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spk03: Good morning, everyone, and welcome to the Strand and Company Fiscal 2022 Year-End Earnings Call. At this time, all participants are in a listen-only mode. 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 phone 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. Alexandra, you may begin.
spk00: Good morning and thank you for joining Strawn & Company's 2022 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 30, 2023, containing its 2022 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 12 months ended December 31st, 2022. 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 Strong's 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 Strong's control. With that, we will now turn the call over to Andy Shape, Chief Executive Officer. Please go ahead, Andy.
spk02: Thank you, Elliot, and thanks to everyone for joining us today as we discuss the meaningful progress and financial milestones achieved during 2022. Throughout 2022, we maintained a steady growth trajectory, resulting in revenue of approximately $59 million for the fiscal 2022 year, a 48.5% increase compared to 2021. Importantly, we returned to profitability for the fourth quarter of 2022, achieving a record revenue of $18.3 million and net income of $903,000. which we believe is significant financial milestone given our important investments in the business and expect to gain significant operating leverage as we continue to grow that business. At the same time, I'm proud to report that we've preserved a solid balance sheet with a combined $25 million of cash and short-term investments as of December 31st, 2022, and no long-term debt. Importantly, we implemented business initiatives during the year to accelerate our growth. This included carefully managing expenses, purposeful investments, advancing M&A, and completing the implementation of the first phase of NetSuite for improved operational efficiencies and scalability. I'm proud to say we have effectively executed on all fronts, resulting in a return to profitability in the fourth quarter, while establishing a strong lead generation team, four-ounce acquisitions within 13 months, and implementation of NetSuite. We believe these activities will prove to be invaluable as we strive to increase our revenue and profit in the near and long term. The promotional products industry continues to be very fragmented. In order to gain competitive advantages in the industry and set ourselves apart, we have invested in sophisticated technologies as well as acquired meaningful companies that have a proven track record of sales and success along with an established customer base. Towards this end, we announced four acquisitions within the last 13 months, and each brings strong, unique advantages and opportunities while completing our business operations, improving our capabilities, increasing our recognition within the industry, and expanding our national footprint. First, we announced the closing of Gap Promotions, a full-service promotions agency with an established customer base comprised of many of the world's leading beverage and consumer packaged goods companies. By compounding Gap's expertise in point of sale, display, and racks with our knowledge, capabilities, and technology, we are able to aggressively pursue opportunities within the beverage industry by cross-selling and upselling through both our combined organizations' existing clients as well as attracting new clients. Given GAP's previous revenues of $7.2 million for 2021 and consistent profitability since inception, we are extremely pleased to have onboarded and fully implemented the GAP business and successfully merged GAP employees into STRON while broadening our presence and recognition in the Northeast. In fact, GAP helped us in reaching our nearly 50% growth in sales for 2022 as we acquired them in January of 2022. Second was the acquisition of Trend Brand Solutions. Trend was a strategic acquisition as it was headquartered in Tomball, Texas, just outside of Houston, allowing us to enter a new geography and truly expand our national footprint. Trend has a demonstrated track record of delivering customers' brand marketing needs and has effectively evolved over time as customer needs change. And to create efficiencies, Trent has established a distribution center located in the Houston, Texas area, as well as international factory partnerships to source close to the end user while enabling shipments worldwide. As I've highlighted before, Trent broadens our exposure in the south, especially in the Houston area, which is home to two dozen Fortune 500 companies and ranks third among metro areas and Fortune 500 headquarter locations, making an ideal fit for STRON. We believe this acquisition demonstrates our commitment to our growth strategy by acquiring companies with an established platform and customer base while allowing us to target high-profile clientele given their location. Following trend, we announced the acquisition of Premier NYC. With over 30 years of experience, Premier has developed expertise in creating and implementing successful solutions for its customers, which include a number of marquee, well-known customers, especially in legal and professional service verticals. that have long-standing relationships with Premier. Premier further strengthens our leadership position in the Northeast and enables us to enter into new verticals, again, hitting key aspects of our growth initiatives. And most recently, we announced entering into definitive agreement to acquire T.R. Miller Company. T.R. Miller brings a successful track record spanning over 47 years, serving a broad portfolio of top-tier customers, including a Big Four accounting firm, Fortune 100 insurance provider, global sportswear manufacturer, leading beverage and coffee maker conglomerate, and an online food ordering and delivery platform. This acquisition is expected to enhance our operational fulfillment capabilities through the addition of T.R. Miller's 20,000 square foot distribution and processing fulfillment center located in Walpole, Massachusetts. T.R. Miller has a long history as an industry leader and ended their 2022 fiscal year with approximately $19 million in revenue. We expect this acquisition to close in the second quarter of 2023. We are extremely proud to be adding such quality companies to STRON and effectively advancing our M&A strategy, which we believe will improve our operations and capabilities, expand our national footprint, and increase our recognition in the promotional products industry. Additionally, we structured these acquisitions very favorably for STRON with much of the consideration on an earn-out basis, allowing us to preserve cash as well as encourage growth and success. Beyond the goals we've reached with M&A, we also signed meaningful contracts in 2022. Our customers have sought us out to provide differentiated promotional products that allow them to incentivize consumers and drive behaviors. Specifically, a large national healthcare company selected us to create, distribute branded promotional items, educational collateral, and unbranded medical devices to program participants, which included pregnant women, and people suffering from hypertension or high blood pressure. This multi-year contract is projected to generate over $5 million in annual revenue with potential for expansion opportunities that we intend to fully pursue with this customer. I'd also like to note that the healthcare industry is a huge untapped market that is increasing the usage of promotional products as marketing tools to engage with consumers. We also secured a major contract with the leading North American infrastructure service company to assist in increasing their market awareness and customer loyalty. We're currently executing on this contract and expect it to generate over $1 million annually. And recently, we signed a contract with a multinational direct-selling beauty products company to support the customer's North American incentive-based merchandise loyalty program. This company is one of the largest beauty product direct sales companies, and we launched a new customer-branded e-commerce merchandise store for them this quarter. With over 4 million beauty influencers, this e-commerce store is easy to use and provides influencers access to merchandise with the expectation of bolstering their loyalty program. These contracts are meaningful to our bottom line with opportunities for expansion. We're very pleased to have secured these significant contracts and believe we can meet and satisfy our customer needs as their demands increase. In addition to the contracts I just mentioned, we also expanded our customer-facing technology offerings by launching more than 37 online stores for various other customers throughout the year. These online stores provide long-term value to our customers and help us develop them into repeat programmatic customers. Furthermore, we are witnessing continued demand for our products and services as a result of our enhanced lead generation and digital marketing program led by an experienced team of industry veterans. This dedicated lead generation team will be further supported by an integrated, an aggressive digital marketing strategy, and paid search advertising efforts. We believe this initiative will enable us to expand into new markets and industry verticals by building sales and marketing campaigns that promote STROM through social media, search engine optimization, HubSpot inbound marketing, and other alternative channels. We are in active discussion with potential customers and have secured over 41 new customers from this initiative. This program has validated our belief that there are untapped markets for promotional products and huge opportunities for STRON that we tend to take advantage of. Looking to the first quarter of 2023, we are seeing strong bookings with nearly 15 million in orders secured year to date, in what is seasonally our lowest quarter in terms of revenue. It's important to reiterate that these numbers aren't reflected as billed revenue until the products are delivered over the next few months, though reinforces our continued traction in the market. We believe the activities we are undertaking will further solidify our leadership position within the promotional products industry, which is valued at over $25 billion. We are extremely proud of the progress we have made throughout 2022 and the beginning of 2023 and expect these trends to continue and assist in furthering our growth. Demonstrating our confidence in the outlook of the business, we implemented and executed a share buyback program back in February of 2022. To date, we have repurchased approximately 1.78 million shares that totaled about $3.3 million in share repurchases. We believe this will help drive long-term shareholder value and show we have completely aligned with shareholders. Our growth strategy has not only been successfully executed, but has also brought us back to profitability for the fourth quarter of 2022, despite all of our investments in the business to propel long-term growth. In parallel, we have attended industry and investor-focused conferences throughout the year and were acknowledged and presented awards for our ability to execute. Lastly, I'd like to announce that we have formally appointed Dave Browner as our Chief Financial Officer. David has been part of the STRON team since 2012 and began serving as our interim CFO last year. Given his long relationship with the company and successful financial performance, we believe David is the perfect fit for STRON in achieving our growth objectives. Overall, we developed and executed a business growth strategy resulting in increased awareness of STRON, an expanding national footprint, as well as bolstered our customer base. 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. Please go ahead, David.
spk01: Thank you, Andy. Revenue increased 48.5% to $59 million for the year ended December 31st, 2022, from $39.7 million for the year ended December 31st, 2021. The increase was primarily due to the higher spending from existing clients, as well as business from new customers. Additionally, we benefited from the acquisition of the GAP promotion assets in January 2022, the Trend Brand Solutions assets in August of 2022, in the premier NYC assets in December 2022. Gross profit increased 40% to $16.6 million or 21.8% of revenue for the year ended December 31, 2022, from $11.8 million or 29.8% of revenue for the year ended December 31, 2021. The increase in the dollar amount of the gross profit was due to increased sales partially offset by an increase in purchasing costs. Operating loss for the year ended December 31, 2022 was $1.5 million compared to an operating loss of $438,000 for the year ended December 31, 2021. The decrease was primarily attributable to the higher general and administrative expenses, which was primarily due to additional expenses related to the acquisition of the GAP promo assets, the Trend Brand Solutions assets, and the Premier NYC assets. as well as the implementation of the new ERP system on Oracle's NetSuite platform, ongoing public company expenses, and the organic growth within our business. Operating expenses as a percentage of revenue was 30.7% for the year ended December 31, 2022, down from 30.9% in the year ended December 31, 2021. Net loss for the year ended December 31, 2022, was $0.8 million compared to net earnings of $0.2 million for the year ended December 31, 2021. This decrease was primarily due to the lead generation initiatives, integration expenses related to the acquisition of the GAAP promotions and trend brand solutions assets, ongoing expenses related to being a public company, and higher costs of purchases. However, we did have a record revenue of 18.3 million and a net earnings of 303,000 for the fourth quarter of 2022. At December 31st, 2022, the company had $25 million of cash in short-term investments and no long-term debt. Given the strength of our balance sheet, we implemented a share repurchase program of up to $10 million in February 2022. For the year ended December 31st, 2022, we repurchased a total of 1,777,657 shares and returned $3,332,405 in value to stockholders under the trading plan. At this point, I'll turn the call back over to Andy.
spk02: Thank you, David. To wrap up, we have successfully executed on our growth strategy, which has resulted in increased revenue and profitability for the fourth quarter of 2022. We continue to witness strong revenue growth quarter to quarter, and we're expanding and growing our business. We're excited to see what the rest of 2023 has in store for us, and we'll continue to provide updates as developments unfold. 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, Andy. 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 phone keypad. A confirmation tone will indicate your line is in the queue. You may press star two if you would like to remove your question from the queue. For participants using any speaker equipment, it may be necessary to pick up your handset before pressing the keys. One moment whilst we poll for questions. Thank you. Your first question is coming from Edward Riley of EF Hutton. Edward, your line is live.
spk04: Hey, guys. Congrats on reaching profitability. Just wanted to talk macro for a second. seeing some cutbacks in marketing budgets. I'm just wondering maybe what the majority of your customers are thinking right now in terms of marketing budgets for the rest of the year.
spk02: Sure. Thanks, Eddie. Good to hear from you. Thanks for calling in. Yes, so some customers are pulling back, whereas we've seen others that are not slowing down. I think there is, at a macro level, people maybe are planning differently, but we have not Based on our bookings that we've had year to date, we haven't seen a significant slowdown overall. As I mentioned, some customers may be pulling back in certain sectors, specifically financial services may be pulling back, but there are other ones, consumer brands or healthcare or some of the other verticals, entertainment and gaming, we've seen increases in that. Some of our customers look at this as an opportunity to capture market share, so increase their spend during times of uncertainty because others possibly aren't spending. So it's been a balance, but we've seen our bookings continue to remain fairly strong this year so far.
spk04: Okay, got it. Thanks. And then on the one-time ERP costs, just wondering if you could maybe give us a rough amount as to how much that was included in the operating expenses for the fourth quarter. And I know this was phase one, and phase two is likely coming up. Just maybe how much additional expense we should expect throughout the year.
spk02: So in 2023, or I'm sorry, in 2022, the total cost to implement RERP, Oracle's NetSuite, was approximately $1.3 million. $8 million. So it wasn't inexpensive. And that was done. We've been working on that, and that included the seat licenses that we needed to have for the ERP, which we did launch successfully, and we are running orders through NetSuite right now, as well as the implementation and integration, as well as IT services. So that won't go away, but it will definitely be a fraction. We're Assuming that will be quite a bit less than that, well under $1 million, closer to probably half a million moving forward because we've done all the heavy lifting of preparing to have a scalable platform that can be used well into the future.
spk04: Okay, great. Thanks. And then last one for me, just maybe what you're seeing with regard to your acquisition pipeline for 2023.
spk02: Sure, so the biggest concentration we're having right now is T.R. Miller. So we announced that we were signing a definitive, we announced the signing of a definitive agreement. Right now we're in the process of doing our due diligence, trying to onboard them and looking to close as quickly as we can within the next few weeks or months. So our major concentration is to get that finalized and then look at additional acquisition opportunities but in full transparency, we're not as aggressive as we were since this will be our fourth acquisition in less than 18 months, and we want to concentrate on integrating them and growing that business. That doesn't mean that we're not active and that we're not looking and in discussions with different M&A opportunities. It's just we want to make sure that we give this the attention, TR Miller, since that's $19 million in revenue. It's a lot of moving parts to it, and we want to make sure that we do it correctly and capitalize on the business that we're buying so that we integrate it properly and then can effectively grow that business as well. So hopefully that answers your question about us maybe slowing down. Last year, we finalized three of them. With T.R. Miller this year, we may see one or two more this year, but we won't probably be as active as we were in 2022.
spk04: Okay, understood, thanks.
spk03: Thank you very much. Just as a reminder, if anyone does still have a question or a comment, you can press star one on your phone keypad now. Okay, we don't appear to have any further questions in the queue. I will now hand back over to Andy for any closing. Oh, we've just got another question in if you want to take it from Ed Riley again. Sure. Okay, Ed, your line is live.
spk04: Great. Yeah, I'll sneak one more in. Just on the beauty products company, could you maybe give us an indication as to maybe how big this is and maybe unpack your comments around opportunities for expansion?
spk02: Sure. So the beauty products, we are launching a program for their North American first, and we're in the process of launching that program right now. That in of itself should be we're estimating that it should be well into the seven figures. But once we launch that, our expansion includes going globally with that brand and offering products globally, both through our direct relationships with factories and distribution overseas, as well as through partnerships that we have with other third-party logistics providers or manufacturers in different regions. So we're not exactly sure how much it It could be, but considering that they have over 4 million global beauty product influencers, we feel that it could be several million dollars in top-line revenue over time.
spk04: Okay, great. Thank you.
spk03: Thank you very much. If there will be no further questions, I will then hand back to Andy for closing remarks.
spk02: We're proud of what STRON, thank you everybody for listening. We're proud of what STRON has done in 2022. I think we've delivered on what we, our plan and what we told shareholders we were doing of growing our business, growing top line, starting to concentrate on profitability and really looking at expanding to become a true leader within the $25 billion promotional products industry. Thank you everyone for listening and we look forward to sharing additional information as things develop and as we report additional earnings in the future. Thank you for your time.
spk03: Thank you, everybody. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
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