Name: SurgePays, Inc. Q4 2022 Earnings Call
Start: 2023-03-30T17:01:00.000Z

Executive Summary

Q4 2022 revenue was $36.2M, up 55% year over year; gross profit rose 172% yoy to $6.7M, and EBITDA was $4.1M, reflecting materially improved unit economics as device sourcing shifted to direct-from-manufacturer and CAC was managed more tightly . Press release preliminaries guided $35–$36M sales and positive cash flow of $2–$3M; actual results landed at the high end with strong profitability indicators .
Management reported Q4 net income of $3.0M versus a Q3 net loss of $1.5M, driven by lower upfront acquisition spending and improved costs on devices; Q4 was cash flow positive and set a $144.8M run-rate exiting 2022 .
2023 outlook: revenue of at least $190M, Q1 2023 revenue “in line with Q4 2022,” positive operating cash flow, and 13,000 stores expected on the network, with ACP in-store enrollments becoming a major growth driver; devices began arriving in March to support acceleration after Q1 .
Strategic catalysts include a senior credit facility closed on November 18 enabling device cost reductions >20% and ocean freight savings (~$35K per shipment across 13 shipments), plus new distribution with Capital Candy (3,000 stores); management added senior talent to scale the convenience store channel .

What Went Well and What Went Wrong

What Went Well

Margin and cash flow inflection: Q4 EBITDA of $4.1M and net income of $3.0M; management emphasized stronger bottom-line conversion when upfront acquisition is moderated .
Operational shift to direct sourcing lowered device costs >20% and optimized freight (ocean vs air) with ~$35K per shipment savings (13 shipments), backing Q4 profitability and 2023 scale-up .
Strategic distribution: Signed Capital Candy to access 3,000 stores for ACP sign-ups and prepaid/fintech products, and expanded sales leadership to pursue >35 partnerships (several 10x larger) .

Selected quotes:

“Switching from…secondary market to purchasing…direct from the factory overseas…reduces our per device cost over 20%…shipments started arriving in March and are now in a rhythm.”
“In the fourth quarter, revenue exceeded $36 million…we exited 2022 with $144.8 million revenue run rate.”
“Leveraging…distributors and additional in-store ACP signups will allow SurgePays to generate revenues of at least $190 million [in 2023].”

What Went Wrong

Near-term growth throttle: Management “took the foot off the gas” in Q4 to transition to direct procurement/logistics; quarterly growth was controlled despite demand .
Sales mix and CAC: Field sales acquisition costs remain higher; management aims to shift to in-store enrollments (store acquisition cost ~80% less), indicating prior mix pressure on cash flows .
Estimate benchmarking: Wall Street consensus (S&P Global) was unavailable for Q4, limiting external beat/miss analysis; prior quarter headline bottom-line “miss” concerns tied to upfront CAC and device expense timing .

Financial Results

Metric	Q2 2022	Q3 2022	Q4 2022
Revenue ($USD Millions)	$28.0	$36.2	$36.2
Gross Profit ($USD Millions)	$2.2	$1.92	$6.7
EBITDA ($USD Millions)	-$0.086	N/A	$4.1
Net Income ($USD Millions)	-$0.973	-$1.5	$3.0
Gross Margin (%)	7.9% (calc from $2.2/$28.0)	5.3% (calc from $1.92/$36.2)	18.5% (calc from $6.7/$36.2)
Net Income Margin (%)	-3.5% (calc from -$0.973/$28.0)	-4.1% (calc from -$1.5/$36.2)	8.3% (calc from $3.0/$36.2)

Vs. S&P Global consensus estimates (Q4 2022):

Metric	Q4 2022
Revenue Consensus Mean ($USD Millions)	Unavailable via S&P Global (data retrieval failed)
Primary EPS Consensus Mean ($USD)	Unavailable via S&P Global (data retrieval failed)
Note: S&P Global consensus values could not be retrieved due to access limits; comparisons to estimates are unavailable at this time.

Segment breakdown (reported context; no segment revenue disclosed):

Segment	Q2 2022	Q3 2022	Q4 2022
Mobile Broadband (ACP)	150,000 subs milestone announced	200,000 subs milestone reached	Base grew at “controlled pace”; in-store ACP sign-up beta positive; run-rate $144.8M exiting 2022
Fintech/Convenience Store Network	Focus on adding stores; CRM (ShockWave) acquired to scale	New Fintech President; master agent GPO Plus; growing doors	Capital Candy distribution (3,000 stores); VP Sales added; >35 partnership funnel

KPIs and balance sheet

KPI	Q2 2022	Q3 2022	Q4 2022
Wireless Subscribers (ACP)	150,000 milestone	200,000 milestone	“Eclipsed 200,000” reiterated
Revenue Run-Rate ($USD Millions)	N/A	N/A	$144.8
Cash Balance ($USD Millions)	$8.7	$7.9	$7.0
Accounts Receivable ($USD Millions)	$8.3	$9.5	$9.2
Q4 Operating Cash Flow ($USD Millions)	N/A	N/A	$2–$3 (prelim)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2023	N/A	At least $190M	New
Revenue	Q1 2023	N/A	“Relatively in line with Q4 2022” ($36.2M)	New
Operating Cash Flow	FY 2023	N/A	Positive operating cash flow expected	New
Stores on Network	FY 2023	N/A	13,000 stores expected	New
ACP Subscribers	FY 2022	200,000 target (earlier year)	Achieved “eclipsed 200,000”	Achieved

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3)	Current Period (Q4)	Trend
Device sourcing, logistics, CAC	Planning receivables-backed financing; JIT buying costly; target tablet cost $72–$75 vs $80–$88; focus on lowering heavy-user data costs	Switched to direct-from-factory; >20% device cost reduction; chose ocean freight ($35K savings per shipment; 13 shipments); throttled growth temporarily	Cost structure and logistics improved; supports margin expansion
ACP in-store enrollment	Early strategy to use convenience stores and clerks; ShockWave CRM acquired; master agent GPO Plus	Beta in-store sign-ups show strong response; aim for 70–80% of sales from stores by Q4 2023; store CAC ~80% cheaper than field sales	Channel mix shifting to lower-CAC, higher-retention store channel
Financing	“Finish line” on receivables-backed facility; not factoring; installment-sale style, nine-month payback	Senior credit facility closed Nov 18; financing supports direct sourcing and lower costs	Liquidity improved for growth without equity dilution
Distribution and store network	GPO Plus master agent; adding Fintech President to expand doors	Capital Candy deal (3,000 stores); VP Sales added; >35 partnership funnel nationwide	Accelerating store penetration
Competition & macro	Low direct competition; market demand robust; macro broadens eligible pool; focus on helping underserved	Government emphasis and grants for ACP; continued belief in large TAM; leveraging carrier relationships	Favorable structural backdrop; scaling with differentiation (own CRM + payments platform)
Financial trajectory	Q2 near breakeven EBITDA; Q3 loss driven by upfront CAC/device costs	Q4 profitability inflection (EBITDA +$4.1M; NI +$3.0M); 2023 revenue “≥$190M”	Profitability and scale up in 2023

Management Commentary

Strategic shift and profitability: “Switching…to purchasing…direct…reduces our per device cost over 20%…When forced to choose between optimizing the appearance of growth or maximizing…cash flows, we’ll always choose the cash flows.”
Store channel as growth engine: “The early data is really encouraging and we anticipate this being a major revenue growth driver…we now have over 200 people [El Salvador operations].”
2023 outlook: “We…believe…in-store ACP signups will allow SurgePays to generate revenues of at least $190 million…Q1 revenues relatively in line with Q4…growth accelerating quickly the remainder of the year.”
CFO financials detail: “Q4 revenues of $36.2 million…Gross profit…$6.7 million…EBITDA…$4.1 million…Cash balance…$7 million…Receivable…from the US Government…paid in ~30–60 days.”

Q&A Highlights

Acquisition strategy and “pause”: Management emphasized the strategic throttle to avoid overspending on tablets ahead of lower-cost direct procurement; used the period to negotiate carriers, enhance software, and retrain operations staff to support rapid scaling .
Channel mix economics: Field sales maintained as baseline, but in-store sales expected to represent 70–80%+ of acquisitions by Q4 2023; store CAC ~80% lower than field, improving cash flow dynamics and retention via store-owner residuals .
ACP and macro/regulatory: Government focus and grants are increasing program awareness; SurgePays leveraging ACP to build store relationships, then upsell prepaid wireless and fintech products through its owned platform (no third-party transaction fees) .
Financing nuance: Prior commentary clarified the facility is not factoring; nine-month installment-style payback using receivables and inventory, enabling growth without equity dilution .

Estimates Context

S&P Global (Capital IQ) Wall Street consensus for Q4 2022 revenue and EPS was unavailable due to access limitations; therefore, we cannot determine a beat/miss versus consensus at this time. The company’s press release preliminaries ($35–$36M sales; $2–$3M positive cash flow) aligned with reported outcomes ($36.2M revenue; profitable quarter), but external consensus comparison is unavailable .
Given the strong profitability metrics (EBITDA +$4.1M; NI +$3.0M) and controlled CAC, we expect upward adjustments to margin expectations in forward estimates as in-store acquisitions scale and device costs remain structurally lower .

Key Takeaways for Investors

Profitability inflection: Q4 delivered EBITDA and net profit despite controlled subscriber acquisition; the model demonstrates attractive unit economics when CAC is paced and device sourcing optimized .
2023 growth visibility: Devices arriving in March and in-store ACP enrollment ramp suggest H2 acceleration; management guided ≥$190M revenue and positive operating cash flow with 13,000 stores expected .
Structural cost advantages: Direct-from-manufacturer sourcing (>20% cost reduction) and ocean freight savings build sustainable margin headroom; owned CRM/payments platform avoids third-party fees .
Channel mix shift lowers CAC and improves retention: Expect sales to skew heavily to stores (70–80%+ by Q4 2023), materially reducing acquisition costs and increasing lifetime value via store-owner incentives .
Working capital cycle: Government receivables collected in ~30–60 days; facility supports scaling without dilution, aiding cash conversion and growth funding .
TAM remains expansive: ACP in-store model accesses large, underserved populations; distribution partnerships broaden geographic reach and multi-product upsell potential .
Near-term trading lens: Potential catalysts include evidence of in-store enrollment acceleration, margin expansion updates, additional distribution agreements, and confirmation of Q1 “in-line” revenue; monitor any ACP regulatory developments and device cost trends .

SurgePays, Inc. (SURG)·Q4 2022 Earnings Summary