Executive Summary / Key Takeaways

• SurgePays is undergoing a significant strategic pivot, moving beyond its prior heavy reliance on the now-ended Affordable Connectivity Program (ACP) subsidy towards a diversified fintech and telecom platform model targeting the underbanked.
• The company's core investment thesis is centered on leveraging its unique retail distribution network of over 9,000 community stores and its integrated technology platform to drive growth in prepaid wireless (LinkUp Mobile), government-subsidized Lifeline services, and high-margin wholesale MVNE offerings, catalyzed by a new partnership with AT&T (T).
• Recent financial performance reflects the ACP transition, with Q1 2025 revenue significantly lower year-over-year, resulting in a gross and operating loss, though the Comprehensive Platform Services segment showed robust growth.
• Management is guiding towards a target of $200 million in revenue over the 12 months starting April 1, 2025, and expects to exit 2025 operating cash flow positive, driven by the ramp-up of new initiatives and leveraging recent strategic financing.
• Key differentiators include the proprietary POS platform enabling integrated services at the point of sale, the ClearLine customer engagement technology, and the direct carrier relationship via the AT&T partnership facilitating the MVNE business and enhanced MVNO capabilities.

The Pivot: Building a Diversified Platform for the Underserved

SurgePays, Inc. (NASDAQ:SURG) is a financial technology and telecom company strategically focused on providing essential services to the underbanked community in the United States. The company's journey has seen significant transformations, evolving from an oil and gas entity to its current iteration through various name and business model changes, notably accelerating its focus on telecom and fintech in recent years. A pivotal period from August 2021 through April 2024 saw SurgePays capitalize on the federally-funded Affordable Connectivity Program (ACP), which fueled substantial growth in its Mobile Virtual Network Operator (MVNO) segment, generating over $250 million in revenue and building a subscriber base exceeding 285,000 alongside a retail distribution network of nearly 9,000 convenience stores. This experience underscored the importance of seizing opportunities while highlighting the critical need for revenue diversification.

The cessation of ACP funding in June 2024 presented a significant challenge, leading to a sharp decline in MVNO revenue and overall financial performance in the immediate aftermath. However, SurgePays has framed this not as a setback, but as a catalyst for a strategic pivot, leveraging the assets and lessons learned during the ACP era to build a more resilient and diversified business model. The company's strategy is now centered on expanding its offerings across two primary segments: MVNO Telecommunications and Comprehensive Platform Services, underpinned by technological differentiation and a unique distribution approach.

At the core of SurgePays' operational strategy is its proprietary Point-of-Sale (POS) software platform. This technology is described as the heart of the retail distribution model, powering transactions and driving recurring revenue directly at the thousands of community-focused stores in its network. The platform enables a seamless, all-in-one solution for processing payments, handling prepaid wireless top-ups for various carriers, and supporting debit and gift card activations. This integration is a key differentiator, transforming local stores into essential service hubs for the underbanked population.

Complementing the core POS platform is ClearLine, a patent-pending touchscreen application. ClearLine enhances the in-store experience by turning POS terminals and customer-facing screens into dynamic engagement tools. It supports in-store marketing campaigns, loyalty program enrollment, and QR code interactions, effectively replacing traditional static advertising with interactive displays. While specific quantitative performance metrics like percentage increase in sales or cost reduction are not detailed, management highlights ClearLine's potential as a high-margin Software-as-a-Service (SaaS) solution that drives revenue per store, elevates customer satisfaction, and provides valuable analytics to retailers. It serves as another entry point to onboard stores onto the SurgePays platform, integrating marketing with transaction capabilities.

Recent technological advancements further bolster SurgePays' capabilities. A multi-year strategic agreement with AT&T, launched on April 1, 2025, provides direct access to a nationwide network. This relationship is transformative, enabling SurgePays to operate not only as an MVNO but also as a Mobile Virtual Network Enabler (MVNE). As an MVNE, SurgePays can offer wireless infrastructure services, including SIM provisioning, billing, and airtime, to other wireless providers who lack direct carrier access. This MVNE model is anticipated to be a high-margin, scalable revenue channel with minimal incremental costs. The AT&T integration also enhances SurgePays' MVNO capabilities, facilitating features like eSIM and number portability, which are crucial for competing effectively in the prepaid market.

In the competitive landscape, SurgePays operates alongside major telecommunications players like Verizon (VZ) and T-Mobile (TMUS), which dominate the overall wireless market, including significant prepaid segments through brands like Tracfone/Visible and Metro by T-Mobile, respectively. These giants benefit from extensive network infrastructure and economies of scale, often leading to lower operating costs per unit and robust profitability (e.g., VZ and TMUS typically exhibit net margins in the 10-15% range, significantly higher than SurgePays' recent performance). SurgePays also competes with companies like Dish Network (DISH) in the value-oriented wireless space (via Boost Mobile) and fintech companies like Green Dot (GDOT) in providing financial services to the underbanked. While SurgePays' scale is considerably smaller than the major carriers, its strategic focus on the underbanked market, its integrated platform combining telecom and fintech, and its direct distribution through community stores provide a unique value proposition. The MVNE capability, leveraging the direct AT&T relationship, positions SurgePays in a rare category among MVNOs, offering a potential competitive advantage by enabling other smaller wireless providers. However, SurgePays faces challenges from the scale and technological resources of larger competitors, as well as intense price competition and variability in consumer demand inherent in its target market.

Performance, Transition, and Growth Catalysts

The first quarter of 2025 financial results clearly illustrate the impact of the ACP funding cessation and the ongoing transition. Total revenues for the three months ended March 31, 2025, were $10.58 million, a significant decrease from $31.43 million in the same period of 2024. This decline was primarily driven by the MVNO segment, where revenue plummeted from $28.89 million in Q1 2024 to $2.29 million in Q1 2025, reflecting the loss of ACP subsidies. Consequently, the company reported a gross loss of $2.90 million and an operating loss of $7.58 million for the quarter, compared to a gross profit of $8.13 million and operating income of $1.75 million in the prior year period.

Despite the overall decline, the Comprehensive Platform Services segment demonstrated strong growth, with revenues increasing by 227.7% to $8.29 million in Q1 2025 from $2.53 million in Q1 2024. This growth is attributed to an expanded sales force and renewed focus on this business area. Selling, General, and Administrative (SG&A) expenses decreased by 28.6% to $4.64 million in Q1 2025, reflecting reduced spending on consultants, professional services (including legal fees), and non-cash stock compensation compared to the prior year. The company also formally abandoned its Lead Generation segment (LogicsIQ) effective December 31, 2024, reclassifying its minimal financial data to "Other Corporate Overhead."

Liquidity saw a decrease, with cash and cash equivalents falling from $11.79 million at December 31, 2024, to $5.40 million at March 31, 2025. The company utilized $6.96 million in cash from operating activities during Q1 2025, primarily funding the net loss and the strategic decision to temporarily absorb wholesale costs for the former ACP subscriber base. This decision, made to retain the valuable subscriber base and distribution network, leveraged the company's balance sheet during the transition period.

Looking ahead, management is focused on executing its strategic pivot to drive growth and return to profitability. The AT&T partnership, fully launched on April 1, 2025, is a key catalyst, enabling the MVNE business and enhancing MVNO capabilities. Management anticipates MVNE revenues will begin appearing in Q2 2025. The company has already shipped over 210,000 SIM cards since the soft launch and expects to ship 250,000 to 300,000 SIMs per month moving forward across its LinkUp, Lifeline, and MVNE channels.

The Lifeline strategy involves migrating former ACP subscribers and acquiring new ones through a partnership with TerraCom, focusing initially on states like California that offer additional revenue incentives. Management believes the Lifeline program, with fewer competitors than the former ACP, presents a significant growth opportunity. The LinkUp Mobile prepaid brand is also launching nationwide, leveraging the improved economics and capabilities from the AT&T partnership to offer competitive plans with enhanced margins. New initiatives like the "Phone in a Box" product aim to simplify retail sales and automatically onboard stores onto the SurgePays platform. The Comprehensive Platform Services segment is expected to continue its growth trajectory, with the ClearLine platform anticipated to contribute meaningfully to revenue.

To fund this growth phase, SurgePays closed a $7.00 million Senior Secured Convertible Note financing on May 12, 2025, resulting in $6.00 million in net cash proceeds. This note, secured by company assets, carries a 15% annual interest rate and includes a conversion option at $4.00 per share. Management views this financing as providing the necessary capital and flexibility to accelerate its rollout initiatives.

Outlook, Guidance, and Risks

Management has provided forward-looking guidance, targeting $200 million in revenue over the 12-month period commencing April 1, 2025. This outlook is based on the anticipated ramp-up across the MVNO (LinkUp Mobile, Lifeline, MVNE) and Comprehensive Platform Services segments, driven by the AT&T partnership, expanding distribution network, and new product launches. The company also expects to achieve operating cash flow positive status by the end of December 2025, signaling a projected return to financial health following the ACP transition.

Despite the optimistic outlook, several risks could impact SurgePays' ability to achieve its targets. The cessation of ACP funding has created significant financial headwinds, and while management is executing a pivot, success is not guaranteed. The company operates in a highly competitive environment, facing larger, better-resourced competitors in both the telecom and fintech sectors. Changes in consumer demand, general economic conditions, and price volatility in the prepaid market could affect subscriber acquisition and retention. Legal matters, including ongoing litigation related to past transactions and former officers, continue to pose potential liabilities and consume resources, although the company has seen favorable outcomes in some cases. The terms of the new debt financing, including the conversion feature and security interest, introduce financial risks that require careful management.

In conclusion, SurgePays is navigating a critical transition period marked by the loss of significant subsidy revenue. The company's strategy to leverage its established distribution network, proprietary technology platform, and new direct carrier partnership to drive diversified growth in prepaid wireless, Lifeline, and MVNE services represents a clear path forward. While recent financial performance reflects the challenges of this pivot, management's stated revenue targets and expectation of achieving operating cash flow positive status by the end of 2025, supported by recent financing, indicate confidence in the new model. The success of this strategy hinges on effective execution, particularly in scaling the MVNE and LinkUp Mobile businesses and expanding the platform's reach, while managing competitive pressures and financial risks.