Stran & Company, Inc. Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 16, 2025

There are 6 speakers on the call.

Operator

Greetings. Welcome to the Strand and Company First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Alexandra Shilt. You may begin.

Speaker 1

Good morning, and thank you for joining Strahan and Company's twenty twenty five first quarter financial results and business update conference call. With us today are Andy Shape, Chief Executive Officer and David Browner, Chief Financial Officer. The company issued a press release yesterday, 05/15/2025, detailing its financial results for the first quarter of twenty twenty five. The release is also available on its website. If you have any questions following today's call or would like additional information, please contact Crescendo Communications at (212) 671-1020.

Speaker 1

Today's remarks will include a review of financial and operational performance followed by a Q and A session. Please note the company may make forward looking statements during the call that involve risks and uncertainties, many of which are outside of its control. We encourage you to review Strahan's filings with the SEC for a full discussion of these risk factors. With that, I will turn the call over to Andy Schaff. Please go ahead, Andy.

Speaker 2

Thank you, Ali, and good morning, everyone. I'm thrilled to share the excellent results Strand and Company delivered in the first quarter of twenty twenty five, marking a strong start of the year. Our performance reflects disciplined execution, strategic vision and the growing momentum of our business as we continue to strengthen our position as an industry leader. For the first quarter ended 03/31/2025, we achieved a remarkable 52.4% year over year revenue increase, reaching approximately $28,700,000 up from $18,800,000 in Q1 twenty twenty four. This growth was driven by a combination of robust organic performance and the impactful contributions from our August 2024 acquisition of the Gander Group assets.

Speaker 2

Notably, our core Strand segment delivered 11.2% organic revenue growth, a testament to the resilience and competitive strength of our business, particularly in a challenging market environment where many peers have faced contraction. Our gross profit also saw significant growth, rising 51.1% to $8,500,000 representing 29.6% of sales compared to $5,600,000 or 29,800,000.0 of sales in Q1 twenty twenty four. This performance is especially impressive given the initially lower margins associated with the Gander Group acquisition. Encouragingly, we've already driven modest improvements in the gross profit margin of Strahan Loyalty Solutions or SLS, the segment encompassing the former Gander Group business, and we're actively working to align these margins with Strand's historically strong profile, which reached 32.4 for the Strand segment in Q1 twenty twenty five. A key milestone this quarter was the completion of our re audit process, which consumed significant resources in prior periods.

Speaker 2

With this behind us, we restored timely financial reporting and shifted our focus to driving growth, enhancing margins, and creating long term shareholder value. The successful launch of our NetSuite ERP system in January 2025 has been a game changer in this regard. This enterprise wide rollout is already delivering tangible results, including automated workflows, real time visibility to operations, and centralized process control. NetSuite enhances our ability to scale efficiently, respond to client needs with greater speed and accuracy, and manage operations with precision, positioning us for sustained operational excellence. The integration of Gander Group assets continues to progress, bringing meaningful scale diversification and cross selling opportunities to our platform.

Speaker 2

The acquisition has expanded our presence in the high growth hospitality and gaming verticals and opened new revenue channels through deep client relationships. We are realizing early synergies in sourcing logistics and client engagement and see significant potential to further leverage these capabilities to enhance customer services and our value proposition. These efforts are laying a strong foundation for continued revenue acceleration and long term value creation. On the macroeconomic front, we are proactively addressing global trade dynamics, particularly the evolving tariff landscape. Strand has proven a track record of agility and operational discipline in navigating complex international sourcing environments.

Speaker 2

To mitigate potential tariff uncertainty, we are accelerating our diversification strategy, expanding our global manufacturing footprint to include domestic Maine USA production and partnerships in Vietnam, Cambodia, Taiwan, India, Bangladesh and other regions. Our sourcing teams are negotiating with suppliers to optimize our pricing, ensuring we maintain competitive offerings while preserving our profitability. Our top priority remains delivering continuity, value and quality to our clients. Looking ahead, our priorities for 2025 are clear, accelerating organic growth, expanding margins, and driving sustained profitability. We are implementing disciplined expense control, streamlining workflows, and leveraging our scalable infrastructure to capture more value from our revenue growth.

Speaker 2

Broader industry continues to present compelling opportunities as companies increasingly prioritize brand visibility, customer engagement, and loyalty. Strand is uniquely positioned to meet this demand with an expanding platform, enhanced systems, and a customer centric culture that enables us to deliver high impact integrated solutions across diverse verticals. I want to express my deepest gratitude to our employees for their unwavering dedication, to our clients for their trust and partnership, and to our shareholders for their continued support. We believe 2025 will be a transformative year for Strong, defined by financial growth, operational excellence and strategic expansion. With that, I'll turn the call over to David Browner, our CFO, to review our financial results in greater detail.

Speaker 2

David, please go ahead.

Speaker 3

Thank you, Andy, and good morning, everyone. I'm pleased to provide a detailed overview of our financial performance for first quarter of twenty twenty five, which reflects the strength and scalability of our business model. Sales increased 52.4% to approximately $28,700,000 for the three months ended 03/31/2025, from approximately $18,800,000 for the three months ended 03/31/2024. Sales from the Strand segment increased 11.2% to approximately $20,900,000 for the three months ended 03/31/2025, from approximately $18,800,000 for the three months ended 03/31/2024. Sales from the SLS segment, which consists of the former Gander Group business, increased to approximately $7,800,000 for three months ended 03/31/2025 from zero for the three months ended 03/31/2024.

Speaker 3

For the Strand segment, the increase in the sales was primarily due to higher spend from existing clients as well as business from new customers. For the SLS segment, the increase was due to the acquisition of the Gander Group assets in August of twenty twenty four. Gross profit increased 51.1% to approximately $8,500,000 from 29.6% of sales for the three months ended 03/31/2025, from approximately $5,600,000 or 29.8% of sales for the three months ended 03/31/2024. Gross profit of the Strand segment increased to approximately $6,800,000 for the three months ended 03/31/2025, from approximately $5,600,000 for the three months ended 03/31/2024. Gross profit for the SLS segment increased to approximately $1,700,000 for the three months ended 03/31/2025, from zero for the three months ended 03/31/2024.

Speaker 3

The increase in the dollar amount of the total gross profit was primarily due to the acquisition of the Gander Group assets in August of twenty twenty four. For the Strand segment, the increase in the dollar amount of the gross profit was due to an increase in sales of approximately $2,100,000 which was partially offset by an increase in cost of sales of approximately $900,000 For the SLS segment, the increase in the dollar amount of the gross profit was due to the acquisition of Gander Group assets in August of twenty twenty four. The decrease in the gross profit margin to 29.6% for the three months ended 03/31/2025, from 29.8% for the three months ended 03/31/2024, was primarily due to the acquisition of the Gander Group assets in August of twenty twenty four, which operates at a lower gross profit margin than the Strand segment. The gross profit margin for the Strand segment increased to 32.4% for the three months ended 03/31/2025, from 29.8% for the three months ended 03/31/2024. The gross profit margin for the SLS segment was 21.8% for the three months ended 03/31/2025.

Speaker 3

Operating expenses increased 43.6% to approximately $9,000,000 for the three months ended 03/31/2025, from approximately $6,300,000 for the three months ended 03/31/2024. Operating expenses of the Strand segment increased to approximately $6,900,000 for the three months ended 03/31/2025, from approximately $6,300,000 for the three months ended 03/31/2024. Operating expenses of our SLS segment increased to approximately $2,200,000 for the three months ended 03/31/2025, from zero for the three months ended 03/31/2024. As a percentage of sales, operating expenses decreased to 31.4% for the three months ended 03/31/2025, from 33.4% for the three months ended 03/31/2024. As a percentage of sales, operating expenses of our strand segment decreased to 32.8% for the three months ended 03/31/2025 from 33.4% for the three months ended 03/31/2024.

Speaker 3

As a percentage of sales, operating expenses of our SLS segment were 27.7 for the three months ended 03/31/2025. For the Strand segment, the increase in dollar amount of operating expenses was primarily due to expenses relating to Strand's NetSuite enterprise resource planning system implementation, acquisition and integration of the Gander Group assets, and legal and accounting expenses related to the re audit of our historical financial statements. For the SLS segment, the increase in the dollar amount of operating expenses was due to the acquisition of the Gander Group assets in 2024. Net loss for the three months ended 03/31/2025 was approximately $400,000 compared to approximately $500,000 for the three months ended 03/31/2024. This change was primarily due to an increase in gross profit, partially offset by an increase in operating expenses.

Speaker 3

Turning to our balance sheet. We ended Q1 twenty twenty five with a strong liquidity position, holding approximately $12,200,000 in cash, cash equivalents, and investments, and no long term debt. The reduction in cash from $18,200,000 at 12/31/2024 was primarily due to a 5.1% decrease in our rewards program liability, reflecting the successful execution of that loyalty of those loyalty programs. Total assets stood at $52,200,000 compared to $55,100,000 at year end 2024 and stockholder equity of $31,300,000 reflecting our solid financial foundation. In summary, our Q1 twenty twenty five results demonstrated strong revenue growth, improved operational efficiencies, and a disciplined approach to managing our financial position.

Speaker 3

We are well positioned to continue executing our growth strategy while maintaining financial flexibility. I'll now turn the call over to Andy for closing remarks.

Speaker 2

Great. Thank you, David. As highlighted throughout this call, Strand ended 2025 with remarkable momentum, achieving 52.4% year over year revenue surge to $28,700,000 in the first quarter, a testament to our strategic focus and disciplined execution. With compliance efforts successfully completed, the Gander Group integration advancing and our enterprise wide NetSuite ERP system fully operational, we are now sharply focused on accelerating organic growth, expanding margins, enhancing operational efficiency and driving sustained profitability. Additionally, we are proactive We're addressing global trade dynamics, implementing robust contingency plans to mitigate potential tariff risks.

Speaker 2

Our unwavering commitment is to deliver innovative, high impact branded solutions with agility, consistency, and resilience throughout 2025 and beyond. We are energized by the opportunities ahead and confident in our ability to deliver sustained growth, operational excellence, and enduring value for our shareholders. Thank you for joining us today and for your continued support of Strawn. With that, we'll now open up to the call to questions. Operator?

Operator

Certainly. At this time, we will be conducting a question and answer session. One moment please while we poll for questions. Your first question for today is from Bill Jordan with TSA Capital.

Speaker 4

Hey, guys. Congratulations on the nice quarter. Just a couple of questions. With the reaudit process behind you now, are you expecting accounting and compliance costs from that process to go down in 2025? And as a second question regarding the reaudit, how much of those expenses associated with that reaudit hit your financials in the first quarter at '25?

Speaker 2

Great. Thanks for the question. Yes. So in terms of the cost in 2024, we did incur significant expenses, multi millions of expenses for the reaudit between accounting, audit, accounting consultants, other consultants, compliance, legal, multi millions of dollars. So that should definitely automatically reduce since we're in a much better cadence with both our, internal accounting firm, our internal accounting team, as well as our auditors.

Speaker 2

So we're in a much better cadence, and we should see a significant drop in that, moving forward in 2025. We did incur still some of those expenses because some of the 2024 compliance was completed in 2025. So q one, I don't have the exact number, but, it was was somewhere accounting and legal just in q one alone was was close to $800,000. So, you know, again, we look at that and say, we're pretty proud of our revenue growth. We did have a loss, some of that coming from, the majority of that coming from the new Gander acquisition, you know, trying to get that integrated and get that profitable.

Speaker 2

But, you know, even with that, with with $800,000 worth of legal compliance and and audit work in in q one, you know, we we had a $393,000 loss. So so, yes, that that those costs did hit this year, and we're looking for them to significantly decrease throughout the year.

Speaker 4

Well, thanks thanks for providing that color. That's helpful. Two other just two quick questions. Are you planning on restarting a share buyback anytime in the future?

Speaker 2

Yes. We have an author we we we were off the board has authorized us, initially $10,000,000, and we still have about 6,000,000 available on that to go buy in the market. And, yes, we are going to reestablish that and and buy the buy within the market. There are blackout windows that we need to adhere to so that as well as restrictions on on how much we can buy based on the trading volume. But, yes, we are planning on doing that as soon as the window opens next week.

Speaker 4

That's great news. And I guess the last question I have is, could you just explain a little bit, put a little context around the drop in cash and how it relates to the rewards pram program liability?

Speaker 2

Sure. Yeah. So the cash, we we do have a rewards program where we issue, from one of our clients, we issue out, prepaid debit cards to customers as as a form of, incentive and loyalty program that we run. And as a result, we, receive, cash from that customer that we hold in a in a ring fenced account that is dedicated to that. And and, that fluctuates drastically as we execute the the loyalty rewards program.

Speaker 2

So in q one, we we sent out $5,000,000 worth of cards, which we had to load with that that value. So that's the drop in cash. We subsequently gotten additional capital from them. So they'll they'll see it we'll see another spike in q two with that capital since it's it fluctuates. But, you know, that just is is a direct correlation to, that rewards program that we run because we have to prepay we have to fund the prepaid card.

Speaker 2

So hopefully, that explains that well enough, but that just is the drop in cash. It's not from operations. It's from, just the the the flow of money that, when it leaves and

Speaker 5

when it comes back in.

Speaker 4

Great. Thanks. That that did clear it up. I'll, I'll jump back into the queue. That's all I got for right now.

Speaker 4

Thanks.

Speaker 2

Thank you.

Operator

Your next question for today is from Rukan Dugal with Chandran.

Speaker 5

Hey, Andy. Hey, David. I just wanted to sort of follow-up on the sort of ongoing expenses versus one time expenses. Do you think at some point you could or are you planning to start reporting numbers that kind of spit that out for us to give us a sense of, you know, what what the real earnings of the business are ex those expenses?

Speaker 2

Yes. So we are planning on doing that. We have a draft of that that we have nearly completed that's going through compliance and and regulatory. We just wanna be make sure that what we put out there and publish is is accurate and and quantifiable that that we put out there. So, yes, we do have that nearly ready to go, but we're just we wanna make sure that what we put out there is is, approved by our legal counsel, our accounting audit teams, and and everyone else.

Speaker 2

But, yes, we are planning on putting out there that shows ongoing public expenses, adjusted EBITDA that will show what the onetime expenses were mainly related to the audit, and, also, the the the main expenses were related to audit acquisition costs as well as the implementation of our ERP.

Speaker 5

Great. Thank you. And and just a just a quick follow-up. With a lot of the tariff noise that we've had last month, I saw that inventories picked up a little bit. Is that just a part of the natural cadence of the business or is that in some part just trying to get ahead of tariffs?

Speaker 2

It's just a natural cadence of the business. Typically, increase in inventories is a good sign for us because it shows that our customers are committing to that inventory. The majority if the majority the major majority, 90 plus percent of our inventory is not bought on spec, it's bought on behalf of our customers with an inventory commitment from our customers. So we're not just buying inventory in the hopes that we sell it, we're buying inventory with a guarantee that our customers are going to buy it in the majority of our cases. So it's a good sign when our inventory goes up.

Speaker 2

The tariffs are are a a you know, are real, are something that's real, and we've talked about it, many times with you as well as other investors and internally. The fluidity how it's fluid right now where it's changing where, last week, we have a town hall every month or at first of Monday of every month that we had it last week. And when we prepared it, they were at a 45%. When we came in on Monday morning, they were at 30%. So the tariffs from China.

Speaker 2

So it's very fluid, and we're we're we're doing, I think, a very good job at communicating that with our customers, and and withholding some of our core values, which one of them it includes integrity and going back and and telling them exactly what's going on, communicating, trying to work with them on a on a reasonable resolution if if prices have increased for direct import orders. So, it's really only affecting us right now on direct import orders from China, which is, you know, not a it's a significant part of our business, but less than, say, 20% of our overall business. So the domestic stock that we normally use for our day to day business has not necessarily been affected negative or it hasn't increased quite yet. It will increase slowly over time, but we're negotiating with our factories, changing manufacturing locations like we talked about to other regions like, Vietnam, Taiwan, Bangladesh, India, to to try to avoid that long term as well as made in The USA. But we're very on top of it.

Speaker 2

A lot of our contracts also, allow us to, increase prices based on what our factories and what our vendors are charging. So we're a little bit protected or we're we're very protected in that way. It's just more on these transaction orders where we're doing a direct import, where when we priced it, it may have been at one price. Now it's a different price. We're going back to our customers.

Speaker 2

And and the majority of the time, our customers are reasonable because we have such strong partnerships with them that they're willing to work with us. Same thing with our vendors. We have such strong partnerships with our vendors that they're willing to work with us. Our customers are willing we're kind of sharing it all together where it's not really making as big of an impact, especially as it's gone down to 30%. The other thing to make note of for the tariffs is the 30% is really only on the product.

Speaker 2

A lot of the cost is associated with the product of bringing it in from China, whether it's the development of the product or most importantly, freight to get it here. So that is not teriffable as well as the profit that our factories may be using. So the 30% may may come down as well, maybe from 30 down to, say, 20 or 15, and then we can negotiate from there. So, you know, we're we're very conscious of it. We're actively negotiating with both our customers and our vendors, and and have seen very good outcomes for that where we're, to be honest, we're creating even a stronger relationship with both our customers and our vendors.

Speaker 5

Got it. Thank you.

Operator

We have reached the end of the question and answer session, and I will now turn the call over to Andy Shape for closing remarks.

Speaker 2

Great. Thank you, everyone, for joining. Thank you for your continued commitment to Stron, believing in what we're doing, and we're excited to finish out the year strong and talk to you in a few months when we do Q2. Thank you, everyone, and have a great day.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Stran & Company, Inc. Q1 2025
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