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spk03: Welcome to the STRAN and Company Fiscal 2023 Year-End 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, the floor is yours.
spk00: Good morning, and thank you for joining Strawn & Company's 2023 Year-End Financial Results and Business Update Conference Call. On the call with us today are Andy Shape, Chief Executive Officer, and David Browner, Chief Financial Officer. The company issued a press release today, March 28, 2024, containing its 2023 fourth quarter and year-end 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 and twelve months ended December thirty first twenty twenty three. 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 strands 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 STRON's control. With that, I will now turn the call over to Andy Shape, Chief Executive Officer. Please go ahead, Andy.
spk02: Thank you, Allie, and thanks to everyone for joining us today as we discuss the meaningful progress and milestones made throughout 2023. First, I'm proud to report that we generated a record sales of approximately $75.9 million for 2023, a 28.7% increase over the prior year. Additionally, our gross profit increased 50.2% to approximately $24.9 million over with our gross profit margin increasing to 32.8% compared to 28.1% for 2022. Most notably, we achieved profitability for 2023. As I previously mentioned, Stroud has historically been profitable, and while we did report a loss for last year as we integrated a number of acquisitions, we knew these acquisitions would be highly creative and beneficial for our shareholders. We are now at an important flexion point within the company and are confident that we can sustain long-term profitability as a result of the successful execution of strategic growth initiatives implemented throughout the past few years. The improvement in operations is even more visible when you look at our fourth quarter results. While our revenue increased by 27.5% to a record approximately $23.3 million for the fourth quarter, even more impressive, our gross profit increased 63.5%. to approximately $8.7 million, and our gross margin increased to 37.4% compared to 29.2% for the same period last year. You can get a really good picture of the operating leverage we're starting to gain when you look at our fourth quarter operating income, which increased 156% to approximately $1.1 million versus $421,000 for the same period last year. Our strategy is working, and we're firing on all cylinders. We believe our substantial growth and increased profitability stand as proof of the investments we've made alongside diligent expense management, validating the scalability and profit potential inherent in our business. And while I've been active on the M&A front, we are proud to have realized a 16.6% increase in organic revenue for 2023. Despite the challenging macroeconomic conditions during 2023, We have demonstrated our resilience, especially compared to many of our peers who experienced nominal growth or even declines in 2023. This achievement highlights our robust competitive position, expanding market presence, growth within existing client relationships, and the addition of a number of first-class customers that I'll talk about in a moment. On the M&A front, we closed the T.R. Miller acquisition in June of 2023, which was our fourth acquisition within less than two years and followed Gap Promotions, Trend Brand Solutions, and Premier NYC. Each acquisition has delivered crucial strategic benefits to STRON and our operations, including the expansion of our geographic reach, bolstering our warehousing and manufacturing capabilities, expansion into specific verticals, and attracting esteemed clients to our already impressive portfolio. As previously mentioned, M&A has played a crucial role in our growth strategy, particularly given the conducive environment for consolidation within the promotional products industry. While we continue to actively explore potential M&A opportunities as they emerge, our primary focus is on nurturing our organic growth and optimizing the benefits of our existing acquisitions. Currently, we are actively expanding into new verticals and geographic regions to bolster our growth trajectory. Moreover, our improved sales and marketing initiatives, including more targeted SEO and demand generation, combined with an experienced sales leadership team are having a positive effect on our contract pipeline, evidenced by several new contracts announced during the year, as well as expanding contracts within existing clients. Specifically, we secured a six-figure contract with a leading medical group that specializes in the treatment of gastrointestinal disorders. This customer has over 200 locations throughout the United States and over 3,000 employees. We have successfully launched a new marketing program for them and also provided holiday gifts for the 2023 season while continuing to supply recruitment gifts as well as new hire kits to employees. We also expanded our partnership with the existing online sports and entertainment client and introduced a loyalty redemption program tailored to their needs. This offering includes a blend of physical and experiential rewards aimed at incentivizing desired behaviors. This program exemplifies one of several initiatives built upon our e-commerce loyalty program platform, which encompasses every aspect of client and consumer engagement. from concept development to production, technology integration, logistics, inventory management, fulfillment, and reporting. Our goal is to ensure a seamless experience for both the client and their customers. Within the first week alone, this program generated over 22,000 orders, resulting in sales exceeding $2 million. The program successfully delivered over 51,000 orders, generating over $4 million in total sales. We are excited about the ongoing execution of this program for our client and are eager to explore similar opportunities within other clients. Additionally, we were contracted by a multinational direct selling beauty products company to provide incentive merchandise to assist in growing the customer's North American loyalty program. We successfully launched their custom branded e-commerce merchandise store during the first quarter of 2023 for the North American market and are actively exploring how we can support their international clientele as well. With our global reach and community exceeding 4 million beauty influencers worldwide, we are delighted to have been chosen to assist in expanding their loyalty program by offering incentive merchandise to their North American customer base. We also continue to launch new online stores for customers and are now actively managing over 280 online customer stores. These provide long-term value for our customers as well as easy and simple access to the products. In addition, considering the growth trajectory we are experiencing, we have hired and promoted key personnel. First, we officially promoted David Browner to the position of Chief Financial Officer after serving as our interim CFO for almost a year, as well as holding other key financial roles since becoming part of STRON Team in 2012. We have witnessed his management, operational, and financial skills and appreciate his significant contributions to the company's growth and integration of several acquisitions. Given his long relationship with the company and background, David is a valued member of our leadership team. Following David, we made strategic hires and filled key positions, including chief information officer, executive vice president of sales, and senior vice president of client strategy. Ian Wall, an experienced information technology executive, now serves as our chief information officer. Given his extensive experience in implementing technology differentiators, both internal and customer-facing, while working at Harvard and Tufts in the education sector, and Vertex and Biogym in the pharmaceutical industry, Ian has added significant value to our team. We're actively working to fully implement NetSuite into our operations, along with other e-commerce initiatives using Adobe's e-commerce platform Magento Open Source. And Ian brings the first-hand experience and deep skill set utilizing both of these platforms that will allow us to maximize our technology investments and improve the overall efficiency of our business. Additionally, Ian demonstrated his ability to leverage technology to enhance operations, improve efficiency, and strengthen the customer experience by implementing NetSuite and other innovative technologies at his previous positions. We are proud to have Ian on our executive team. Nick Kiefer now serves as our Executive Vice President of Sales, and Michelle Pitlinski is our Senior Vice President of Client Strategy. Both Nick and Michelle are promotional products industry veterans and collectively bring decades of industry sales experience to our company. Our goal is to build on our strong foundation, and we believe these industry professionals will enable us to better capitalize on significant opportunities within the market. Nick and Michelle have successful track records of implementing strategic sales strategies to further penetrate customers and growth, and we are proud to welcome them to our sales team. Importantly, as a result of our ongoing efforts, we've continually been recognized in the industry, and I'm honored to jump 21 places to 24th in the Advertising Specialty Institute's 2023 annual listing of the most powerful people in the promotional product industry, which follows our top 40 distributor ranking. In addition, I'm proud to say that I was named the 2023 Counselor Person of the Year by ASI. ASI serves a network of 25,000 suppliers, distributors, and decorators, in the $26.1 billion promotional products industry, and being acknowledged with their awards validates our progress, including accelerated revenue growth and our ongoing business efforts to become an even more recognizable leader within the industry. Overall, we have implemented and continue to follow a carefully crafted growth strategy. This strategy has led to profitability for 2023, along with securing new contracts, improving business operations, and introducing new technology offerings. As I mentioned earlier, the improvements in our operations and increased efficiency are being more evidenced by our impressive fourth quarter results. We remain dedicated to our growth strategy and are confident that we will solidify our position as a leader in the $26 billion promotional products industry. At the same time, we have preserved a strong balance sheet with $18.5 million in cash and investments as of December 31, 2023, excluding our rewards program liabilities, we maintain cash and investments of approximately $17.6 million as of December 31, 2023, compared to approximately $19 million as of December 31, 2022, demonstrating our ability to simultaneously maintain strong growth while prudently managing our cash. These funds continue to provide us with the flexibility to explore strategic opportunities as they arise. In summary, our objective is to continue to execute our growth strategy. This includes innovating, investing in technology, launching sales and marketing initiatives to deepen our client relationships, and selectively pursuing acquisitions to support our expanding operation. At this point, I'd like to turn the call over to our Chief Financial Officer, David Browner, to go over the financials in detail. David, please go ahead.
spk01: Thank you, Andy. Sales increased 28.7% to approximately $75.9 million for the year ended December 31st, 2023, from approximately $59 million for the year ended December 31st, 2022. The increase was primarily due to higher spending from existing clients as well as business from new customers. Additionally, the acquisitions of the Gap Promotions Assets in January 2022, the Trend Brand Solutions Assets in August of 2022, The premier NYC assets in December 2022 and the TR Miller assets in January 2023 accounted for approximately 14.7 million or 19.4% of sales for 2023 compared to approximately 6.5 million or 11% of sales for 2022. Reoccurring organic sales defined as sales excluding revenue from acquisitions of the assets from each of GAAP promotions, trend brand solutions, Premier NYC and T.R. Miller increased 16.6% or approximately $8.7 million to approximately $61.2 million for year-ended December 31, 2023, compared to approximately $52.5 million for year-ended December 31, 2022. Gross profit increased 50.2% to approximately $24.9 million or 32.8% of sales for the year ended December 31st, 2023 from approximately 16.6 million or 28.1% of sales for the year ended December 31st, 2022. The increase in the dollar amount gross of profit was due to increased sales partially offset by an increase in purchasing and freight costs. Net income for the year ended December 31st, 2023 was $35,000 compared to a net loss of $778,000 for year ended December 31st, 2022. This change was primarily due to the increase in sales during the year ended December 31st, 2023, partially offset by an increase in operating expenses. At December 31st, 2023, the company had approximately $18.5 million in cash and investments and no long-term debt. At this point, I'll turn the call back over to Andy.
spk02: Thank you, David. We take great pride in the achievements we've accomplished thus far, including profitability, securing new contracts, and raising STRON's visibility. Most importantly, we are beginning to realize greater efficiency and economies of scale that will continue to enhance our profitability. We eagerly anticipate further benefits from our growth initiatives and will share updates as they develop. I'd like to thank you for joining the call today. At this point, we would like to open up the call to questions. Operator?
spk03: 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. A confirmation tone will indicate your line is in the question queue. You may 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. We have a question from Bill Jordan, who is a private investor. Your line is live.
spk04: Thank you. Andy, congratulations on the solid results. Just have a couple of questions for you. You made some new hires this year. Can you give us any more kind of background on the people that you hired and why?
spk02: Sure. So, I'll go in order. The first one that we discussed is Ian Wall for our chief information officer. We're really excited to have Ian on board. He worked within the education and pharmaceutical sectors, very smart individual that has an extensive background with both implementing ERPs like NetSuite SAP and other ERPs similar to what we're implementing for STRON right now to create more efficiencies as well as integrating that with e-commerce so that they're seamlessly attached to one another and again looking to make it easier for our customers to do business with us on a technology front and easier for our employees to process those orders and run the operations of the business. So we're really excited about EN and We're excited to have him take over the reins to lead our technology initiatives well in the future. Additionally, we hired Nick Keeper as our VP of Senior Vice President of Sales. Nick's a true pro within the promotional products industry, helping companies grow from mid-sized company to large players within the industry. We recruited Nick and brought him on board because of his ability to be a strong leader within our sales organization. We have about approximately 36 sales reps and approximately 30 internal reps that roll up to him, and we're really excited because he's really helping them expand their business, maximize their potential through leadership, coaching, and strategic initiatives. So we're really excited about Nick, and alongside with Nick is Michelle Pitlitsky, who is the VP of Client Success, and really what we're trying to ensure that As we have clients, we've been in business for almost 30 years. We have a great reputation. Our clients really enjoy doing business with us. We actually recently did a survey where our net promoter score was over 70, close to 75. So our customers are very happy with the business that we're doing. It's Michelle's job to ensure that we continue to do that as we grow and put our customers first and make sure that we keep them long-term. So those were some of the biggest hires that we've had so far. last year and beginning of this year and we're really excited about that in addition to david browner obviously being promoted to full-time cfo and david's been amazing and and understands our business and this industry better than almost anyone i've ever met so i'm really proud of what david has grown into as a leader within stront as well as the information that he's been able to share with our entire organization thanks that was that was really helpful
spk04: You talked a little bit about M&A. What are your thoughts on M&A going into 2024 and just general M&A within your industry?
spk02: Sure. So M&A, as we've mentioned, we've done four acquisitions in the last just about two years. So although we're not pausing M&A by any means, we're not as active as we were in, say, 2022 and 2023 because we've acquired all of those companies. Our goal is to make sure that we integrate them properly and as well as maximize their potential. So we're actively looking. I'm looking within the industry. I'm looking at other types of companies that we have plenty of discussions with, but we're being a little bit more selective and patient. In terms of the industry, I think this industry will continue to consolidate since there's so many players. It's a $26 billion industry with over 25,000 companies within it. I think consolidation will continue to happen, and we look to be a leader within that consolidation, but just selectively the things that work to increase the value of our business, both short-term and long-term.
spk04: Great. Just two other questions. How is your pipeline and just the general business as you swing into 2024 now?
spk02: Our pipeline is great. We have a lot of momentum. We've seen a lot of those sales efforts that I mentioned with Nick and Michelle in place with our marketing efforts. Really, we're starting to see some results with a lot more opportunities, large opportunities, RFPs that we're working on that we've seen a lot, finding both new business as well as expanding our business. So we feel like our pipeline is very strong. We're expecting to see growth within 2024. people are with interest rates being where they are right now, but with the hope of them potentially coming down, I think people will continue to spend. So we're excited about our momentum that we have right now that we're seeing within the first quarter. Historically, you know, our seasonality within our business, Q1 is typically the slowest, followed by Q2, Q3, and Q4. It continues to ramp up throughout the year. But We're excited, and our pipeline is pretty strong right now, so we're excited about that.
spk04: That's great. Last question. You experienced some impressive gross margin improvement in the fourth quarter and for the year 2023. Is this sustainable, and what should shareholders or investors expect going forward with margins?
spk02: Yeah, that's, you know, in 2023, we really made a conscious effort to identify ways to create more profitability. And there's a couple of different ways to do that. One is increase our margin selectively where it makes sense, where we're still competitive and offering value to our customers, but also not giving away our products. So we made a conscious effort to educate and work with our sales and service teams to ensure that we're charging appropriately to our customers and not working at below industry average margins. So that was the first thing that we did is worked on education as well as monitoring and enforcing actions related to working at appropriate gross margins. And secondarily, we also worked on better purchasing and buying, negotiating better pricing, negotiating better rebates, and just being more conscious of where we spend and how we spend it. So those two things combined, I think, was a result of us looking at those a little bit harder and monitoring and forcing actions related to that within our organization, as well as just more visibility into that. So we do want to continue to increase our margins and see those steadily above 30% for gross profit margins. So that's our goal moving forward is to maintain that. So we're hoping to continue with that and show our shareholders that we can continue to do that.
spk04: Great, thanks. That's all I got. Congratulations on the results again.
spk02: Great, thank you.
spk03: Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time. Okay, as we have no further questions in the queue at this time, I will pass it back over to Mr. Shape for any closing comments he may have.
spk02: Great. Thank you, everyone, for joining. We're excited about the results for 2023. We're very proud of the results that we had in Q3 and Q4 that really made a huge impact and turned us profitable. We just feel that that shows that long-term we can sustain that. We can identify when we need to create more profitability and use our capital that we have to our advantage. It's a major advantage to us within this industry to have the capital that we have to go invest in our business, to grow. And we're excited to continue to do that and show our investors how to continually add value to STRON. So thank you for joining and excited to show what we can do next. Thank you.
spk03: Thank you. 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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