Stran & Company, Inc. Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 14, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Strand and 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Alexandra Schiltz, Vice President of Crescendo Communications. Ma'am, you may begin.

Speaker 1

Good morning, and thank you for joining Strahan and 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, call. The company's management will now provide prepared remarks reviewing the financial and operational results for the 3 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 Strand's ability to implement its business plan, expected revenues and future success.

Speaker 1

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 Straumann's control. With that, we will now turn the call over to Andy Schaeff, Chief Executive Officer, please go ahead, Andy.

Speaker 2

Thank you, Ali, and thanks for everyone for joining us today. Over the last several months, we have developed and executed on Our business growth strategy, which has resulted in 18% growth in revenue to $17,500,000 for the Q2 of 202323 percent growth in revenue to $33,200,000 for the 1st 6 months of 2023. Importantly, in the 2nd quarter, organic Revenue increased 11% while also achieving a 35% increase in gross profit to $5,100,000 And improved our gross profit margin to 29.1% from 25.4% for the same period last year. Additionally, for the 1st 6 months of 2023, organic revenue increased by 14% while our gross profit increased by 40% to $9,800,000 and gross profit margin improved to $29,400,000 from $25,800,000 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 year are experiencing due to economic uncertainty And pressure on marketing budgets.

Speaker 2

Rather than contracting though, we are growing and capturing additional market share within the $25,000,000,000 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 expand our outreach as well as leverage established relationships from our acquisitions. Regarding our acquisitions, we are proud to say we completed 4 meaningful acquisitions Within the last 18 months, GAAP Promotions, Trend Brands Solutions, Premier NYC And our most recent acquisition of TR Miller have all brought meaningful and important strategic advantages to Strand and our operations. Importantly, Gap Promotions, Trend Brand Solutions, Premier NYC are all fully integrated into our operations and we're working towards full integration of TR Miller.

Speaker 2

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 costs, Tierra Miller has been historically profitable and by integrating 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.

Speaker 2

We're 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 and A strategy with our expanded marketing programs and aggressive sales efforts, we're witnessing strong contract momentum Among both existing customers and new customers, we expect this trajectory continue as we expand our marketing and complete the integration of TR Miller We can leverage their established relationships. We also continue to launch new online stores for our customers and now are now actively managing over 180 online customer 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 $25,800,000,000 promotional products industry And being acknowledged within their awards validates the incremental exposure and visibility that Strand is receiving as a result of our accelerated growth and our ongoing business efforts To become a true leader within the industry.

Speaker 2

Importantly, we're 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, continuous and training new employees To enable consistency and setting adhering 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.

Speaker 2

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've reserved a solid balance sheet with $25,500,000 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 Straumann, a strong customer base and a national footprint.

Speaker 2

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.

Speaker 3

Thank you, Andy. Revenue increased 18% to approximately $17,500,000 for the 3 months ended June 30, 2023 from approximately $14,800,000 for the 3 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 GAAP Promotions in January 2022, the asset of trend promotional marketing in August of 2022, the assets of Premier Business Services in December 2022 and the assets of TR Miller in June 2023. Gross profit increased 35 percent to approximately $5,100,000 or 29.1 percent of revenue for the 3 months ended June 30, 2023, from approximately $3,800,000 or 25.4 percent of revenue for the 3 months ended June 30, 2022.

Speaker 3

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 3 months ended June 30, 2023 was approximately $800,000 compared to the net loss of approximately $400,000 for the 3 months ended June 30, 2022. 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 3 months ended June 30, 2022 from the acquisition of assets of each Gap Promotions, Trend Brand Solutions, Premier NYC and TR Miller and the increase of reoccurring organic Sales during the 3 months ended June 30, 2023 compared to the 3 months ended June 30, 2022. At June 30, 2023, the company had $25,500,000 of cash and investments and no long term debt.

Speaker 3

At this point, I'll turn the call back over to Andy.

Speaker 2

Thank you, David. Overall, we have continued on our business growth strategy resulting in increased revenue, increased recognition within the industry and 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.

Speaker 2

Operator?

Operator

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

Speaker 2

Thank

Operator

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

Speaker 4

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

Speaker 2

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.

Speaker 2

But one thing to make note of is, Our bookings are very strong right now. Currently we have over $15,000,000 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 we'll 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 the 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 it this year as well.

Speaker 4

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

Speaker 2

Sure. Yes. So as you did mention, we did see 23% growth for sales and 40% For gross profit. And there's a couple of factors that are contributing to the loss. The first one is probably the largest one is the acquisition.

Speaker 2

So We've completed 4 acquisitions in the last 18 months with historically those companies have done combined over $30,000,000 in historical revenue. So It's a large portion of our business. 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 Medora Business As well as the capital to close the transaction, combined with the resources that we've had to really put those in place To make sure that we capitalize on those opportunities really is a driver of some of the costs. So a lot of the professional fees went up, resources we have to have Additional resources to identify to make sure that we do that. And we also have to look at, when we close a transaction, we have to keep in mind that Those costs, the overhead, the employees, anything any of the cost, we immediately start to recognize those costs immediately.

Speaker 2

Yes. 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 our short term losses that in the long term will pay massive dividends in the long run since it's As I mentioned, these should combine historically that created over $30,000,000 in profitable revenue. 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 Strand For our customers, so that it makes it easier to business with us.

Speaker 2

Again, some of the acquisitions, these are short term investments that make us long term because look out us to $30,000,000 $40,000,000 isn't going to get us to where we want to get into 100 of 1,000,000 in revenue. So we have to build that infrastructure. So building that infrastructure Takes time. Yes, 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.

Speaker 2

The integration and costs for the acquisition really the big one as well as technology improvements.

Speaker 4

Well, thanks. That helps a lot. And just 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?

Speaker 2

Sure. So marketing budgets, We have heard within the industry, I haven't seen any specific stats, but we have heard within the industry that a lot of our suppliers and customers had seen A slowdown in business, maybe not going backwards, but maybe not as much growth as we had 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 $15,000,000 worth of bookings.

Speaker 2

We're confident that these large orders will hit in Q3 or 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 It's going to hit that and we're very optimistic about the long term spending between holiday Holiday bookings in a strong second half of the year.

Speaker 4

Great. Listen, thank you for the answers. It sounds like a promising future.

Speaker 2

Thank you.

Operator

Thank you. Thank you. We have a question from Mike Tafayath, who is an investor. Your line is live.

Speaker 5

Thank you. Thanks for holding this call. Much appreciated. Stocks trading around 1.30 Where do you and the Board stand or discuss or think about buybacks?

Speaker 2

Sure. So we do have a buyback in place where Historically, I think we've spent about $3,000,000 on buybacks and we have approved up to $10,000,000 for buyback. And it's really balancing preservation of cash and using that versus buying back the stock. So One of the things that we look at 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.

Speaker 2

So balancing between building long term value in the company and becoming a true industry leader to all Versus buying back shares as well. So we look at a fine balance between them and we will take advantage of that when we see it As we have in the past, and we have as I mentioned, I think we have about $6,000,000 or $7,000,000 left to take advantage of that if we find that

Operator

Thank you. We currently have no further questions in queue at So I will hand it back to management for any closing remarks they may have.

Speaker 2

Great. Well, thank you everybody for joining. We're optimistic about Tron, 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.

Speaker 2

We have a lot to happen In the next few months and excited to report on that. Thank you.

Operator

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.

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Key Takeaways

  • Financial performance: Q2 revenue grew 18% year-over-year to $17.5 M (23% in H1), with organic revenue up 11% in Q2 and 14% in H1, while gross profit jumped 35% to $5.1 M and margin rose to 29.1%.
  • Acquisition-driven growth: Strand completed four acquisitions in 18 months—GAAP Promotions, Trend Brand Solutions, Premier NYC and TR Miller—to expand its national footprint, enter new verticals and leverage established customer relationships.
  • Margin and integration investments: Integration costs, NetSuite implementation and lead generation investments drove a Q2 net loss of $0.8 M, but management expects these expenses to generate long-term profitability and market share gains.
  • Strong order pipeline and seasonality: Despite typical first-half seasonality, the company has over $15 M in open bookings for Q3 and Q4, signaling confidence in strong second-half performance and holiday demand.
  • Balance sheet strength and buybacks: As of June 30, Strand held $25.5 M in cash and investments with no long-term debt and has repurchased ~$3 M of stock under a $10 M buyback authorization.
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Earnings Conference Call
Stran & Company, Inc. Q2 2023
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