Stran & Company, Inc. Q3 FY2022 earnings call

• Record revenue of $13.6 million in Q3 2022, a 24% year-over-year increase, making it the second best quarter in the company's history.
• Completed acquisition of Trend Brand Solutions in September, expanding geographic presence, especially in the Houston area, with Michael Krauser joining as Regional Vice President.
• Secured significant multiyear contracts with high-profile clientele, including a contract with a leading North American infrastructure service company projected to generate over $1 million annually.
• Implemented Oracle's NetSuite as a new ERP to gain operational efficiencies, with full implementation expected by end of 2022.
• Strong Q4 bookings with over $48 million in orders secured year-to-date.
• Maintained a strong balance sheet with $22 million of cash and cash equivalents and short-term investments, and no long-term debt.
• Continued share repurchase program, with approximately $1.2 million spent on repurchasing shares since last report.

For the third quarter of 2022, Stran & Company reported a record revenue of $13.6 million, which is a 24% increase compared to the same period last year. This represents the second best quarter in the company's history. The revenue contribution is from various aspects including sales growth from existing and new clients, and acquisitions like Trend Brand Solutions.

• Aim to reach profitability in the near term, with plans to increase gross margin by increasing automation through NetSuite implementation, taking advantage of vendor rebates/discounts/prepayments, adhering to structured budget, adjusting comp plans, monitoring sales expenses, and potential reduction in staff via automation efficiencies.
• Anticipate fourth quarter to be strong with historical seasonality typically being the strongest quarter, expecting revenue to come in earlier in November and early December due to supply chain considerations.

• Supply chain difficulties which can affect revenue timing and operations.
• Uncertainties in economic, competitive, and market conditions which can impact forward-looking statements and business decisions.
• Market competition within the promotional products industry which could affect market share and profitability.

Q: Morning, gentlemen. You mentioned you're going to reach profitability in the near term. Wondering if you could expand a little bit more on this. And if you expect that to be driven more from an increase in revenue or decrease in G&A due to less acquisition costs and costs relating to the ERP system rollout?

A: Sure. Thanks, Eddie. Yes, so we're very aware of our expenses and are managing them. As we've mentioned in the past, our goal this year was to continue to build infrastructure for scale, getting to where we want to be. We got to approximately $40 million last year, getting to scalability to be a $100 million-plus company. We need to invest in that infrastructure. So we've been consciously making an effort in that. But we have a very quantified, we have very specific ways that 2023 looking at Q4 and into 2023 of making profitability, starting with increasing our gross margin. That's the first way to do creating more automation through implementation of NetSuite and a better documented and better visibility into our financials and managing that even better. Taking advantage of rebates, discounts and prepayments with our vendors since we have cash and capital, we can use that to our advantage. Also looking at creating shipping as a revenue generator rather than just pass through as much as possible. Adhering to a more structured budget, David Browner, our interim CFO, has done a fantastic job of developing a much more strict budget that we're adhering to and implementing for moving forward. Also adjusting our comp plans to get more incentive on quantifiable growth and profitability, not just on sales. Other thing that we're looking at is monitoring and enforcing actions related to our sales expenses in relation to revenue and profitability. So really monitoring that and making - looking at how that looks. And then performing additional program analysis to execute steps that remove or restructure accounts that are not being profitable and replacing [them with] (ph) more profitability. And then finally is potential reduction in staff as a result of automation efficiencies. And we're not looking at doing that through layoffs or letting people go. It's more in keeping our current staff in place as we continue to add automation, we won't need to add more people. But as we increase revenue, we'll be able to increase without increasing our headcount in our staff, so that should become more accretive with all those efforts. So we absolutely have a very clear path of getting to profitability. It's just a matter of scaling up to give us the ability to do that until then. So we don't have an exact date of when that's going to happen, but we're looking towards that in the very near future.

Q: Okay. Great. That was really helpful. And then I was wondering if you could maybe talk about the seasonality, if there is anything in the business. And as we approach the holiday season, what we should expect maybe in the fourth quarter?

A: Yes. So typically, the fourth quarter has typically been our strongest quarter, and we're most likely going to see that again this year is what we're forecasting. Historically, last year, there was a pent-up demand. So last year was a very strong fourth quarter, and we intend to see that as well this year. The one thing that we've seen is supply chains are still very difficult to navigate through, so that we're trying to push that a little bit more forward than we have in the past. So see the revenue come in, in November and early December rather than the end of December. But in terms of seasonality, fourth quarter is typically our highest sales, and we intend to see that this year as well.

Q: Okay. Got you. And then on gross margin, you mentioned various steps that you're taking to increase that and notice that purchases over revenue compared to Q2 have decreased a little bit. Did you guys just implement the vendor prepayments policy? I'm wondering if you could unpack that a little bit for us.

A: Sure. So there's a few things that are driving the gross margin higher. And the first one is more awareness and education to our entire team. So as we're acquiring new companies and as we're growing and continue to grow, is making sure that we're aware that. Stran does have a very valuable value proposition to our customers. And we don't need to give away revenue because we really deliver value to our customers, and they're willing to pay at market rate, not below - we don't need to go below market rates. So the first reason, the way we are looking at that is awareness and education and reporting. So we've done a really good job of identifying areas where we should increase our gross profit margin, where we're also adding value to customers. We want to be careful about not overcharging or losing business because of not being competitive. But that's the first way of doing it. In terms of the rebates, discounts and prepayments, that has been implemented, but a lot of that may not be captured yet because we don't really necessarily report those until the end of the year after we've recognized our annual spend. So we are expecting to see more rebates hit our P&L in the fourth quarter. In addition to that, once we implement NetSuite, once we're fully live in NetSuite, which we’re expected at the end of this year, that will give us even a greater ability to automate that process so that we make sure that we're not missing out on potential discounts when we do prepayments or pay if we get a discount to pay those early or prepay them.