Stran & Company, Inc. Q1 FY2025 Earnings Call

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. 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 to 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 domestically made products in the USA 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 the 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 sales was primarily due to higher spending 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, representing 29.6% of sales for the three months ended March 31, 2025, compared to 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 gross profit was primarily due to the acquisition of the Gander Group assets in August of 2024. For the Stran segment, the increase in 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 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 compared to 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 related 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 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 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 reflects 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.

Great. Thank you, David. As highlighted throughout this call, Stran ended 2025 with remarkable momentum, achieving a 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.

Certainly. At this time, we’ll be conducting a question-and-answer session. Your first question for today is from an unidentified analyst.

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 dollars, for the reaudit, including accounting, audit, accounting consultants, other consultants, and legal fees. Therefore, we should experience a significant drop moving forward in 2025 as we are now in a much better cadence with our internal accounting firm, our internal accounting team, and our auditors. I don’t have the exact number for Q1, but it was close to $800,000 for accounting and legal just in Q1 alone. So again, we look at our revenue growth with a loss, most of that resulting from the new Gander acquisition, as we are trying to get that integrated and profitable. But even with $800,000 worth of legal and compliance audit work in Q1, we faced a $393,000 loss. Yes, 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 questions. Are you planning on restarting the share buyback anytime in the future?

Yes. The Board has authorized us an initial $10 million, and we still have about $6 million available to buy in the market. We are going to reestablish that and buy within the market. There are blackout windows that we need to adhere to, as well as restrictions on how much we can buy based on 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 some context around the drop in cash and how it relates to the rewards program liability?

Sure. Yes. So we have a rewards program where we issue prepaid debit cards to customers as a form of incentive and loyalty program that we run. As a result, we receive cash from that customer that we keep in a ring-fenced account dedicated to that. That fluctuates drastically as we execute the loyalty rewards program. In Q1, we sent out $5 million worth of cards, which we had to load with that value. That explains the drop in cash. We've subsequently received additional capital from them, so we'll see another spike in Q2 as it fluctuates. The drop in cash is not from operations, but just the flow of money that comes in and out based on the rewards program.

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

Thank you.

Hey, Andy. Hey, David. I just wanted to follow up on the ongoing expenses versus one-time expenses. Do you think at some point you will 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 excluding those expenses?

Yes. We are planning on doing that. We have a draft nearly completed that is going through compliance and regulatory. We want to ensure that what we publish is accurate and quantifiable. So yes, we are planning on releasing that, showing ongoing public expenses, adjusted EBITDA that will reflect one-time expenses mainly related to the audit and the main expenses 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 we've had last month, I saw that inventories picked up a little bit. Is that just 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 of our inventory is not bought on speculation; it's bought on behalf of our customers with an inventory commitment. So we are not just buying inventory in hopes of selling it; we are buying it with guarantees from our customers. Therefore, an increase in inventory indicates that our customers are committing, which is a positive sign. While tariffs are a real concern and we've discussed that previously, the fluidity of the situation means we are constantly in communication with our customers to explain potential impacts. The tariffs may affect certain direct import orders, but our domestic stock and our relationships with clients and vendors allow us to navigate these challenges effectively.

Got it. Thank you.

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. We are excited to finish out the year strong and look forward to speaking to you in a few months when we do Q2. Thank you, everyone, and have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.