SurgePays, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed March 12, 2024. This is an annual filing, and the supplied text does not provide standalone fourth-quarter results. SurgePays provides prepaid mobile broadband and wireless services, fintech and top-up services to convenience stores, and lead-generation services.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $137.1 million | $121.5 million |
| Gross profit | $35.6 million; 26.0% margin | $13.5 million; 11.1% margin |
| Operating income | $18.9 million | $0.6 million |
| Net income (loss) attributable to common stockholders | $20.6 million | ($0.7 million) |
| Basic / diluted EPS | $1.45 / $1.38 | ($0.05) / ($0.05) |
| Cash from operating activities | $10.3 million | $0.8 million |
| Cash and cash equivalents at year-end | $14.6 million | $7.0 million |
| Working capital | $20.7 million | $4.1 million |
| Total liabilities | $13.5 million | $28.9 million |
Revenue rose 12.8%. Cost of revenue declined to $101.5 million from $108.1 million, while general and administrative expense increased 30.7% to $16.8 million. The reported FY2023 income tax benefit was $2.265 million. The company reported total assets of $41.9 million and stockholders’ equity of $28.4 million at year-end.
Year-end debt included $4.585 million in related-party notes payable and $0.461 million in SBA debt; the company had repaid its $13.0 million installment-sale liability during 2023. After year-end, SurgePays reported approximately $40.5 million of cash as of February 29, 2024, following equity proceeds and warrant exercises. These transactions also increased shares outstanding; 19,290,799 shares were outstanding on March 8, 2024, versus 14,403,261 at December 31, 2023.
Segments and material changes
- Mobile virtual network operators (MVNO): Revenue increased 34.2% to $118.6 million and represented 86.5% of consolidated revenue, compared with 72.7% in 2022. The segment’s gross margin improved to 29.2% from 13.8%. SurgePays reported more than 260,000 subscribers at year-end, up from 200,000.
- Comprehensive Platform Services: Revenue declined 30.5% to $11.3 million. The segment recorded a small positive gross profit, but an operating loss of $1.7 million.
- Lead Generation: Revenue declined 57.1% to $7.2 million following management’s decision to reduce focus on the segment. The company planned to decide whether to retain or discontinue it in the second quarter of 2024.
Operating income improved substantially, driven chiefly by MVNO growth and lower cost of revenue. Interest expense fell to $0.6 million from $1.8 million, primarily because debt was repaid. General and administrative expense rose, including higher compensation, consulting, professional services and software-related costs. The 2022 comparison included $0.5 million of PPP-loan forgiveness income.
Outlook, risks and unusual items
- ACP funding is the central risk: The filing states that the Affordable Connectivity Program stopped accepting new applications on February 7, 2024, and was expected to cease funding after April 2024 absent further congressional funding. SurgePays says ACP-related revenue was 86% of FY2023 revenue and warns that non-renewal could cause a substantial revenue decline. Management’s growth and margin expectations are substantially conditional on continued ACP funding.
- Contingency plans: Management intends to accelerate non-subsidized prepaid wireless services, seek to retain ACP customers, and expand convenience-store distribution. It planned a LinkUp Mobile launch in the second quarter of 2024 and a new Comprehensive Platform Services sales approach. Management stated it believed available cash could bridge a funding interruption, but success in replacing ACP revenue is not assured.
- Debt and related-party financing: The CEO-controlled lender’s notes were amended and consolidated in March 2024. The filing’s descriptions of the amended note are not fully consistent: one section reports $4.758 million principal and 33 monthly payments, while another reports $5.084 million including accrued interest and 36 monthly payments totaling $5.905 million. Verify the executed note and repayment schedule.
- Other subsequent events: In January 2024, the company acquired ClearLine Mobile assets for $2.5 million, with payments extending into April and July. January and February equity offerings and warrant exercises provided substantial additional cash but increased share count.
- Litigation: Matters include a dispute with Blue Skies/True Wireless, a TCPA/telephone-solicitation class action involving LogicsIQ, and a related indemnity suit filed in February 2024. The company said potential losses in some matters could not be estimated and recorded no contingency liability for the matters described as of year-end. A separate 2023 contract case was settled for $60,000.
- Other risks and unusual items: The company operates in competitive, regulated markets, depends heavily on government-administered program reimbursements, and faces customer-retention, execution, technology, litigation and capital-raising risks. FY2023 included $2.411 million of cost of revenue for tablets that were not claimed. The company reported no material weaknesses in internal controls; its auditor issued an unqualified opinion on the financial statements, but did not audit internal control effectiveness.
Key facts investors should verify
- Whether ACP funding continued beyond April 2024, and the resulting subscriber, revenue and cash-collection trends.
- How quickly non-ACP MVNO and convenience-store platform revenue can grow, including segment margins and customer retention.
- The amended related-party note’s principal, accrued interest, payment count, total payments and maturity terms.
- Cash use and dilution after the equity offering and warrant exercises, including remaining warrants and share-based awards.
- Updates to the Blue Skies, TCPA and indemnity litigation, including any estimated exposure or settlement.
- Whether ClearLine’s acquired assets and planned LinkUp Mobile launch produce measurable commercial results.