SWAG - NASDAQ

Greetings. Welcome to the Stran & Company First Quarter 2025 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alexandra Schilt. You may begin.

Good morning, and thank you for joining Stran & Company's 2025 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, May 15, 2025, detailing its financial results for the first quarter of 2025. 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. Today's remarks will include a review of Stran's financial and operational performance, followed by a Q&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 Stran's filings with the SEC for a full discussion of these risk factors. With that, I will turn the call over to Andy Shape. Please go ahead, Andy.

Thank you, Allie, and good morning, everyone. I'm thrilled to share the excellent results Stran & Company delivered in the first quarter of 2025, 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 March 31, 2025, we achieved a remarkable 52.4% year-over-year revenue increase, reaching approximately $28.7 million, up from $18.8 million in Q1 2024. 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. Notably, our core Stran 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 $8.5 million, representing 29.6% of sales compared to $5.6 million or 29.8% of sales in Q1 2024. 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 Stran Loyalty Solutions, or SLS, the segment encompassing the former Gander Group business, and we are actively working to align these margins with Stran's historically strong profile, which reached 32.4% for the Stran segment in Q1 2025. A key milestone this quarter was the completion of our reaudit process, which consumed significant resources in prior periods. With this behind us, we've 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 into 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. 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. Stran has proven a track record of agility and operational discipline in navigating complex international sourcing environments. To mitigate potential tariff uncertainty, we are accelerating our diversification strategy, expanding our global manufacturing footprint to include domestic made in 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 controls, streamlining workflows and leveraging our scalable infrastructure to capture more value from our revenue growth. The broader industry continues to present compelling opportunities as companies increasingly prioritize brand visibility, customer engagement and loyalty. Stran 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 Stran, 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. David, please go ahead.

Thank you, Andy. And good morning, everyone. I am pleased to provide a detailed overview of our financial performance for first quarter of 2025, which reflects the strength and scalability of our business model. Sales increased 52.4% to approximately $28.7 million for the three months ended March 31, 2025, from approximately $18.8 million for the three months ended March 31, 2024. Sales from the Stran segment increased 11.2% to approximately $20.9 million for the three months ended March 31, 2025, from approximately $18.8 million for the three months ended March 31, 2024. Sales from the SLS segment, which consists of the former Gander Group business, increased to approximately $7.8 million for three months ended March 31, 2025, from zero for the three months ended March 31, 2024. For the Stran 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 2024. Gross profit increased 51.1% to approximately $8.5 million from 29.6% of sales for the three months ended March 31, 2025, from approximately $5.6 million or 29.8% of sales for the three months ended March 31, 2024. Gross profit of the Stran segment increased to approximately $6.8 million for the three months ended March 31, 2025, from approximately $5.6 million for the three months ended March 31, 2024. Gross profit for the SLS segment increased to approximately $1.7 million for the three months ended March 31, 2025, from zero for the three months ended March 31, 2024. 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 2024. For the Stran segment, the increase in the dollar amount of the gross profit was due to an increase in sales of approximately $2.1 million, which was partially offset by an increase in cost of sales of approximately $0.9 million. For the SLS segment, the increase in the dollar amount of the gross profit was due to the acquisition of the Gander Group assets in August of 2024. The decrease in the gross profit margin to 29.6% for the three months ended March 31, 2025, from 29.8% for the three months ended March 31, 2024, was primarily due to the acquisition of the Gander Group assets in August of 2024, which operates at a lower gross profit margin than the Stran segment. The gross profit margin for the Stran segment increased to 32.4% for the three months ended March 31, 2025, from 29.8% for the three months ended March 31, 2024. The gross profit margin for the SLS segment was 21.8% for the three months ended March 31, 2025. Operating expenses increased 43.6% to approximately $9 million for the three months ended March 31, 2025, from approximately $6.3 million for the three months ended March 31, 2024. Operating expenses of the Stran segment increased to approximately $6.9 million for the three months ended March 31, 2025, from approximately $6.3 million for the three months ended March 31, 2024. Operating expenses of our SLS segment increased to approximately $2.2 million for the three months ended March 31, 2025, from zero for the three months ended March 31, 2024. As a percentage of sales, operating expenses decreased to 31.4% for the three months ended March 31, 2025, from 33.4% for the three months ended March 31, 2024. As a percentage of sales, operating expenses of our Stran segment decreased to 32.8% for the three months ended March 31, 2025, from 33.4% for the three months ended March 31, 2024. As a percentage of sales, operating expenses of our SLS segment were 27.7% for the three months ended March 31, 2025. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to expenses relating to Stran’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 March 31, 2025, was approximately $0.4 million compared to approximately $0.5 million for the three months ended March 31, 2024. This change was primarily due to an increase in gross profit, partially offset by an increase in operating expenses. Turning to our balance sheet. We ended Q1 2025 with a strong liquidity position, holding approximately $12.2 million in cash, cash equivalents and investments and no long-term debt. The reduction in cash from $18.2 million at December 31, 2024, was primarily due to a 5.1% decrease in our rewards program liability, reflecting the successful execution of that – of those loyalty programs. Total assets stood at $52.2 million compared to $55.1 million at year-end 2024 and stockholder equity of $31.3 million, reflecting our solid financial foundation. In summary, our Q1 2025 results demonstrated strong revenue growth, improved operational efficiencies and a disciplined approach to managing our financial position. 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.

Great. Thank you, David. As highlighted throughout this call, Stran ended 2025 with remarkable momentum, achieving 52.4% year-over-year revenue surge to $28.7 million 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 proactively addressing global trade dynamics, implementing robust contingency plans to mitigate potential tariff risks. 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 Stran. With that, we’ll now open up to the call to questions. Operator?

Certainly. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Your first question for today is from [indiscernible] with TSA Capital.

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 of 2025?

Great. Thanks for the question. Yes. So in terms of the cost in 2024, we did incur significant expenses, multimillions of expenses for the reaudit between accounting, audit, accounting consultants, other consultants, compliance, legal, multimillions 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. 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 Q1, I don't have the exact number, but it was somewhere accounting and legal just in Q1 alone was close to $800,000. So 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, trying to get that integrated and get that profitable. But even with that, with $800,000 worth of legal and compliance and audit work in Q1, we had a $393,000 loss. So yes, that – those costs did hit this year, and we're looking for them to significantly decrease throughout the year.

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

Yes. So we have an – the Board has authorized us initially $10 million, and we still have about $6 million available on that to go buy in the market. And yes, we are going to reestablish that and buy within the market. There are blackout windows that we need to adhere to, so – as well as restrictions 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.

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

Sure. Yes. So the cash, we do have a rewards program where we issue – for one of our clients, we issue out prepaid debit cards to customers 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 ring-fenced account that is dedicated to that. And that fluctuates drastically as we execute the loyalty rewards program. So in Q1, we sent out $5 million worth of cards, which we had to load with that value. So that's the drop in cash. We have subsequently gotten additional capital from them. So we'll see another spike in Q2 with that capital since it fluctuates. But that just is a direct correlation to that rewards program that we run because we have to fund the prepaid cards. 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 flow of money that – when it leaves and when it comes back in.

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

Thank you.

Your next question for today is from Rukun Duggal with Chandern.

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

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 regulatory. We just want to be – make sure that what we put out there and publish is accurate and quantifiable that we put out there. So yes, we do have that nearly ready to go, but we're just – we want to make sure that what we put out there is approved by our legal counsel, our accounting audit teams and everyone else. 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 main expenses were related to audit acquisition costs as well as the implementation of our ERP.

Great. Thank you. And just a quick follow-up. With a lot of the tariff noise that we've had last month, I saw that the 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?

It's just a natural cadence of the business. Typically, an increase in inventory is a good sign for us because it shows that our customers are committing to that inventory. 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. The tariffs are a real – 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 – first Monday of every month that we had it last week. And – when we prepared it, they were at 145%. When we came in on Monday morning, they were at 30%, so the tariffs from China. So it's very fluid, and we're doing, I think, a very good job at communicating that with our customers and withholding some of our core values, which one of them includes integrity and going back and telling them exactly what's going on, communicating, trying to work with them on a reasonable resolution 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 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 – 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 try to avoid that long term as well as made in the U.S.A. But we're very on top of it. 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 – 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. 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. 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, the freight to get it here. So that is not tariffable as well as the profit that our factories may be using. So the 30% may come down as well, maybe from 30% down to, say, 20% or 15%, and then we can negotiate from there. So we're very conscious of it. We're actively negotiating with both our customers and our vendors 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.

Got it. Thank you.

[Operator Instructions] 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.

Great. Thank you, everyone, for joining. Thank you for your continued commitment to Stran, 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.