Stran & Company, Inc. Q3 FY2025 Earnings Call

Good day, everyone. Welcome to the Stran & Company, Inc. Third Quarter 2025 Earnings Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Alexandra Schilt. The floor is yours.

Good morning, and thank you for joining Stran & Company, Inc.'s 2025 Third Quarter Financial Results and Business Update Conference Call. With us today are Andy Shape, Chief Executive Officer, and David Browner, Chief Financial Officer. Yesterday, we issued a press release detailing our results, which is available on our website at ir.stran.com. Before we begin, please note that today's remarks may include forward-looking statements that involve risks and uncertainties as described in our SEC filings. With that, I will turn the call over to Andy Shape. Please go ahead, Andy.

Thank you, Alexandra, and good morning, everyone. Taking a step back for a minute, those who may be new to the Stran story, it began over thirty years ago when we went door to door helping local businesses promote their brands through creative high-quality merchandise. What started as a small two-person operation has grown into a national platform serving many of America's most recognizable brands, all built on the same foundation: customer service, innovation, and trust. We have grown from that small startup into a publicly traded leader in the promotional marketing industry. I am proud that the same leadership team that built Stran continues to guide us today with that entrepreneurial spirit, and I am excited for the future of Stran. Our client base includes over 30 Fortune 500 companies and some of the largest brands in the world. These companies chose Stran because we deliver creative, high-impact marketing solutions that drive engagement, loyalty, and measurable results. We are not just a distributor; we are a strategic marketing partner helping these brands connect with people in powerful, authentic ways. Our corporate motto is driving brand awareness and affecting behaviors through visual, creative, and technology solutions, and we continue to work tirelessly to deliver the best products and experiences to our customers. Now moving on to our financial results. The third quarter was another strong and productive period for Stran, one that underscores the power of our platform, the resilience of our operating model, and the disciplined execution of our team. Sales increased 29% year over year to $26 million in Q3 compared to the prior year, and sales reached $87.3 million for the first nine months of 2025, a 56.7% increase from the same period last year. Importantly, we achieved this growth while driving continued improvement in profitability. Year to date, our EBITDA improved by approximately $2.8 million compared to the same period last year. Our clear indicator that our strategy to scale responsibly while managing expenses is delivering results. We have had many nonrecurring expenses over the past eighteen months and are happy that we are now able to concentrate on our business, both top-line and bottom-line growth, especially as we are now in Q4, which is historically our strongest quarter of the year. Both of our business segments contributed meaningfully to our results. The Stran segment achieved nine-month revenue of $60.3 million, up from $52.2 million last year, driven by deeper client relationships and new enterprise wins. The Stran Loyalty Solutions (SLS) segment, which includes the Gander Group business acquired in August 2024, delivered $26.9 million in revenue compared with $3.5 million last year. The Gander business has become an important contributor to our results, with momentum and tremendous opportunity ahead. The integration of Gander has gone well as we continue to identify synergies and cross-selling opportunities while we deliver end-to-end loyalty and incentive programs that strengthen Stran's position across casino, gaming, and the hospitality market. At the same time, our core Stran business continues to experience strong growth. This segment remains the cornerstone of our brand, representing decades of trusted relationships with leading organizations that rely on us for creative design, efficient fulfillment, and continuous marketing support. We have deepened client partnerships, expanded digital ordering capabilities, and delivered measurable results for our customers. We are continuing to execute on initiatives to streamline operational efficiencies. Operating expenses grew only 30.3% year over year for the first nine months of 2025, while sales grew 56.7% during that same period in 2024. As a result, operating expenses as a percentage of sales declined to 31.3% during the first nine months of 2025 from 37.7% during that same period in 2024. This contributed to the $2.8 million improvement in EBITDA from negative $3.2 million for the first nine months in 2024 to negative $384,000 for the first nine months of 2025. As we grow, we continue to benefit from efficiencies that come with scale, improving our purchasing leverage, streamlining logistics, and enhancing fulfillment capabilities. These advantages not only strengthen our margin but also create a competitive edge that smaller regional players cannot easily replicate. During the third quarter, elevated tariffs led to a meaningful increase in product costs for direct import orders, especially with our SLS segment. While we were able to pass on some of those costs to our customers, not all could be offset, which compressed our margins. Just as importantly, the uncertainty surrounding tariffs created buyer hesitation, particularly in the loyalty and casino segments, impacting both top-line activity and profitability for the quarter. Despite these temporary headwinds early this year, demand remains strong, and our client base continues to show confidence in our capabilities. We also continued our share repurchase program during the third quarter, buying back approximately 267,000 shares of common stock at prices between $1.45 and $1.81 per share, totaling about $408,000. With no debt and $11 million in cash and investments, we remain well balanced to fund growth initiatives, pursue acquisitions, and continue opportunistic buybacks. Stran continues to actively evaluate acquisition opportunities as strategic M&A remains a key pillar of our growth plan. We are executing a disciplined roll-up strategy in a fragmented industry, identifying smaller distributors that complement our business and integrating them efficiently into our shared infrastructure. This model provides low-risk, high-synergy growth and gives us powerful margin expansion potential through economies of scale. Our focus is now also on transformative acquisitions, the kind that can move the needle and accelerate our long-term growth trajectory. Finally, we are proud of our progress that's been recognized externally. This past quarter, Stran was named by the Promotional Products Association International (PPAI) as one of the greatest companies to work for in 2025. It's an acknowledgment of the environment we've built, one that empowers employees, fosters collaboration, and drives creativity across every aspect of our business. Our people are the foundation of our success, and this distinction is a direct reflection of their talent, dedication, and shared commitment to Stran's mission. After several years of investing in our growth, technology, and infrastructure, we are now entering a new phase, one focused on driving consistent profitability and margin expansion. With our systems, talent, and scale in place, we are well-positioned to translate our operational foundation into sustainable earnings growth. Overall, I am very encouraged by how we are executing against our strategy, balancing growth, profitability, and shareholder value creation. With that, I'll turn the call over to David Browner, our CFO, to review the financial results in greater detail. David, please go ahead.

Thank you, Andy, and good morning, everyone. I'm pleased to provide a detailed overview of our financial performance for the three and nine months ended September 30, 2025. For the financial results for the three months ended September 30, 2025, sales increased 29% to approximately $26 million from approximately $20.1 million for the three months ended September 30, 2024. Sales by our Stran segment increased to approximately $17.6 million for the three months ended September 30, 2025, from approximately $16.7 million for the three months ended September 30, 2024. Sales by our SLS segment, which consists of the former Gander Group business, increased to approximately $8.3 million for the three months ended September 30, 2025, from $3.5 million for the three months ended September 30, 2024. For the Stran segment, the increase in sales was primarily driven by higher spending from existing clients as well as business from new customers. The SLS segment's increase in sales was due to the acquisition of the Gander Group assets in August 2024. Gross profit increased 18.8% to approximately $7.1 million or 27.2% of sales for the three months ended September 30, 2025, from approximately $6 million or 29.5% of sales for the three months ended September 30, 2024. Gross profit margin decreased to 27.2% for the three months ended September 30, 2025, from 29.5% for the three months ended September 30, 2024, primarily due to the acquisition of the Gander Group business in August 2024, which operates at a lower gross margin than the Stran segment. Operating expenses increased 8.8% to approximately $8.9 million for the three months ended September 30, 2025, from $8.2 million for the three months ended September 30, 2024. As a percentage of sales, operating expenses decreased to 34.1% for the three months ended September 30, 2025, from 40.4% for the three months ended September 30, 2024. Net loss for the three months ended September 30, 2025, was $1.2 million compared to a net loss of approximately $2 million for the three months ended September 30, 2024. The financial results for the nine months ended September 30, 2025, show sales increased 56.7% to approximately $87.3 million from approximately $55.7 million for the nine months ended September 30, 2024. Sales by our Stran segment increased to approximately $60.3 million for the nine months ended September 30, 2025, from approximately $52.2 million for the nine months ended September 30, 2024. Sales by our SLS segment, which consists of the former Gander Group business, increased to approximately $26.9 million for the nine months ended September 30, 2025, from $3.5 million for the nine months ended September 30, 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 in sales was due to the acquisition of the Gander Group assets in August 2024. Gross profit increased 49.3% to approximately $25.4 million or 29.1% of sales for the nine months ended September 30, 2025, from $17 million or 30.6% of sales for the nine months ended September 30, 2024. Gross profit margin decreased to 29.1% for the nine months ended September 30, 2025, from 30.6% for the nine months ended September 30, 2024, which was primarily due to the acquisition of the Gander Group business in August 2024, which operates at a lower gross margin than the Stran segment. Operating expenses increased 30.3% to $27.3 million for the nine months ended September 30, 2025, from approximately $21 million for the nine months ended September 30, 2024. As a percentage of sales, operating expenses decreased to 31.3% for the nine months ended September 30, 2025, from 37.7% for the nine months ended September 30, 2024. Net loss for the nine months ended September 30, 2025, was approximately $1 million compared to a net loss of approximately $3.6 million for the nine months ended September 30, 2024. As of September 30, 2025, we had approximately $11.8 million in cash, cash equivalents, and investments. I'll now turn the call back to Andy for closing remarks.

Thank you, David. As we close out the third quarter, I'd like to take a moment to reflect on where we stand. Over the past year, we've made steady progress across every part of the business, improving execution, strengthening operations, and positioning Stran for consistent, sustainable performance. Our focus has remained the same: serving our clients well, managing growth responsibly, and ensuring that every initiative we take on creates measurable value. Looking forward, we believe Stran is entering its next phase of maturity, scaling our operations while delivering steady profitability. We see a clear path to long-term margin improvement driven by continued operational leverage, technology investments, and disciplined execution. We have built a strong foundation, designed not just for growth, but for lasting value creation. Looking ahead, our priorities are clear: one, deepen and expand client relationships. We are working to drive measurable results for our clients and build long-term partnerships rooted in transparency, service, and reliability. Two, increase operational efficiency. We will continue to simplify processes, invest in automation, and apply data to improve margins and execution speed. And three, maintain financial discipline. We aim to keep a balanced approach, investing where it strengthens our business while preserving a solid balance sheet, and allocating capital where appropriate. Thank you for joining us today and for your continued support of Stran. With that, I will open the call to questions.

Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold for a few moments while we poll for questions. Your first question is coming from Greg Womack. Please pose your question. Your line is live.

Hi. First question, how are tariffs accounted for from an accounting perspective? Does that pass on to adding more revenue?

Yeah. Hi, Greg. Thank you for your question. The tariff increases were unprecedented, as we all knew, and it did affect us for some of our orders that were in production and were essentially at our factories, on the water, and in production. When we were charged those tariffs, we had the opportunity to go to some of our customers and ask them if they could pay more. Some of them were agreeable to it, some were not. As a result, if we were able to pass on the tariffs, it increased revenue slightly. But more importantly, our cost increase outpaced our ability to charge more. The analysis that we've done shows a direct impact of just over a million dollars for direct costs that we were unable to pass on to our customers. It also does not include some of the buyer hesitation that I mentioned in the call in April and May, but now we are seeing in Q3.

That buyers were uncertain. Typically, when there are tariffs involved, we have time to increase prices because it's over time. But when we are in the middle of production of merchandise and with time-based events that we need to give them out, we did not really have a choice. So it was a very short window, and that answers your question. Yeah. So I've got one other question too. I guess, do you guys feel like you're still going to be positive net income for Q4? Or how are you feeling about year-round cash flow positivity? Are you feeling confident about that?

Yeah, I mean, historically, Q4 has always been our strongest quarter for the Stran promotional segment, just because of end-of-year holidays. So we are also very excited about Q4, as it's always been heavy sales. So, yeah, I mean, we obviously do not give guidance, but we feel good about where we stand. Again, like I've said in the earnings script, we are concentrating on continued growth while keeping an eye on managing expenses. So, yeah, that's our plan. Our plan is to have sustained profitability moving forward, which includes Q4. Appreciate it.

Once again, if you do have remaining questions or comments, please press 1 at this time. Please hold one moment while we poll for any additional questions. You have a question coming from Vlad Cat with Freedom Call LLC. Please pose your question. Your line is live.

Thank you, guys, and congrats on a great quarter. Looking forward to Q4 results in a few months. How should we think about potential contraction in the economy? How does the business typically perform during contractions?

Yeah. Great question. So, first, yeah, we're satisfied as a business with the growth that we've seen. We do want to increase our profitability. We know that. So, you know, we want investors to know that although we accomplished a lot in the third quarter, we need to be more profitable. We know that, and we're making efforts to do that, and we plan every intention on doing that moving forward. So appreciate the positivity, and we like that, but we have some work to do, and we know it. And we will. In terms of your question surrounding the macroeconomic trends, one thing with our business is there's not a lot of capital expenditure. The majority of our costs are human capital and overhead. If our business shrinks or if the economy shrinks, first and foremost, we can pivot fairly easily to that. Additionally, a lot of the business that we have isn't necessarily discretionary. It may seem like it is, but it isn't. Many of the programs that we have customers integrated into their marketing initiatives, whether it's for new employees, new customer acquisition, or creating loyalty programs, are quite essential. Furthermore, we are spread across multiple verticals. For example, if the economy goes down, sectors like casino and gaming tend to hold steady. Beverage and alcohol spending typically increases as well. We aim to be positioned with our client base to address any macroeconomic trends. Finally, we think that the strength of our balance sheet provides us with a competitive edge over our competition. If the economy does falter, it gives us the opportunity to explore additional potential acquisitions as well as compete against firms that might not have the resources and capabilities that we do. So, you know, we're aware of the recession in the economy, but it doesn't scare us because we've been in business for thirty years, and we've seen it go up and down. We know how to react to it quite well.

Clear. Thank you for that insight. One follow-up question, if I may.

Yes, sure.

What is the methodology that you use to find acquisition targets?

Sure. The industry, as some of you may know, is about 25,000 to 30,000 distributors within our industry. Stran is ranked number 12, so we're already a leader. We're well-known within the industry as being one of the only few public companies out there. The only publicly traded company on a major exchange in the U.S. focusing solely on this core business. We get a lot of inbound inquiries, I would say dozens a month, if not more. Additionally, I attend quite a few industry events where I am introduced to many people seeking advice and asking if we might be interested in acquiring their company. There are quite a number of businesses within our industry that lack a solid succession plan. We help them plan for that with Stran as their exit, which makes financial sense for both us and them, creating a win-win scenario going forward. We scrutinize our acquisitions more than we have in the past because we aim to make a more significant difference and ensure that our resources are utilized effectively and quickly.

Clear. Thank you. I appreciate your focus on creating shareholder value. Happy holidays.

Thank you. Likewise.

Thank you. There are no additional questions in queue at this time. I would now like to turn the floor back over to Andy Shape for closing remarks.

Great. Thank you, everyone, for joining and your continued support of Stran. As mentioned, I think we're entering a new phase of Stran where we've built scale. If I continue to say to everyone that I speak to, investors and anyone else in the business, you can go back and read our initial S-1 when we filed to go public; we've delivered on what we promised, which is to continue to create scale through growth. Invest in our infrastructure and really establish ourselves as a leader in the industry. We've gone from about $35 million in revenue to almost $120 million in trailing twelve months revenue. We're excited about what we've accomplished. Now that we've reached that scale, we can start turning some dials to drive profitability and create even greater shareholder value. As the second-largest shareholder, the value means just as much, if not more, to me than anyone else. I am highly motivated to ensure the company's success. Thank you to everyone who believes in Stran and is committed to us. We look forward to finishing the year strong and reporting our results at the beginning of next year. Thank you, everyone, and happy holidays.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.