SurgePays Announces Full Year 2021 Financial Results

BARTLETT, Tenn., March 24, 2022 (GLOBE NEWSWIRE) -- SurgePays, Inc. (Nasdaq: SURG) (“SurgePays” or the “Company”), a technology and telecommunications company focused on the underbanked and underserved, today announced its financial results for the year ended December 31, 2021.

Full Year 2021 Financial Highlights

  • Revenue of $51.1 million in 2021 compared to $54.4 million in 2020
  • Gross profit of $6.2 million in 2021 compared to $2.5 million in 2020. Gross margin improved to 12.1% in 2021 compared to 4.5% in the prior year.
  • Net loss of SurgePays of $(13.5) million in 2021 compared to a loss of ($10.7) million in 2020.
  • Adjusted EBITDA loss of $(3.9) million in 2021 compared to a loss of ($8.1) million in 2020.
  • Strong balance sheet with unrestricted cash and cash equivalents of $6.3 million as of December 31, 2021.

Commenting on the progress in the business, Chairman and CEO Brian Cox stated, “I’m extremely proud of the work we accomplished in 2021 including our capital raise and uplist to the Nasdaq Market. We made strategic decisions in 2021 to rationalize our customer base and product offering to focus on profitable customers rather than driving a higher store count. This is evident in 2021 revenue that was slightly down but improved margins.

“Additionally, we seized upon the opportunity presented to us by the Affordable Connectivity Program (ACP), to connect millions of Americans with affordable mobile broadband access. The significant investments made to establish this program required upfront equipment purchases, but we are now producing positive cash flow from our subscriber base. We expect the growth of this program to drive significant revenue growth, substantially higher margins and produce positive EBITDA in 2022. The growth in this business was extraordinary in the five months it was live in 2021 and we expect the momentum to continue throughout 2022.”

Mr. Cox Continued: “As we have enhanced our offering to include wireless broadband along with a comprehensive suite of value-driven financial service products for the underbanked, our ability to attract mobile broadband subscribers, increase store count and grow market share has significantly increased.”

Business Outlook
For the full year 2022, the Company expects to achieve the following financial targets:

  • Total revenues of at least $130 million.
  • Adjusted EBITDA is expected to be at least $15 million.
  • Greater than 200,000 subscribers in the mobile broadband business.

Conference Call and Webcast Information
SurgePays will host a conference call today to review its results and discuss its performance at 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-407-9208 (United States) or 1-201-493-6784 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Thursday, April 7, 2022, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13728105.

A live webcast will be available on SurgePays, Inc Investor Relations site under the Upcoming Event section at http://ir.surgepays.com and will be archived online upon completion of the conference call.

About SurgePays, Inc.
SurgePays, Inc. is a technology and telecommunications company focused on the underbanked and underserved communities. SurgePhone Wireless provide mobile broadband to low-income consumers nationwide. SurgePays blockchain fintech platform utilizes a suite of financial and prepaid products to convert corner stores and bodegas into tech-hubs for underbanked neighborhoods. Please visit SurgePays.com for more information.

About Non-GAAP Financial Measures
The Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used in the cloud communications industry to evaluate companies on the basis of operating performance and leverage. Adjusted EBITDA provides an adjusted view of EBITDA that takes into account certain significant non-recurring transactions, if any, such as impairment losses and expenses associated with pending acquisitions, which vary significantly between periods and are not recurring in nature, as well as certain recurring non-cash charges such as changes in fair value of the Company’s derivative liabilities and stock-based compensation. The Company also believes that Adjusted EBITDA provides investors with a measure of the Company’s operational and financial progress that corresponds with the measurements used by management as a basis for allocating resources and making other operating decisions.

EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with SEC Regulation G, the non-GAAP measurements in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Income (loss) from Operations to EBITDA and Adjusted EBITDA” in the financial tables included in this press release.

Cautionary Note Regarding Forward-Looking Statements
This press release includes express or implied statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in these forward-looking statements such as the growth in the ACP to drive significant revenue growth, substantially higher margins and produce positive EBITDA in 2022 along with the statements under the heading Business Outlook are reasonable, these statements relate to future events or our future operational or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, statements about our future financial performance, including our revenue, cash flows, costs of revenue and operating expenses; our anticipated growth; our predictions about our industry; the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to clients. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The forward-looking statements in this press release speak only as of the date on which the statements are made. We undertake no obligation to update, and expressly disclaim the obligation to update, any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

SurgePays, Inc. and Subsidiaries
Consolidated Statements of Operations

    For the Years Ended December 31,  
    2021     2020  
             
Revenues   $ 51,060,589     $ 54,406,788  
                 
Costs and expenses                
Cost of revenue     44,890,610       51,938,111  
General and administrative expenses     12,162,547       12,614,345  
Total costs and expenses     57,053,157       64,552,456  
                 
Loss from operations     (5,992,568 )     (10,145,668 )
                 
Other income (expense)                
Interest expense     (3,840,616 )     (4,801,520 )
Derivative expense     (1,775,057 )     (566,789 )
Change in fair value of derivative liabilities     1,806,763       577,936  
Gain on investment in Centercom - related party     28,676       210,912  
Gain on settlement of liabilities     1,469,641       2,575,978  
Amortization of debt discount     (3,677,121 )     1,417,524  
Gain on deconsolidation of True Wireless     1,895,871       -  
Settlement expense     (3,750,000 )     -  
Warrant modification expense     (74,476 )     -  
Other income     377,743       10,000  
Total other income (expense) - net     (7,538,576 )     (575,959 )
                 
Net loss   $ (13,531,144 )   $ (10,721,627 )
                 
Loss per share - basic and diluted   $ (3.09 )   $ (5.02 )
                 
Weighted average number of shares - basic and diluted     4,381,709       2,134,417  

SurgePays, Inc. and Subsidiaries
Consolidated Balance Sheets

    December 31, 2021     December 31, 2020  
             
Assets  
             
Current Assets                
Cash   $ 6,283,496     $ 673,995  
Accounts receivable - net     3,249,889       180,499  
Lifeline revenue - due from USAC     -       212,621  
Inventory     4,359,296       178,309  
Prepaids     -       5,605  
Total Current Assets     13,892,681       1,251,029  
                 
Property and equipment - net     200,448       236,810  
                 
Other Assets                
Note receivable     176,851       -  
Intangibles - net     3,433,484       4,125,742  
Goodwill     866,782       866,782  
Investment in Centercom - related party     443,288       414,612  
Operating lease - right of use asset - net     486,668       368,638  
Other     -       61,458  
Total Other Assets     5,407,073       5,837,232  
                 
Total Assets   $ 19,500,202     $ 7,325,071  
                 
Liabilities and Stockholders' Deficit                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 6,602,577     $ 6,827,487  
Accounts payable and accrued expenses - related party     1,389,798       1,753,837  
Deferred revenue     276,250       443,300  
Operating lease liability     49,352       210,556  
Line of credit     -       912,870  
Loans payable - related parties     1,553,799       2,389,000  
Notes payable - SBA government     126,418       -  
Notes payable - net     -       250,000  
Convertible notes payable - net     -       1,516,170  
Derivative liabilities     -       1,357,528  
Total Current Liabilities     9,998,194       15,660,748  
                 
Long Term Liabilities                
Loans payable - related parties     4,507,017       1,100,440  
Notes payable - SBA government     1,004,767       1,134,682  
Operating lease liability     438,903       155,167  
Total Long Term Liabilities     5,950,687       2,390,289  
                 
Total Liabilities     15,948,881       18,051,037  
                 
Commitments and Contingencies (Note 8)                
                 
Stockholders' Equity (Deficit)                
Series A, Convertible Preferred stock, $0.001 par value, 100,000,000 shares authorized, 13,000,000 and 13,000,000 shares issued and outstanding, respectively     260       260  
Series C, Convertible Preferred stock, $0.001 par value, 1,000,000 shares authorized, 0 and 721,598 shares issued and outstanding, respectively     -       722  
                 
Common stock, $0.001 par value, 500,000,000 shares authorized 12,063,834 and 2,542,624 shares issued and outstanding, respectively     12,064       2,543  
Additional paid-in capital     38,662,340       10,862,708  
Accumulated deficit     (35,123,343 )     (21,592,199 )
Total Stockholders' Equity (Deficit)     3,551,321       (10,725,966 )
                 
Total Liabilities and Stockholders' Equity (Deficit)   $ 19,500,202     $ 7,325,071  

SurgePays, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

    For the Years Ended December 31,  
    2021     2020  
Operating activities                
Net loss   $ (13,531,144 )   $ (10,721,627 )
Adjustments to reconcile net loss to net cash used in operations                
Bad debt expense     20,554       1,750,239  
Depreciation and amortization     759,383       1,173,369  
Amortization of right-of-use assets     158,085       197,381  
Amortization of debt discount     3,677,121       2,016,764  
Recognition of share based compensation     3,575       182,968  
Change in fair value of derivative liabilities     (1,806,763 )     (577,936 )
Derivative expense     1,775,057       566,789  
Gain on settlement of liabilities     (1,443,016 )     (2,644,960 )
Gain on equity method investment - Centercom - related party     (28,676 )     (210,912 )
Gain on forgiveness of PPP loan     (371,664 )     -  
Gain on deconsolidation of subsidiary (True Wireless)     (1,895,871 )     -  
Warrant modification expense     74,476       -  
Changes in operating assets and liabilities                
(Increase) decrease in                
Accounts receivable     (3,089,944 )     1,146,611  
Lifeline revenue - due from USAC     105,532       (151,831 )
Inventory     (4,255,637 )     (178,309 )
Prepaids     5,605       91,278  
Other     61,458       4,999  
Increase (decrease) in                
Accounts payable and accrued expenses     4,056,812       2,824,165  
Accounts payable and accrued expenses - related party     757,429       -  
Deferred revenue     (167,050 )     405,260  
Operating lease liability     (153,583 )     (200,296 )
Net cash used in operating activities     (15,288,261 )     (4,326,048 )
                 
Investing activities                
Purchase of property and equipment     (51,408 )     (6,605 )
Cash disposed in deconsolidation of subsidiary (True Wireless)     (325,316 )     -  
Repayment of notes receivable     -       14,959  
Net cash provided by (used in) investing activities     (376,724 )     8,354  
                 
Financing activities                
Proceeds from stock and warrants issued for cash     21,299,662       1,068,500  
Cash paid for direct offering costs     (2,222,952 )     -  
Repurchase of common stock     -       (500,000 )
Proceeds from loans - related party     4,355,386       1,579,710  
Repayments of loans - related party     (2,476,468 )     (295,710 )
Proceeds from notes payable     1,101,000       3,481,582  
Repayments on notes payable     (1,377,257 )     (280,636 )
Proceeds from SBA notes     518,167       -  
Proceeds from convertible notes     2,550,000       -  
Repayments on convertible notes - net of overpayment     (2,473,052 )     (245,797 )
Cash paid for debt issuance costs     -       (162,000 )
Net cash provided by financing activities     21,274,486       4,645,649  
                 
Net decrease in cash     5,609,501       327,955  
                 
Cash - beginning of year     673,995       346,040  
                 
Cash - end of year   $ 6,283,496     $ 673,995  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ 866,684     $ 98,113  
Cash paid for income tax   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities                
                 
Debt discount/issue costs recorded in connection with debt/derivative liabilities   $ 2,748,084     $ 1,457,402  
Conversion of Series C, preferred stock into common stock   $ 722     $ -  
Gain on forgiveness of Centercom AP - Related Party   $ 429,010          
Stock issued in settlement of liabilities   $ 1,997,977     $ -  
Conversion of debt into equity   $ 3,363,561     $ -  
Right-of-use asset obtained in exchange for new operating lease liability   $ 515,848     $ 355,203  
Termination of ECS ROU lease   $ 228,752     $ -  
Stock issued in connection with debt modification   $ 108,931     $ 67,650  
Stock issued under make-whole arrangement   $ 90,401     $ 165,000  
Stock issued for acquisition of membership interest in ECS   $ 17,900     $ -  
Reclassifcation of accrued interest - related party to note payable - related party   $ 692,458     $ -  
Deconsolidation of subsidiary (True Wireless)   $ 2,434,552     $ -  
Stock issued for acquisition   $ -     $ 210,794  
Stock and warrants issued with debt recorded as a debt discount   $ -     $ 993,780  

Reconciliation of Net Income (loss) from Operations to EBITDA and Adjusted EBITDA

SurgePays, Inc.                    
                     
    For the Years Ended December 31,      
    2021       2020     Variance  
                 
Net loss     (13,531,144 )       (10,721,627 )   (2,809,517 )  
                     
Addbacks for EBITDA:                    
Interest expense     3,840,616         4,801,520     (960,904 )  
Depreciation     759,393         1,172,426     (413,033 )  
EBITDA (non GAAP)     (8,931,135 )       (4,747,681 )   (4,183,454 )  
                     
Addbacks for Adjusted EBITDA:                    
Derivative expense     1,775,057         566,789     1,208,268    
Change in fair value of derivative liabilities     (1,806,763 )       (577,936 )   (1,228,827 )  
Gain on settlement of liabilities     (1,469,641 )       (2,575,978 )   1,106,337    
Amortization of debt discount     3,677,121         (1,417,524 )   5,094,645    
Gain on deconsolidation of True Wireless     (1,895,871 )       -     (1,895,871 )  
Settlement expense     3,750,000         -     3,750,000    
Warrant modification expense     74,476         -     74,476    
Other income     (377,743 )       (10,000 )   (367,743 )  
Litigation expense     1,306,579         633,156     673,424    
Adjusted EBITDA (non GAAP)     (3,897,920 )       (8,129,175 )   4,231,255    
                     

 


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Source: SurgePays, Inc.