement of gross margin in the point of sale and prepaid services segment during 2025. Most of the cost to get Clearline ready for launch has occurred, and we expect the gross margin to be positive by the end of 2025 for this revenue channel.

As we continue to expand both subsidized Lifeline and non-subsidized products, LinkUp Mobile of the MVNO segment in 2025, we also anticipate gross margins in the MVNO segment will increase with an aim to return to positive results. SG&A expenses decreased 32.5% year-over-year to $4.2 million during the third quarter of 2025, as compared to $6.2 million for the third quarter of 2024. The decrease was primarily due to a reduction in contractor and consultant expense, along with compensation expense. Loss from operations was $7 million in the third quarter of 2025, compared to $14.3 million in the third quarter of 2024. Our reported net loss and loss per share for the third quarter of 2025 were $7.5 million and negative $0.38 per share.

Turning to the balance sheet, our cash, cash equivalents, and investment balances as of September 30, 2025, were $2.5 million compared to $11.8 million as of December 31, 2024. As Brian mentioned, we are providing revenue guidance of $225 million for 2026. At this time, I would like to turn the call back over to Brian for closing statements.

Brian Cox (President and CEO)

Thanks, Tony. Before we open the call for questions, I do want to take a moment to discuss the recently announced launch of our new Growth Marketing and Data Partnerships division. The initiative marks yet another significant step forward in our strategy to transform our expanding consumer data ecosystem into a scalable, high-margin growth engine. This engine was built by re-engineering our legacy Logix IQ system called Digitize IQ, which was originally developed for consumer intake and lead generation, serving mass tort law firms. Management made the decision over a year ago to close down operations as this was a completely different line of business. We wanted laser focus on our business plan. Our development team has now transformed the Digitize IQ platform into a powerful intake engine designed explicitly for underserved subprime consumer marketing and data collection.

Instead of simply signing up wireless customers, we now operate a platform that connects affiliates and publishers within a unified ecosystem. This capability transforms verified consumer data into actionable marketing intelligence, creating multiple revenue opportunities from each customer relationship. While promoting government-subsidized programs such as Lifeline to underserved consumers, we can simultaneously present a targeted marketplace of complementary products and services to our expanding database. Our ongoing objective has been to reduce customer acquisition costs by generating incremental revenue from adjacent services. We have now reached the next phase, monetizing this data ecosystem to produce recurring, high-margin revenue and deliver sustained value for shareholders. In essence, we have built a platform capable of generating revenue during the customer acquisition process rather than incurring a cost to acquire each customer. This initiative is expected to generate high-margin recurring revenue through data partnerships, analytics integrations, and targeted marketing programs.

We believe the consumer data for this subprime market is valuable, and the market has ballooned to over 137 million people. As SurgePays continues to scale its wireless and fintech operations, the combination of customer intelligence and marketing execution will serve as a long-term competitive advantage. To summarize, Q3 was a significant inflection point for our company. We are now in acceleration mode, and the numbers already reflect it. Our activation growth, expanding distribution, and scalable technology platforms give us confidence that we're on the right path to create significant shareholder value. I would like to thank our shareholders for their continued support and the team for their tireless efforts in making this growth possible. Operator, please open the call for questions.

Operator (participant)

Absolutely. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions. Once again, please press Star 1 if you have a question or a comment. The first question comes from Ed Woo with Ascendiant Capital. Please proceed.

Ed Woo (Director of Research and Senior Analyst)

Yeah, congratulations on all your progress that you're making. My question is on the consumer that you're targeting, that underserved market that goes to a lot of these convenience stores. What are you hearing from either the convenience store owners of what they're seeing and whether this customer base is able to be receptive to these new products that you're introducing?

Brian Cox (President and CEO)

Hey, Ed, thank you for the question. The feedback that we get is very similar to some of the, let's just call it the tough-time feedback that we've seen over the past 25 years working with convenience stores. At times when there's doubt and uncertainty, that's when people are more open to other values or other products, or because now they're reconsidering the life of the rut in the road. They're looking for maybe different paths to make ends meet. We see this as a huge opportunity for us timing-wise. We mentioned that there's a research brief that just came out where the subprime market, excuse me, has ballooned from $100 million to $137-$138 million in the past four years.

While that could be debated on the greatness for our country, for our company, it's fantastic because those are the people that we look to provide products and services for lower cost, better value, and more efficiently than what other companies and our competitors may do because of our distribution model. The openness from the customer base is fantastic. Let's flip the keep in mind we have end customers, end users, but we also look at those store owners as clients. Those store owners likewise are looking for other ways to make money. They're looking for other ways to provide services to their community. Now where you may have had a convenience store owner who's kind of stuck in his way as well, that rut in the road we call it, now he's looking for ways to make a couple extra $100 a month.

When a company like us comes along that has a point of sale platform and then has Clearline, and you put those two things together, it does not cost him a dime to launch products through his store. Keep in mind, he'll be able to take prepaid wireless payments for any carrier. He'll be able to do activations for our prepaid wireless and make a significant commission on that. He'll be able to take payments on that. He'll also be able to, for anyone that comes in and uses that Snap EBT card, offer them a free wireless service, and he'll get paid for that. He'll be able to provide those products to his community. Likewise, that foot traffic coming in will increase from the things he's providing his community. We see it as a win-win-win. We get access to more customers.

The store owner increases his revenue and profits through providing more services. The consumers who go in those stores, who are now more aware and maybe not just in that rut in the road, are going to be looking for other ways to save money and make ends meet.

Ed Woo (Director of Research and Senior Analyst)

That sounds good. My last question is, there's been a little bit of consolidation with the major convenience store brands. Is that going to impact your business at all? Do you think that that's going to be the future of, I guess, the convenience stores?

Brian Cox (President and CEO)

The convenience store market is an interesting one. It's almost a case study in business. The distributors, we've talked about this before, the distributors to convenience stores are usually second and third-generation companies. Quite a few of them, like your H.T. Hackney, Long, McLean, you're talking about almost 100-year-old companies. The convenience store business, regardless of what sign is out on the gas pump or the coming and going of private equity or acquisition, at the end of the day, even 7-Elevens, it's pretty shocking to see the number of people that actually run that store and have control over the store. They have a portion of the store where they can bring in any product they want. They have to do the 7-Eleven carry certain products, if you will.

There is still the autonomy and decision-making of that ultimate store owner who nine times out of ten is also the clerk. We work really, really hard to build a relationship with the store owner, the person benefiting from our products. Keep in mind, for those that do not know or do not remember, we are in the checking account. It is not just something where people are signing a PO and sending us a check. We are actually integrated with them from a business perspective. We are pushing and pulling money based on commissions they make, based on us ACHing them. There is a pretty significant trust with that business owner. We do not see that affecting us at all.

If anything, there again, it creates an awareness of who we are and an openness to listen to what we have to say based on what we can bring to the table for their financials.

Ed Woo (Director of Research and Senior Analyst)

Great. Thanks for answering my questions. I wish you guys good luck. Thank you.

Brian Cox (President and CEO)

Thanks, Ed.

Operator (participant)

We have reached the end of the question and answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.