Q3 2024 SurgePays Inc Earnings Call
Speaker Change: Good day everyone, and welcome to the SurgePay's 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation.
Speaker Change: It is now my pleasure to turn the floor over to your host, Doug Lane, Investor Relations at SurgePays.
Sir, the floor is yours.
Thank you, Operator, and good afternoon, everyone.
Speaker Change: Welcome to the SurgePays third quarter 2024 earnings webcast and conference call. Today's date is November 12, 2024, and on the call today from SurgePays are Brian Cox, President and Chief Executive Officer, and Tony Evers, Chief Financial Officer.
Speaker Change: These statements are subject to certain risks and uncertainties that could cause actual results that differ materially from those expressed in the forward-looking statements.
Speaker Change: For a discussion of such risks and uncertainties, please see SurgePay's most recent filings with the SEC.
Speaker Change: All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call.
Speaker Change: Copies of today's press release are accessible on SurgePay's Investor Relations website, ir.surgepays.com.
Speaker Change: In addition, SurgePay's Form 10-Q for the quarter ended September 30, 2024, will also be available on SurgePay's Investor Relations website. And now, I'd like to turn the call over to President and Chief Executive Officer, Brian Cox.
Brian Cox: Thank you for joining today's call and for your continued trust in SurgePays.
Brian Cox: Today, I'm excited to share our progress in advancing our core business strategy since the Affordable Connectivity Program ran out in May.
Brian Cox: While there is optimism that ACP may resume when the political landscape allows, as we discussed on our last call, we are not, and never have been, an ACP-only company.
Brian Cox: This quarter, we've channeled all of our energy into realizing our core mission and positioning ourselves for a transformative growth phase.
Brian Cox: We anticipated a challenging third quarter, and we seized it as an opportunity to reset, recalibrate, and accelerate.
Brian Cox: With every team member intensely focused, we're advancing toward our goal of becoming cash flow positive as quickly as possible.
Brian Cox: It's been all hands on deck aligning sales, integration, and strategy to generate new revenue streams across each of our business segments.
Brian Cox: This quarter wasn't a setback but a setup, priming us for long-term sustainable growth.
Brian Cox: We're now at a turning point where our business summary aligns with our business plan and the flywheel effect takes hold.
Brian Cox: Over the next few months, we expect each of our four business segments to create a momentum that drives continuous growth and improvement, generating synergistic and scalable reoccurring revenue.
Transcription by CastingWords
Brian Cox: At our core, SurgePays is pioneering financial technology and telecommunications with a single mission.
Brian Cox: to enhance connectivity and financial access where people live, shop, and work.
Brian Cox: We serve convenience stores, bodegas, and retail local hubs nationwide delivering prepaid wireless services, financial products, and advanced point-of-sale solutions to those high-need markets.
Brian Cox: This is an enormous underserved sector and we are at the forefront.
Brian Cox: By seamlessly blending telecommunications and fintech on one unified platform, we create an experience that meets customer demand while building a powerful reoccurring revenue model.
Brian Cox: SurgePays operates through two primary business segments, both strategically tailored to meet diverse customer needs and engineered for mutual growth.
Here's how we do it.
Number one, Mobile Virtual Network Operator Telecommunications or MVNO.
Brian Cox: This segment includes our subsidized wireless and retail prepaid wireless brand LinkUp Mobile.
Number two, platform services.
Brian Cox: This includes our SurgePay's prepaid top-ups, software, and Clearline point-of-sale software as a service, or SAS.
Transcription by ESO. Translation by —
Brian Cox: Each segment is independently robust, yet both integrate to maximize synergy and scale.
Brian Cox: We're not here for incremental wins. We're building a nationwide network that redefines access to essential services.
Brian Cox: With a backbone of convenience stores, bodegas, and neighborhood locations, we bring connectivity and financial products directly to the communities that need them most.
Brian Cox: While we've made substantial advancements across our four business areas, our subsidized MVNO channel has demonstrated the fastest economic traction, largely through the Affordable Connectivity, ACP.
Brian Cox: From the inception of ACP in August 2021 until funding concluded in April 2024,
Brian Cox: We generated a quarter billion dollars in FCC-backed revenue, directly fueling our growth initiatives and enabling us to onboard 280,000 MV&O customers.
Brian Cox: In response to the funding shift, we took strategic action to partner with a Lifeline provider, aiming to migrate as many of these customers as possible and accelerate our profitability trajectory.
Brian Cox: With ACP funding ending, our immediate focus was on how to retain and preserve these hard-earned customers within the SurgePay's ecosystem.
Brian Cox: Leveraging our solid balance sheet, we chose to temporarily self-fund our MV&O operations, prioritizing customer continuity while facilitating a seamless transition to Lifeline, another government-subsidized program.
By maintaining connectivity for our low-income customers.
Brian Cox: We made a socially responsible choice and a strategic one that positions us for long-term economic returns, and we expect this decision to be both customer-centered and financially astute in the long run.
Brian Cox: Our recent master service agreement with Terracom Incorporated, a licensed lifeline provider, represents a pivotal step.
Brian Cox: This partnership allows us to migrate 280,000 subscribers to Lifeline, establishing a steady alternative subsidy channel.
Brian Cox: In tandem, our sales teams are now actively engaging new customers, reigniting growth initiatives, and leveraging our surge-paced platform point-of-sale capabilities at convenience stores.
Brian Cox: While ACP remains uncertain, our subsidized revenue channel is robustly supported by the Lifeline program.
Transcription by CastingWords
Brian Cox: The team and platform built for ACP is now enrolling thousands of lifeline customers daily without distracting from our core business focus.
Brian Cox: As a matter of fact, this department has been somewhat overwhelmed and we've had to hire additional employees in the sales onboarding team.
Brian Cox: We believe our Lifeline subscribers can far outpace our highest ACP subscriber total.
Brian Cox: Meanwhile, our retail prepaid brand, LinkUp Mobile, has proved to be a more significant opportunity than initially anticipated, and to capture maximum market share, we moved decisively to secure a direct carrier connection.
Brian Cox: We anticipate this partnership will enable us to quickly generate hundreds of thousands of new subscribers and establish LinkUp Mobile as a formidable presence in the prepaid space.
Brian Cox: The team is already working on the integration with a soft launch imminent and a full-scale rollout plan for early Q1 2025.
Brian Cox: On the software front, our SurgePay's prepaid top-ups platform is experiencing exponential growth as a critical element in store readiness for LinkUp mobile activations.
Brian Cox: As a prerequisite to LinkUp Activations, stores join our platform, which also facilitates prepaid reloads.
or Top Ups.
Brian Cox: This channel's monthly revenue growth has surged nearly 400% in just five months, reaching over $2.2 million in monthly revenue, a trend we expect will continue as the market demand intensifies.
Brian Cox: Our clear line point-of-sale SaaS platform is emerging as a high potential asset within SurgePays.
Brian Cox: This advanced platform redefines the in-store customer experience by transforming POS terminals and customer facing screens into interactive engagement tools.
Clearlines patent pending application supports in-store marketing campaigns, loyalty enrollment,
Brian Cox: and QR code interactions, effectively replacing traditional posters with smart TVs for dynamic QR code advertising and instant coupon redemptions.
Brian Cox: By enhancing revenue per store and elevating customer satisfaction, Clearline offers retailers actionable insights driving growth and loyalty.
Brian Cox: Following years of development, ClearLine is now ready for market deployment, and as it gains traction, we anticipate it will contribute meaningfully to consolidated revenues by Q1 2025.
Brian Cox: While we continue investing across our four business channels, we're also laying a robust foundation for rapid, sustainable growth.
Brian Cox: Recently, we opened a dedicated sales and operations center in El Salvador, a project over a year in the making, and a strategic move in anticipation of growth across all our verticals.
Brian Cox: Nearly 100 experienced team members, previously outsourced, are now full-time SurgePays employees, bringing continuity and expertise essential for our ambitious expansion and product launches.
Brian Cox: This new facility marks a pivotal evolution from our longstanding outsourcing strategy, enhancing customer relationships, and maximizing sales opportunities and efficiencies.
Transcription by CastingWords
Brian Cox: Positioned as the central hub for all four business channels it is set up to support our growth and by 2025 will be integral to launching Hispanics products into the market.
Brian Cox: In the third quarter of 2024, SurgePay has reported $4.8 million in sales, aligning with expectations for our first full quarter without ACP funding since mid-2021.
Brian Cox: Our MV&O revenue was $23,609 compared to $30 million in the same time frame last quarter, reflecting an anticipated funding shift.
Brian Cox: Meanwhile, sales in our prepaid platform service segment surged 69% to $4.7 million, showcasing significant growth momentum.
Brian Cox: While this quarter's financials may not fully capture our strategic advancements, it was a pivotal 90 days of foundational growth.
Speaker Change: I believe our disciplined approach will eventually yield substantial returns, rewarding shareholders as we build toward market leadership. Now I'll turn over the call to Tony to review our financial results before summarizing today's call. Tony?
Tony Evers: Thank you, Brian, and good afternoon, everyone. I will begin my overview of the third quarter's financial results.
Tony Evers: For the third quarter, we reported revenues of $4.8 million, compared to $34.2 million for the same period in 2023, representing a decrease of 86%.
Tony Evers: Decrease was primarily due to the shutdown of the ACP funding program which ceased as of June 2024.
Tony Evers: Similar to the first and second quarter our lead generation services in Q3 of 2024 versus .7 million received in the third quarter of 2023. Again, as a result of operational changes by management.
Tony Evers: On a positive note, the platform service revenue for the third quarter of 2024 was $4.8 million compared to $2.8 million in the same period of 2023.
Tony Evers: This increase is the direct result of our new sales director hire earlier in the year.
Transcription by CastingWords
Gross profits swung to a 7.8 million loss.
Tony Evers: And the third quarter from a 10.5 million profit in a year ago period due to the shutdown of the ACP federal funding and our strategic decision to utilize our strong balance sheet to protect our previous ACP subscriber base.
Tony Evers: and Distribution Network while we transition the base over to either a non-subsidized MVNO business model, LinkUp Mobile, or into another subsidized program, Lifeline.
Tony Evers: Additionally, the de-emphasis of our lead generation business resulted in lower gross profits in that segment as well.
Tony Evers: SG&A expenses increased by 97% year-over-year. The increase was primarily due to additional non-cash stock compensation for management. This stock compensation relates to employment agreements signed in late 2023.
Tony Evers: We also had additional expenses for contractor and consultant fees. The company continued to engage several contractors to overhaul the financial platform to allow for the conversion to a tablet-based transaction at the store level from the outdated Verifone terminal.
Tony Evers: The company also engaged with consultants to provide advisory services specifically in the area of investment relations to identify opportunities to increase our shareholder value.
Tony Evers: Loss from operations was $14.3 million during the third quarter compared to a $7.1 million profit in a year ago period.
Tony Evers: Our reported net loss and loss per share were $14.3 million and $0.73 per share loss.
Tony Evers: Our loss and loss per share were adversely impacted primarily by the ending of the federally funded ACP.
Turning to the balance sheet, liquidity, and cash flow.
Tony Evers: Our cash, cash equivalents, and investment balances as of September 30, 2024, were collectively $23.7 million, compared to $38.4 million at the end of the second quarter.
Tony Evers: Our cash from operations was $13.4 million use in the third quarter versus a $90,000 use in the second quarter.
A large negative swing.
Due to the winding down of the federally funded.
ACP
Tony Evers: and our continued servicing of the subscribers for the third quarter of 2024.
Tony Evers: Accounts receivable increased slightly by $100,000 in the third quarter to $1.5 million from $1.4 million at the end of the second quarter.
Speaker Change: Given our cash balance and capital structure, our cash allocation priority is in financing the transition of our subscribers to either LinkUp Mobile or Lifeline and the continued emphasis of establishing our LinkUp Mobile brand. I will now pass the call back to Brian for some closing remarks.
Transcription by CastingWords
Brian Cox: Thanks, Tony. At SurgePays, we're driven by four pillars of success. Team, product, distribution, and funding.
Brian Cox: with what I believe is the most seasoned team in prepaid wireless.
a market leading product suite, proprietary distribution channels.
Brian Cox: and $24 million in cash, cash equivalents, and investments collectively as of September 30th, 2024, we're positioned to execute our growth strategy with precision.
Brian Cox: We're only beginning to tap into a vast market opportunity. Our foundation is built on diversified products, a solid infrastructure, and strategic partnerships, all aligning us for rapid expansion.
Brian Cox: Guided by a mission to deliver affordable, quality services to communities, our unique approach to problem solving is our moat, a lasting competitive edge.
Brian Cox: SurgePay is dedicating to creating enduring value by meeting essential needs in a way that others can't. Thank you so much for your time today. We will now open the call to questions. Operator?
Speaker Change: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Speaker Change: We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality
Speaker Change: Once again, if you have any questions or comments, please press star 1 on your phone. Please hold Wallypole for questions.
Transcription by ESO. Translation by —
Speaker Change: Thank you. Your first question is coming from Curtis Schager from Water Tower Research. Your line is live.
Speaker Change: Yeah, hey guys. I think, you know, thanks for taking the call and I think the main impetus here is, you know, around
Speaker Change: All the new initiatives, very exciting to see. Again, it's a tough backdrop, both with DEF and with the ACP. Can you give us any more details on, you know, what, what, you know,
Speaker Change: The renewed expectations about getting back to Breakeven is there do you have enough experience now and converting folks to lifeline?
Speaker Change: in terms of what the efficiency is, what the associated costs are, and then also what you're yielding in terms of return to when we might see, you know, when investors can kind of see a path to cashflow breakeven. Thank you.
Speaker Change: Yeah, no, hey, Curtis, thank you for the question. I appreciate it. It's a good one. Let me do my best to navigate that. There's a couple of points to make on that because we do look at things.
through the lens of.
Speaker Change: as fast as possible. That's priority one and the point of least resistance to do that.
and the purpose of retaining.
Speaker Change: those ACP customers was to migrate them over and utilize the platforms that we had already built to be able to put those on Lifeline and be able to maximize those subscribers. So right now what we're seeing, and I think we had referenced this in a previous press release,
is between 2,000 to 3,000 a day.
Speaker Change: some days more than that, are migrating over, and that's a mix of existing ACP customers that we've reached out to that have opted into Lifeline, and also new subscribers.
Speaker Change: we've got some online ads going. And as a matter of fact, the online ads have been so successful that we actually had to shut them down last week because we needed another reload, as we talked about earlier, a reload of people to help work the sales. It's
Speaker Change: It's been, I tell you what, I was expecting about 30 to 45%. We're seeing over 50% right now, the initial people we get in touch with coming over to Lifeline. At this time, we're over 70,000 folks that have enrolled on Lifeline.
Speaker Change: And my, obviously, immediate goal is to get back to that 280-300 number and to put it in perspective.
Speaker Change: If you're looking at the average lifeline revenue per customer, there are five to seven states that have some additional money, but the average revenue is going to be $9.25.
Speaker Change: Again, you've got certain states that have an additional $5, $7. California's revenue is actually very similar to ACP, which is why hopefully we'll be in California in the next week or so, because we've also got 50,000 of our legacy base is in California. It's a good spot for us.
Speaker Change: But if you wanted to use simple math, our average cost is going to be in the $5 to $5.50 range for those customers, and we're going to be getting $9.25.
Speaker Change: If you look at it from a simple shapes, colors, and stacking blocks perspective, you know, our goal would be to get to that $250,000, $300,000 as fast as possible. And then cash flow wise, we should be covering our overhead. And as the other...
Speaker Change: divisions of the company kick in and especially as we talked about link up mobile you know link up mobile as again we talked about it I sat in the room and listened to folks ask questions these master agents
Speaker Change: who are responsible for tens of thousands of activations a month.
We listen to their needs.
Speaker Change: And there was a couple of things that we didn't have access to that if we could get it.
Speaker Change: For example, number portability, which is kind of a new thing in the prepaid market.
Speaker Change: Historically, porting your number over didn't mean anything to prepaid folks. Now it does, because now people are starting to get more digitally inclined to keeping their number. We didn't have that capability before. We will have that here shortly.
Speaker Change: So, those types of things are what lead us to believe, number one, we're going to have more lifeline customers.
Most likely significantly more than ACP customers reason is
Speaker Change: kind of like the bubblegum shrimp, there's not many people left in the lifeline business, it's not like ACP.
Speaker Change: where people were everywhere coming out of the woodwork. Lifeline is a business that's been around for a long time, and there's only a few good players and good actors in the business.
Speaker Change: So we feel like there's less of a choice and there's a lot of people who lost their ACP service that are now Great potential subscribers for us and then we look for the link up subscribers as we talked about start kicking in in January So what I would look at, you know, I'm gonna give
Speaker Change: Some subscriber counts as we go, we're going to embed those in some of these announcements that we have coming up. But I think what you can look for is by the end of the year to have that number closer to 200,000. And at that point, we should be getting closer to that black number that you're talking about. And then we can really start building from there.
Speaker Change: I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: Yeah, that's awesome. Thanks for the detail. I'll let the next person go.
Thanks Curtis.
Speaker Change: Thank you. Your next question is coming from Andrew Scott from SLS. Your line is live.
Andrew Scott: Hey Brian, thanks again. The gentleman that asked the question before me was the same exact question I was going to ask.
Andrew Scott: you know how you can minimize the loss from operations. We see what you're doing with Lifeline.
Andrew Scott: And to your last comment, how you're going to put out some metrics on upcoming press releases.
Speaker Change: I think that's going to help the street track the progress you're making. So I'm encouraging and supporting you to do that. But it sounds like things are lining up. And I don't know if you'd go out and say it yet, but it seems like the worst is behind you now and you're making progress.
Speaker Change: Any other guidance going forward in the future that you're comfortable with or what we should be looking for?
Speaker Change: Yeah, Andrew, I appreciate the question and the opportunity to address that as we talk about
Speaker Change: Often on these calls, we get a lot of questions from shareholders, fund managers, and sophisticated folks who look to build their own model of where we are, what we can be, and then the valuation in the future. And so that's been one of my focuses the past year or two.
Speaker Change: is thinking through the fact that almost everybody who works or deals in the stock market is banked. So the underbanked is a part of the world that they're not familiar with normally. And the market opportunity, the problems in that market is not something they see on a daily basis.
So, while that will continue to be our focus.
Speaker Change: We're shifting some of the phraseology that we use, so that we can have better, more, I'd say more consistent touch points with shareholders.
Speaker Change: So that there's not a confusion in what we do. When you start talking about shareholder value and you start talking about the things that we will be putting out there moving forward. And that was one of the rewrites of our business plan, even up until the last week or so. Where we're gonna consistently moving forward talk about our four segments.
Speaker Change: We have our telecommunications segment, which the market understands. We've got the prepaid and subsidized
Speaker Change: There should be models there, especially once you start getting into the beef of Q1.
Speaker Change: And once we're able to utilize this new contract, where our rates are even better than what we've had the past four or five years, our capabilities are better and our ability to service people and capture more of a market in the prepaid, we can actually become a name in the prepaid space.
Speaker Change: That's going to be something that people can build models around. So I think that'll be where we get traction and on the other hand
Speaker Change: When you look at our customers, our customers in the telecom segment.
Speaker Change: are end users, people holding a smartphone, people that talk on their phone, that access the Internet, that use that for everything from the wallet to the communications.
Speaker Change: That's our customer in that segment. In our software platform segment,
Speaker Change: Our customer is that end user retailer, the store, the point of sale, the bodega, the convenience store, the gas station, you're going to see us be able to talk about that, which now that we're talking about point of sale software. Now we're utilizing again phrases that I think people can start.
building their model because they're familiar with those terms.
Speaker Change: You're going to see a reduction in our use of underbanked.
Speaker Change: In those type of words, because I think we lose people even though that is true to this community. I think we lose people on it.
Speaker Change: So from a messaging standpoint, we're going to really start focusing on our subscribers from subsidized and
Unknown Speaker Prepaid wireless.
Speaker Change: and then our point of sale software as a service reoccurring revenue through contracts and subscriptions from the store. So I think we're going to see some good feedback from that and hopefully get some traction in the market from that and especially as we start showing this incremental increases.
Speaker Change: in our revenue pushing through profitability, and then showing that, you know, look, we have four segments that are...
Speaker Change: In some way, it's almost like a hydra there. From a leadership perspective, they're siloed off.
Speaker Change: But from an operational synergy perspective, because we have the Ops Center in El Salvador, they can all grow together. For example, we sign up one store to do link-up activations.
Speaker Change: Well, as you heard on the call earlier, by default, they're doing top ups. Now they could also have access to the Clearline app, which can be really helpful to that store owner marketing a store. They could also...
help people who qualify with Lifeline.
Speaker Change: Any one of our four segments are put in the door.
Speaker Change: those other three segments come with it. It's almost like you have three different or four different codes to lower the drawbridge. You get in and now you can deploy your whole suite of products. So that was kind of the methodology behind the entire business plan going back to 2017 when we put this together.
Speaker Change: And that's what I meant when we said early on in the call today that, for the first time since we've been in existence, you know, on the public side of things,
Speaker Change: Our business plan matches our business summary. So that's why even though Q3 was what it was, we knew what it was gonna be financially and we knew you had to pop the hood to see what really went on and hopefully we're able to do that on this call.
Speaker Change: But that paved the way for what we're about to do now with the team. So it's kind of interesting.
Speaker Change: Our team, and I've never been around a team that's this excited. And then you put that on top of the talent level that we have. It's pretty exciting. Outside of calls like this where you talk about the financials in Q3, everything we're doing right now has got a whole lot of energy associated and attached to it.
Speaker Change: Got it, Brian. Thank you. I can hear your enthusiasm too. I appreciate it. I'll turn it over the call now.
Thanks again.
Thanks, Andrew.
Speaker Change: Thank you. Your next question is coming from Mike Diana from Maxim Group. Your line is live.
Okay.
Hey, Michael. Yeah, so you guys have been incredibly busy.
Speaker Change: starting with a prepaid platform, about how many convenience stores do you have right now?
Speaker Change: About right now we're still hovering at that 8 to 9,000 range and now from a perspective of growth
Speaker Change: That number this time next year should be exponentially more just based of.
Speaker Change: What's on deck with clear line? What's on deck with link up?
Speaker Change: and the prepaid top-ups. So that is one thing that should be coming on very, very heavy as we move forward. And then also some potential acquisitions of companies that do nothing but top-ups or international top-ups.
Speaker Change: All right. And the $4.7 million in revenue from prepaid, was that all top-ups?
Speaker Change: It was mostly top-ups, yes. Okay. And you mentioned also that you're doing $2.2 million a month in top-ups. Is that like a run right now, or do you expect that to go off a lot?
Speaker Change: Now, let's say it's the run rate right this second, but that's going to go up every month as we're bringing on these masters who bring on their networks.
Speaker Change: I expect that to be over 3 million in December alone.
Speaker Change: continue forever five years from now, doing 80 million a month. But it'll continue to the point where I expect that to get up over 10 to 12 million later in the year next year. Because now not only are we doing top ups, but we're also doing top ups for our products as well, our link up mobile.
Speaker Change: And keep in mind that one of the reasons you see that kind of growth is because when you add that store and you start to get those top ups, then you add more stores. I mean, it's that compounding revenue momentum.
Speaker Change: So you're saying you expect 10 to 12 million a month in tap top ups by the end of 25.
Speaker Change: December next year I expect that to be about where we are in top-ups, yes.
Speaker Change: Okay, moving on to Lifeline. How many, compared to ACP here, how many people qualify for Lifeline?
Speaker Change: That's a good question. I probably should have put that in the script.
It's an identical sister.
plan, if you will.
Speaker Change: and it would be approximately the same number of people. And just as a backdrop to that, it's anyone who's already receiving any form of government assistance, whether it be EBT food stamps, Medicaid, veterans pension, low-income school lunches. Now, there are some states that have a few different ones, but that's gonna be your primary, which was the same primary for ACP.
Speaker Change: Okay. And I guess it wasn't as big because people like you couldn't make much money before on it. Otherwise, I mean, logically, it would have been as big as ACP.
Speaker Change: Now, that's a good question. You know, there were Lifeline providers that were strong in certain states like Oklahoma, California, Kansas, Kentucky, states that had extra money.
And if you'd asked me, starting from zero.
Speaker Change: You and I go out today and we're going to do a business and do lifelong. Does it make sense to buy devices, pay commissions, kickstart that ROI, come out of pocket and get that ROI on a customer and build a business that way? It'd be very difficult.
Speaker Change: be very difficult. But since we've already paid for the device, since we've already paid the commission, that's why retaining those customers was so important, because by migrating them over,
There is no ROI.
Speaker Change: You know, we're able to while we may not make as much money as we did on ACP, we're able to retain that value and go right back to making money even if it's four bucks a customer, we're able to go back to making that four bucks a customer. And we have no ROI today, as opposed to the historical lifeline ROI is going to be about month four, maybe month five, and we're able to bypass that.
Okay.
and there.
Speaker Change: I think the number you've been using, you know, the last few years for how much it cost you.
Speaker Change: per month to provide this service is roughly $10. So I assume your new deal with your direct carrier is what's going to lower it to $5 to $5.50.
Yes.
Speaker Change: Yes, the new deal and then also the carriers to their credit have been sensitive to the fact that we
Speaker Change: So the fact that we retain them, they have opened up other plans and other ways for us to save money. But ultimately, yes, our direct carrier connect by January should reduce that cost below five bucks.
Speaker Change: and enable us to deliver that same product where we get paid $9.25. So our margins by February Q1 next year should, I'm not going to say double, but should be substantially higher.
Higher than, you mean double from $4?
Speaker Change: No, our, we should, our costs should be closer to $4 at that point which would put our, our, our gross margin, you know, yeah, just a hair above five.
Okay.
and the
Okay, so, so
Speaker Change: Your link up, have you really started that yet? Or are you waiting for this direct carrier connection before you do that?
Speaker Change: No, we started it and then tapped the brakes. Like I said, I was actually sitting in on some of those meetings and I heard the opportunity. And then LinkUp, we've got somewhere between 30 and 40,000 customers. But those are ones that, you know, those are the smaller masters that we allowed to go ahead and start bringing on some numbers.
Speaker Change: to test our systems internally, but it was definitely a massive throttling by us because we wanted to be able to go out there and You know, there is something to be said for your first impression
Speaker Change: and when somebody pulls a door and brings you into a wireless store, if you're unable to do certain things, you're going to immediately be labeled and most likely relegated to the corner.
Speaker Change: We didn't want that. We've got some folks out there that we think we can get some significant traction with and get link up.
well beyond 100,000 activations a month.
Speaker Change: And we just saved it. We saved the boom. We saved the fireworks, if you will, for when we could come locked and loaded.
Speaker Change: So, that 35,000 customers is proving out our systems, it's proving our ability to activate, to ship sims.
Speaker Change: to deactivate, to take payments, to communicate with the carrier. But what we don't have the ability to do right now is certain things like throttle after a certain amount of data, you know, and there's important numbers, as we talked about, and those are two things that we need to be able to compete at the highest level.
Speaker Change: to go head to head with the brands that you see on TV.
Speaker Change: Okay, so I assume your cost for Link Up is going to be the same as for Lifeline. You said you can get it down to about $4. What's the...
Speaker Change: How much are your plans going to cost, your main make-up plan?
Speaker Change: payments, millions and millions of dollars in payments for all of our competitors. So we already know that the most popular plan out there is a $30 payment.
Speaker Change: Now psychologically, we all believe it's because it's just two pieces of paper. It's a 10 and a 20. You throw it down 30 bucks There's your phone service. So psychologically, it's an easy payment and that plan should cost us around 15 to 17 bucks
Speaker Change: So, you could almost keep out your old ACP pencil because the margins, and the ROI, and the mechanisms we use to deploy that most popular plan, if you will, will be about the same.
Speaker Change: So that will be what we start rolling out there toward as soon as it's tested. Again, it's a first impression thing. We got to be really, really careful. The wireless distribution world is not forgiving and you don't get a second chance.
Speaker Change: So, that's why we're actually, you know, we're soft launching here as we talked about in a couple of weeks, but hard launching.
Speaker Change: Full Throttle in January, and those should be the margins we expect to see. And I'm definitely gonna keep everybody in the loop once that comes around, updates, cuz we're really excited about this. So I wanna start talking about the subscriber growth, and then by then we should be talking in black numbers as well.
Speaker Change: Okay, and the link up, the 30 to 40,000 link up customers you have now, how much are you charging them?
Transcription by CastingWords
The plans are from, I believe, $15 to $45, $50.
Speaker Change: until January. Not spending a whole lot of time in the analytics on that because it's just proving out. My focus
as we're adding these customers for LinkUp.
Speaker Change: It's not just a government paid for product anymore. We have to earn People's money and it doesn't matter how much it is. It may be less than mine in your wireless bill We still have to earn it
and it's a different.
Speaker Change: Customer Service approach when you have to secure that payment every month. So those are all the things we've been building. I've been spending a whole lot of time on that. But yeah, you're looking at ballpark with link up right now. I would say still the same thing, the average 30 to 35 bucks a plan.
Speaker Change: All right. Well, thank you very much. It sounds all very exciting.
Hey, thank you, Michael. Appreciate it. Appreciate the questions.
Speaker Change: Thank you. Your next question is coming from Ed Woo from Ascendiant Capital.
Your line is live.
Transcription by CastingWords
Speaker Change: Yeah, thanks for taking my question. I know it's only been a week out since elections, but there seems to be a little bit of optimism in the economy. What are you hearing from your end customers, the convenience stores, the bodegas who are on the feet of, you know, dealing with these, you know, under-served, under-banked,
Speaker Change: customers, do you sense any sense of optimism, or do you feel that, you know, things are about the same and still going to be tough, which is ultimately kind of good for your business.
Speaker Change: Yeah, I think, you know, being in this business almost, gosh, going on 25 years now.
Speaker Change: A lot of the folks in this 30% of the market
Speaker Change: You know when you're in the ocean and a wave's coming?
More people
That benefits us.
I think from.
Speaker Change: As far as directly from the election and optimism, we could tell in a week. I think that would take a while to see that. And obviously, talking to convenience store owners, that's not something that we've jumped out and asked. And also in the political world we live in now, let's not jump around. You never know cuz I mean, we don't wanna offend half the country. So we gotta be careful how we approach things. But I think I would say this.
Speaker Change: The one thing that's going to be very interesting from the political change that's coming.
is J.D. Vance was the lead senator.
who authored the extension and was a huge proponent.
Speaker Change: of the ACP program. For those of you that may not know, he grew up on food stamps and had situations where he was on government assistance. So it's unique. You have a Republican, now you have a super powerful Republican who's a huge proponent.
Speaker Change: of these types of programs, of keeping people connected in these subsidy programs. So, there's optimism from a regulatory standpoint in companies like ours, where, you know, that optimism lies. And one of the reasons why Lifeline is important to us, and we've made this move from a chess perspective, if you will,
We think that there's going to be funding come back
Speaker Change: It won't be the traditional ACP. It'll be Lifeline providers will be able to provide it and it will be an enhanced extra
Speaker Change: Subsidy amount per month to cover the the bandwidth that lifeline doesn't cover so that 925 could go back up to 25 or 30 bucks So that's what we're going to keep our eyes on it again. We're not going to
Speaker Change: bank on that per se, that would be 100% welcome and fantastic. But that's not what we're gonna bank the company on. We're gonna bank on 925 and anything beyond that would be gravy.
Speaker Change: Great. I really appreciate the answer to my questions and I wish you guys good luck. Thank you.
Thanks for the question. I appreciate it.