SurgePays, Inc. (NASDAQ:SURG), a provider of telecommunications services, has entered into a Master Services Agreement (MSA) with TerraCom, Inc., a wireless service provider.
Announced on October 10, 2024, the agreement outlines SurgePays' role in identifying and enrolling eligible customers for TerraCom's services under the Lifeline Program, a federal initiative offering telecommunications and internet services to low-income individuals.
Under the MSA, effective as of October 3, 2024, SurgePays will receive revenues generated from the enrolled customers, minus a monthly transaction fee. The companies are also negotiating a stock purchase agreement, with SurgePays aiming to acquire a majority stake in TerraCom.
As part of the preliminary steps, SurgePays has placed $1 million in escrow as partial consideration for TerraCom shares. If the final agreement isn't reached and closed within the specified time, the funds will be returned to SurgePays.
The initial term of the MSA is set for 90 days, with the option for extension by mutual consent. Should the MSA terminate without renewal or for cause after this term, SurgePays retains the ability to transition up to 50% of the subscribed customers to an alternative Lifeline Program provider.
The company will continue to receive reimbursement for the wireless service costs and top-up revenue for customers remaining under TerraCom's service.
This article is based on a press release statement and the information provided by SurgePays in their recent SEC filing.
In other recent news, SurgePays, Inc. experienced a substantial decline in its second-quarter revenue, falling from $35.9 million in the same quarter of the previous year to $15.1 million. This drop was primarily due to the cessation of federal funding for the Affordable Connectivity Program (ACP).
Despite this setback, SurgePays has outlined a recovery plan that includes the launch of a new non-subsidized MVNO business, LinkUp Mobile, and a stock buyback program of up to $5 million.
In addition to these developments, SurgePays appointed Joe Gomez as VP of MVNO Operations. The company aims to achieve positive free cash flow by the end of the year through various initiatives, including expanding product offerings and scaling up third-party wholesale transactions.
SurgePays is also transitioning to a customer-funded model and is considering accretive acquisitions and expanding into convenience stores to cater to the underserved market.
InvestingPro Insights
Recent InvestingPro data offers additional context to SurgePays' strategic move with TerraCom. The company's market cap stands at $36.13 million, with a revenue of $112.99 million in the last twelve months as of Q2 2024. However, SurgePays has experienced a revenue decline of 21.02% over the same period, which may explain its pursuit of new growth avenues through the TerraCom agreement.
InvestingPro Tips highlight that SurgePays holds more cash than debt on its balance sheet, potentially providing financial flexibility for the $1 million escrow deposit and future acquisition plans. Additionally, the company's liquid assets exceed short-term obligations, which could be advantageous as it navigates the terms of the MSA and potential stock purchase agreement.
Despite recent financial challenges, including a significant price drop over the last year and analysts anticipating a sales decline in the current year, the TerraCom deal could represent a strategic pivot for SurgePays. The agreement's focus on the Lifeline Program aligns with the company's telecommunications services and could open up new revenue streams.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for SurgePays, providing a deeper understanding of the company's financial position and market performance.
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