Q2 2023 Stran & Company Inc Earnings Call

Greetings, and welcome to the Strannan Company second quarter 2023 earnings call. At this time, all participants are on a listen only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Alexandra Schilt, Vice President of Crescendo Communications. Ma'am, you may begin. Good morning, and thank you for joining Strannan Company's 2023 second quarter financial results and business update conference call. On the call with us today are Andy Sheap, Chief Executive Officer, and David Browner, Chief Financial Officer. The company issued a press release today, August 14, 2023, containing its 2023 second quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the three months ended June 30, 2023. Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding timing and financial impact of Strannan's ability to implement its business plan, expected revenues, and future success.

These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive, and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond strong control. With that, we will now turn to a – – increase 11 percent while also achieving a 35 percent increase in gross profit to 5.1 million and improved our gross profit margin to 29.1 percent from 25.4 percent for the same period last year. Additionally, for the first six months of 2023, organic revenue increased by 14 percent while our gross profit increased by 40 percent to 9.8 million and gross profit margin improved to 29.4 from 25.8 for the same period last year. We're very proud of this organic growth and margin improvement given the current market environment and declining sales many competitors in this area are experiencing due to economic uncertainty and pressure on marketing budgets. Rather than contracting, though, we are growing and capturing additional market share within the $25 billion promotional products industry. We're witnessing a strong contract momentum as a result of our sales efforts and highly focused marketing initiatives. We expect this trend to continue as we further refine and expand our outreach as well as leverage established relationships from our acquisitions. Regarding our acquisitions, we are proud to say we completed four meaningful acquisitions within the last 18 months. Gap Promotions, Trend Brand Solutions, Premier NYC, and our most recent acquisition of T.R. Miller have all brought meaningful and important strategic advantages to Stron and our operations.

Importantly, GAAP Promotions, Trend Brand Solutions, and Vermeer NYC are all fully integrated into our operations and we are working towards full integration of TR Miller. While it has taken some time to close and integrate TR Miller, we anticipate significant revenue from this transaction as our largest acquisition to date. And while our results for the quarter reflect the integration cost, TR Miller has been historically profitable and by integrating them into our organization, we anticipate additional cost savings which should further enhance our profitability and cash flow. Importantly, we believe this transaction validates our strategy of exploring and identifying valuable and accretive companies that have potential not only to complement but propel strong forward. These acquisitions play an important part of our growth strategy as they enabled us to expand our national footprint.

enter into new verticals, and each brings established customer relationships that we can leverage to support our growth. As I mentioned before, the promotional product industry is ripe for consolidation, and we are building a company that contains the right resources, talent, and reach to bring us to the forefront of the industry.

building our strong and established reputation within the market. By combining our opportunistic M&A strategy with our expanded marketing programs and aggressive sales efforts, we are witnessing strong contract momentum among both existing customers and new customers.

We expect this trajectory to continue as we expand our marketing and complete the integration of TR Miller where we can leverage their established relationships.

We also continue to launch new online stores for our customers and are now actively managing over 180 online customer stores.

These provide long-term value for our customers as well as easy and simple access to our products.

In addition, we are continually being recognized in the industry and were recently ranked among the top 40 distributors by the advertising specialties.

I'm proud to say that I was also recognized and awarded the Person of the Year by ASI in the 2023 Counselor Awards.

ASI serves a network of 25,000 suppliers, distributors, and decorators in the $25.8 million promotional products industry.

And being acknowledged within their awards validates the incremental exposure and visibility that Stron is receiving as a result of our accelerated growth and our ongoing business efforts to become a true leader within the industry.

Importantly, we are executing and pursuing growth initiatives that we believe to long-term sustainable profitability. Beyond the initiatives I've already mentioned, we are also setting revenue and profitability goals, working to fully implement NetSuite, continuously training new employees to enable consistency and setting and hearing to our annual budget.

These are very important to the business and our core aspects of our strategy to propel our growth.

While we did report a loss for the quarter, much like last quarter, these expenses are temporary and relate to the integration of our acquisitions, costs related to the implementation of NetSuite and lead generation program costs.

We believe these are valuable investments that will be essential for overall growth and profitability in the long term.

We expect these costs to increase over time. We have also recently implemented cost savings initiatives by reducing non-essential staff, cutting back on advertising spend, and limiting travel and entertainment.

At the same time, we preserved a solid balance sheet with $25.5 million in cash and investments as of June 30, 2023.

This provides us with the flexibility to explore strategic opportunities as they arrive.

So to wrap up, we developed executing on a business growth strategy resulting in increased awareness of strong, a strong customer base, and a national footprint.

At this point, I'd like to turn the call over to our Chief Financial Officer, David Browner, to go over the financial results in detail.

David, please go ahead.

Thank you, Andy.

Revenue increased 18% to approximately $17.5 million for the three months ended June 30, 2023, from approximately $14.8 million for the three months ended June 30, 2022.

The increase was primarily due to a higher spend from existing customers as well as business from new customers. Additionally, the company benefited from the acquisition of the assets of Gap Promotions in January 2022, the asset of Trend Promotional Marketing in August 2022.

the assets of Premier Business Services in December 2022, and the assets of T.R. Miller in June 2023.

Gross profit increased 35% to approximately $5.1 million, or 29.1% of revenue for the three months ended June 30, 2023, from approximately $3.8 million, or 25.4% of revenue for the three months ended June 30, 2022.

The increase in the dollar amount of gross profit was due to an increase in sales partially offset by an increase in purchasing costs.

Net loss for the three months ended June thirtieth 2, Y and 23 was approximately eight thousand, compared to the net loss of was approximately four thousand for the three months ended June thirtieth 2020 -two. This change was primarily due to an increase in operating expenses and an increase in purchasing costs.

These factors were partially offset by the increase in sales during the three months ended June 30, 2022 from the acquisition of assets of each Gap Promotions, Trend Brand Solutions, Premier NYC, and T.R. Miller. The increase of reoccurring organic sales during the three months ended June 30, 2023.

compared to the three months ended June 30, 2022. At June 30, 2023, the company had $25.5 million of cash and investments and no long-term debt. At this point, I'll turn the call back over to Andy.

Thank you, David. Overall we have continued to execute on our business growth strategy resulting in increased revenue, increased recognition within the industry, an expanded national footprint, and a growing customer base. We are very proud of our accomplishments and look forward to reporting additional achievements as they unfold.

I'd like to say thank you for joining the call today. At this point, we'd like to open up the call to questions.

Operator?

Thank you.

At this time we will be conducting our question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad.

The confirmation tone will indicate your line is in the queue.

Please press star 2 if you would like to remove your question from the queue.

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment please while we poll for questions.

Thank you.

Our first question is coming from Robert Smith with RSA Investments. Your line is live.

Thank you. Good morning guys. Just a couple questions. How does seasonality affect your business?

Sure, thank you. Yes, seasonality does affect our business. So historically, the first two quarters have been our slowest months and this year is no different. So it does affect that. But one thing to make note of is

Our bookings are very strong right now. Currently we have over $15 million in open bookings.

which supports our belief that our accelerated growth will continue in the second half of the year because those bookings already customers that have placed orders with us, but will deliver in Q3 and Q4. In addition, any new business that we acquire between now and the end of the year. So seasonality really does affect it. We're very

A lot of business comes in at the end of the summer when people start preparing for either the holidays or the end of the year and that's historically we've seen our largest quarters and are expecting that this year as well.

The company showed some nice sales growth and profit growth, but unfortunately not profitable this quarter. Can you just cite some specific costs and expenses that contributed to the quarter's loss?

Sure, yeah, so as you did mention we did see 23% growth up for sales and 40% for gross profit. And there's a couple factors that are contributing to the loss. The first one is probably the largest one is the acquisition. So we've completed four acquisitions in the last 18 months with historically those companies that worked for more than 50%.

And the costs associated with identifying them, performing the due diligence with both legal and accounting, as well as the closing costs, and then integrating the end-order business as well as the capital to close the transaction, combined with the resources that we've had to really put those in place.

Anything, any of the costs, we immediately start to recognize those costs immediately. Yet sometimes the sales cycle and the revenue, maybe because of the longer sales cycle and lead times, takes a little bit longer to recognize that. So those things combined, we feel like are short-term losses that in the long term will pay massive dividends in the long run. As I mentioned, these should combine. Historically they had created over 30 million in profitable revenue. So some of those costs. That's the first one. The second one is making additionally long-term investments in technology that will create not only internal efficiencies but also differentiators for strong.

Yet we are looking at not only looking at adding infrastructure, but also making adjustments and reductions in staff where there's redundancy or inefficiency. So we're combining those together and really looking at that. But those are really the cost drivers for the last two quarters, the integration and cost for the acquisition is really the big one, as well as technology improvements. Well, thanks. That helps a lot. One last question, just looking at macro trends, what are you seeing for your customers' marketing budgets and how do you think that that's going to affect the rest of your year?

a slowdown in business, maybe not going backwards, but maybe not as much growth as we have seen in the past. We're seeing growth, but one of the things that we are recognizing are not as many orders, but larger orders. So what we have found is our customers are really taking larger initiatives and really putting more towards those initiatives that are a little bit more targeted rather than mass blanketed. So again, with our bookings that we currently have of over $15 million worth of bookings, we're confident that these large orders will hit in Q3, and Q4, they are going to hit Q3, and Q4 with.

additional revenue, incremental revenue that we're very confident that we'll see very strong Q3 and Q4, especially Q4 numbers because a lot of that revenue is going to hit then and we're very optimistic about the long term.

Great, listen, thank you for the answer. It sounds like a promising future. Thank you.

Thank you. Once again, if we have any questions or comments, please press star 1 on your telephone keypad.

Thank you.

We have a question from Mike Tafias.

Who is an investor? Your line is life.

Thank you. Thanks for holding this call. Much appreciated. Stock's trading around $1.30. Where do you and the board stand or discuss or think about buybacks?

Sure, so we do have a buyback in place where historically I think we've

We've spent about $3 million on buybacks, and we have approved up to $10 million for buyback. And it's really balancing preservation of cash and using that versus buying back the stock. One of the things that we look at is...

is a combination of why we went public. We went public to use that money to accelerate our growth and really to go and create something special within this industry because we feel like there's such an opportunity within the promotional products industry to become a true leader. So balancing between building long-term value in a company becoming a true industry leader to.

of that when we see it as we have in the past and we have as I mentioned I think we have about six or seven million dollars left to to take advantage of that if we find that.

to our events and to our shareholders.

Thank you.

Thank you.

We currently have no further questions in queue at this time so I will hand it back to management for any closing remarks they may have.

Great, well thank you everybody for joining. We're optimistic about STRON, our future, and where we are today and where we're going in the future. So thank you, please stay in touch with us and keep watching. We have a lot to happen in the next few months and excited to report on that. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time. And we thank you for your participation.