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spk03: and welcome to the Strannan Company second quarter 2023 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. Mom, you may begin.
spk00: Good morning, and thank you for joining Strawn & Company's 2023 Second Quarter 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, August 14th, 2023, containing its 2023 second quarter 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 months ended June 30th, 2023. 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 Strand'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 STRON's control. With that, we will now turn the call over to Andy Shape, Chief Executive Officer. Please go ahead, Andy.
spk02: Thank you, Allie, and thanks, everyone, for joining us today. Over the last several months, we have developed and executed on our business growth strategy, which has resulted in 18% growth in revenue to $17.5 million for the second quarter of 2023 and 23% growth in revenue to $33.2 million for the first six months of 2023. Importantly, in the second quarter, organic revenue increased 11% while also achieving a 35% increase in gross profit to $5.1 million and improved our gross profit margin to 29.1% from 25.4% for the same period last year. Additionally, for the first six months of 2023, organic revenue increased by 14% while our gross profit increased by 40% to 9.8 million and gross profit margin improved to 29.4 from 25.8 for the same period last year. We're very proud of this organic growth and margin improvement given the current market environment and declining sales many competitors in this share are experiencing due to economic uncertainty and pressure on marketing budgets. Rather than contracting, though, we are growing and capturing additional market share within the $25 billion promotional products industry. We're witnessing a strong contract momentum as a result of our sales efforts and highly focused marketing initiatives. We expect this trend to continue as we further refine and expand our outreach, as well as leverage established relationships from our acquisitions. Regarding our acquisitions, we are proud to say we completed four meaningful acquisitions within the last 18 months. Gap promotions, Trend Brand Solutions, Premier NYC, and our most recent acquisition of T.R. Miller have all brought meaningful and important strategic advantages to STRON and our operations. Importantly, Gap Promotions, Trend Brand Solutions, Premier NYC are all fully integrated into our operations and we're working towards full integration of T.R. Miller. While it has taken some time to close and integrate T.R. Miller, we anticipate significant revenue from this transaction as our largest acquisition to date. And while our results for the quarter reflect the integration cost, Kier Miller has been historically profitable, and by integrating them into our organization, we anticipate additional cost savings, which should further enhance our profitability and cash flow. Importantly, we believe this transaction validates our strategy of exploring and identifying valuable and accretive companies that have potential not only to complement but propel strong forwards. These acquisitions play an important part of our growth strategy as they enabled us to expand our national footprint, enter into new verticals, and each brings established customer relationships that we can leverage to support our growth. As I mentioned before, the promotional product industry is ripe for consolidation. We're building a company that contains the right resources, talent, and reach to bring us to the forefront of the industry, building our strong and established reputation within the market. By combining our opportunistic M&A strategy with our expanded marketing programs and aggressive sales efforts, we're witnessing strong contract momentum among both existing customers and new customers. We expect this trajectory to continue as we expand our marketing and complete the integration of T.R. Miller where we can leverage their established relationships. We also continue to launch new online stores for our customers and are now actively managing over 180 online customer stores. These provide long-term value for our customers as well as easy and simple access to our products. In addition, we are continually being recognized in the industry and were recently ranked among the top 40 distributors by the Advertising Specialties Institute. I'm proud to say that I was also recognized and awarded the Person of the Year by ASI in the 2023 Counselor Awards. ASI serves a network of 25,000 suppliers, distributors, and decorators in the $25.8 billion promotional products industry. And being acknowledged within their awards validates the incremental exposure and visibility that STRON is receiving as a result of our accelerated growth and our ongoing business efforts to become a true leader within the industry. Importantly, we're executing and pursuing growth initiatives that we believe to long-term sustainable profitability. Beyond the initiatives I've already mentioned, we are also setting revenue and profitability goals, working to fully implement NetSuite, continuously training new employees to enable consistency, and setting and adhering to our annual budget. These are very important to the business and our core aspects of our strategy to propel our growth. While we did report a loss for the quarter, much like last quarter, these expenses are temporary and relate to the integration of our acquisitions, costs related to the implementation of NetSuite, and lead generation program costs. We believe these are valuable investments that will be essential for overall growth and profitability in the long term. We expect these costs to increase over time. We have also recently implemented cost savings initiatives by reducing non-essential staff, cutting back on advertising spend, and limiting travel and entertainment. At the same time, we've preserved a solid balance sheet with $25.5 million in cash and investments as of June 30, 2023. This provides us with the flexibility to explore strategic opportunities as they arise. So to wrap up, we developed executing on a business growth strategy resulting in increased awareness of STROM, a strong customer base, and a national footprint. At this point, I'd like to turn the call over to our Chief Financial Officer, David Browner, to go over the financial results in detail. David, please go ahead.
spk01: Thank you, Andy. Revenue increased 18% to approximately $17.5 million for the three months ended June 30th, 2023. from approximately $14.8 million for the three months ended June 30, 2022. The increase was primarily due to a higher spend from existing customers as well as business from new customers. Additionally, the company benefited from the acquisition of the assets of Gap Promotions in January 2022, the asset of Trend Promotional Marketing in August of 2022, the assets of Premier Business Services in December 2022, and the assets of T.R. Miller in June 2023. Gross profit increased 35% to approximately $5.1 million, or 29.1% of revenue, for the three months ended June 30, 2023, from approximately $3.8 million, or 25.4% of revenue, for the three months ended June 30, 2022. The increase in the dollar amount of gross profit was due to an increase in sales partially offset by an increase in purchasing costs. Net loss for the three months ended June 30th, 2023 was approximately $800,000 compared to the net loss of approximately $400,000 for the three months ended June 30th, 2022. This change was primarily due to an increase in operating expenses and an increase in purchasing costs. These factors were partially offset by the increase in sales during the three months ended June 30th, 2022 from the acquisition of assets of each GAAP promotions, Trend Brand Solutions, Premier NYC, and T.R. Miller, and the increase of reoccurring organic sales during the three months ended June 30th, 2023, compared to the three months ended June 30th, 2022. At June 30th, 2023, the company had $25.5 million of cash and investments and no long-term debt. At this point, I'll turn the call back over to Andy.
spk02: Thank you, David. Overall, we have continued to execute on our business growth strategy, resulting in increased revenue, increased recognition within the industry, an expanded national footprint, and a growing customer base. We are very proud of our accomplishments and look forward to reporting additional achievements as they unfold. I'd like to say thank you for joining the call today. At this point, we'd 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. The confirmation tone will indicate your line is in the queue. Please 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. Our first question is coming from Robert Smith with RSA Investments. Your line is live.
spk04: Thank you. Good morning, guys. Just a couple of questions. How does seasonality affect your business?
spk02: Sure. Thank you. Yeah, seasonality does affect our business. So historically, the first two quarters have been our slowest months, and this year is no different. So It does affect that, but one thing to make note of is our bookings are very strong right now. Currently, we have over 15 million in open booking, which supports our belief that our accelerated growth will continue in the second half of the year because those bookings are already customers that have placed orders with us, but we'll deliver in Q3 and Q4, in addition to any new business that we acquire between now and the end of the year. So seasonality really does affect it. We're very... A lot of the business comes at the end of the summer when people start preparing for either the holidays or the end of the year, and that's historically our largest quarters and are expecting it this year as well.
spk04: All right. The company showed some nice sales and gross profit growth, but unfortunately not profitable this quarter. Can you just cite some specific costs and expenses that contributed to the quarter's loss?
spk02: Sure. Yeah, so as you did mention, we did see 23% growth for sales and 40% for gross profit. And there's a couple factors that are contributing to the loss. The first one is probably the largest one is the acquisition. So we've completed four acquisitions in the last 18 months. Historically, those companies have combined over $30 million in historical revenue. So it's a large portion of our business. And the costs associated with identifying them, performing the due diligence with both legal and accounting, as well as the closing costs, and then integrating them into our business, as well as the capital to close the transaction, combined with the resources that we've had to really put those in place to make sure that we capitalize on those opportunities really is a driver of some of the costs. So a lot of the professional fees went up. resources, we have to have additional resources to identify to make sure that we do that. And we also have to look at when we close a transaction, we have to keep in mind that those costs, the overhead, the employees, any of the costs, we immediately start to recognize those costs immediately. Yet sometimes the sales cycle and the revenue, maybe because of the longer sales cycle and lead times, takes a little bit longer to recognize that. So those things combined, we feel like our short-term losses that in the long term will pay massive dividends in the long run. As I mentioned, these should combine. Historically, they've created over 30 million in profitable revenue. So some of those costs. That's the first one. The second one is making additionally long-term investments in technology that will create not only internal efficiencies, but also differentiators for STRON for our customers so that it makes it easier to do business with this. some of the acquisitions. These are short-term investments that make us long-term because what got us to 30, 40 million isn't going to get us to where we want to get into hundreds of millions in revenue. So we have to build that infrastructure. So building that infrastructure takes time. Yet we are looking at, you know, not only looking at adding infrastructure, but also making adjustments and reductions in staff where there's redundancy or inefficiency. So We're combining those together and really looking at that. But those are really the cost drivers for the last two quarters. Integration and cost for the acquisition is really the big one, as well as technology improvement.
spk04: Well, thanks. That helps a lot. And just one last question. Just looking at macro trends, what are you seeing for your customers' marketing budgets, and how do you think that that's going to affect the rest of your year?
spk02: Sure. So marketing budgets, we have – We have heard within the industry, I haven't seen any specific stats, but we have heard within the industry that a lot of our suppliers and customers have seen a slowdown in business. Maybe not going backwards, but maybe not as much growth as we have seen in the past. We're seeing growth, but one of the things that we are recognizing are not as many orders, but larger orders. So what we have found is our customers are really taking larger initiatives and really putting more towards those initiatives that are a little bit more targeted rather than mass blanketed. So again, with our bookings that we currently have of over $15 million worth of bookings, we're confident that these large orders will hit in Q3, or they are going to hit in Q3 and Q4 with additional revenue, incremental revenue, that we're very confident that we'll see very strong Q3 and Q4, especially Q4 numbers, because a lot of that revenue is going to hit then, and we're very optimistic about the long-term spending between holiday bookings and a strong second half of the year.
spk04: Great. Listen, thank you for the answer. It sounds like a promising future. Thank you.
spk03: Thank you. Once again, if we have any questions or comments, please press star 1 on your telephone keypad. Thank you. We have a question from Mike Tafayeth, who is an investor. Your line is live.
spk05: Thank you. Thanks for holding this call. Much appreciated. Stocks trading around $1.30. Where do you and the board stand or discuss or think about buybacks?
spk02: Sure. So we do have a buyback in place where historically I think we've – We've spent about $3 million on buybacks, and we have approved up to $10 million for buyback. And it's really balancing preservation of cash and using that versus buying back the stock. So one of the things that we look at is a combination of why we went public. We went public to use that money to accelerate our growth and really to go and create something special within this industry because we feel like there's such an opportunity within the promotional products industry to become a true leader. So balancing between building long-term value in the company, becoming a true industry leader, versus buying back shares as well. So we look at a fine balance between them, and we will take advantage of that when we see it, as we have in the past. And as I mentioned, I think we have about $6 or $7 million left to take advantage of that if we find that. to our vendors and to our shareholders.
spk03: Thank you. Thank you. We currently have no further questions in queue at this time, so I will hand it back to management for any closing remarks they may have.
spk02: Great. Well, thank you, everybody, for joining. We're optimistic about STRON, our future, and where we are today and where we're going in the future. So thank you. Please stay in touch with us. And keep watching. We have a lot to happen in the next few months and excited to report on that. Thank you.
spk03: Thank you, ladies and gentlemen. 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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