Stran & Company, Inc. (SWAG) Earnings Call Transcript & Summary

Good day. Welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is Stran & Company Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Andy Shape, President and CEO of Stran & Company, Inc. Sir, the floor is yours.

Thank you. Thanks for dialing in and listening, everybody. I'm Andy Shape. I'm the President and CEO of Stran & Company, Stran Promotional Solutions, our ticker is STRN on NASDAQ. And I'm going to go over today our investor presentation. I'll give you a little bit of background about Stran, who we are, our future plans, our current state and why we think we're an excellent opportunity for investors. So as background Stran is an outsourced marketing agency where we use promotional products, custom-branded merchandise, and other physically branded merchandise to help our customers really build brand exposure and create lasting loyalty. So as an example, the cover here that you see is a picture of the New York City Marathon where Stran for the last 8 years has produced these PON shows for every finisher. So every finisher that finishes the New York City Marathon receives a PON show that we developed, we created, we imported from China. We had manufactured. We bring in, import it and then helped distribute that on Raceday in Central Park. So it's more than just selling the products. It's really selling a comprehensive solution to our customers to use branded merchandise as an advertising medium and effective advertising medium. And as a result of that, we start to do more for companies like New York City Marathon, which is the New York Road Runners organization, like we execute a youth program for them where we send any kids who participate almost -- I think it's about 5,000 kids participate in the U.S., where we go and send them incentives as they participate in after school and preschool activity. So we produce the products and then offer a comprehensive solution to distribute that merchandise. So that's just 1 example of the products that we use and the customers who use them. So the next slide is just forward-looking statements. And then the next slide really talks about investment highlights of who Stran is. So Stran is not a startup. We've been in business for almost 27 years. So we were established in 1994, within a $25 billion industry. And we've had consistent growth over the past 27 years by having our same management team in place who are our experts. In 2020, we did just under $38 million. And there's huge acquisition opportunity within this industry since it's highly fragmented. We'll talk about the acquisition strategy that we've already executed in the past 18 months as well as future acquisitions. So our cash positive operating business. Over the past 3 months, we've raised over $42 million to the IPO and the secondary offering, which has really strengthened our balance sheet even further. So really well positioned to really continue to grow our business. Next, the executive team. So I'm the current President and CEO. I founded the company with a gentleman, Andrew Strandberg, who's currently our Chairman. I run the day-to-day operations, where Andrew as Chairman really oversees the long-term strategy and high-level execution of the company. I'm also joined by our Executive Vice President, Randy Birney, who's been with us over 23 years, who really oversees our enterprise accounts and customer service and sales initiatives; followed by our CFO, Chris Rollins, who's been with us over 6 years, who helps us manage our financial reporting as well as our compliance with the SEC and other regulatory bodies. In terms of what we deliver really -- everything that we do is really revolving around products that we provide. So this just shows what we call the building blocks of what we do. The majority of our revenue is derived from the products that we sell, but we're more than that. So first, it comes down to product procurement, picking the right products for our customers that represent their brand. And next is offering them a technology platform so that their field, their audience and their consumers have access to those products. So we have great products, then we offer a great technology solution that makes it easier for our customers to buy from us and to do business with us. Next, we have to have a global distribution platform that allows that merchandise to ship efficiently and effectively throughout the world. So people can go online, see our products through our technology platform, they can order them and then they get there efficiently through our distribution model. All of that needs to be combined together with the client service structure and really a service structure that allows us to manage those programs. So we're comprehensive program managers using promotional advertising and branded merchandise as just another form of advertising that's highly effective. Next is compliance and reporting. Not only making sure that the products are safe, but also ensuring that it's brand-compliant and consistent with their goal, with our customers' goals, brand guidelines and really what they're trying to accomplish as well as giving them reporting that gives them visibility and shows the ROI of how effective our advertising medium really can be. And then finally is integrating that. Integrating that so they can integrate what we're doing with the CRM, with the ERP, with whatever that is, so they can see what we're doing with them from an advertising perspective, what effect that's having on their business and really gives them the visibility into how together we're helping them accomplish their marketing goals. And this just gives a quick history of our business. So we were started in 1994. I won't spend too much time on this because we could spend hours on a 27-year-old company of what we've done. But you'll see some brand names that really we've done a lot of business for. And all these steps along the way have really contributed to our growth. And we used our own financing up until 2021, where we really were self-funded. And we've been profitable the entire time, but really we made a conscious decision to really go and turn this into a growth company rather than continue to try to use our own capital and self-funding. So as we'll talk about when I get into the financials, you'll see that we've had tremendous growth over the last few years, but we're really infusing additional capital so that we can execute a strategy to really accelerate that growth even further. And that's the reason for the IPO and capital rate. So we want to talk about why we're positioned to deliver value creation. The total market opportunity is $387 billion. If you take the promotional space, which is about a $25 billion industry, we had in loyalty print trade show and packaging into that, it's really a $387 billion opportunity where nobody really has cornered any of those markets. So there's really an opportunity to really go after that. The last, as I mentioned, we've had tremendous growth over the last 4 to 5 years with a 24% CAGR year-over-year with over 30 Fortune 500 customers. So we have over 2,000 total customers and the names that we do business with are very impressive, which I'll show some customers later. We've been in business for 27 years with over $37 million in revenue. And at the end of 2020, we have over 80 employees. We have a strong balance sheet where we recently raised $42 million. In the last 18 months, we've acquired 2 companies with historical revenue of over $17 million, and we continue to look at doing that as well. And in addition to that, our gross profit has remained steady over the past few years at 30%. So we've done that growth without compromising our gross margins. So we're really proud of being able to do that and not just buying revenue by giving it away. This talks about our industry. So the industry itself, people may ask, how is this industry? And this industry has historically grown year-over-year because this is a highly effective form of advertising, promotional merchandise, it's the only form of advertising that really gives somebody something rather than takes away their time. Traditional media, traditional advertising takes away from what you're doing, whereas when someone hands you a gift or gives you a gift, you receive something, you have a favorable outlook of that brand as well as -- as really they're giving you something and taking the time, so they remember that. So that's why we consider this form of advertising very effective. And you can't digitize that. It's very hard to digitize that experience. So we feel that this will continue to grow and become more effective as more digital comes in and more alternative forms of advertising, people are inundated with that and overwhelmed. The next slide shows about the industry fragmentation. So Stran is #32 in the country. So last year at $37 million plus when we add in acquisitions, the 1 acquisition that we made last year, we were #32 in the country out of almost 25,000 people who do what we do within the country. We were ranked the seventh fastest growing within the print and promo space. So we're really well positioned within this industry. But what's more interesting is that it's highly fragmented. So in 2019, the largest player only had -- out of a $25 billion addressable market, the largest player was $839 million, which is only 3.3% of this market. So we're not in an industry really where a lot of people -- where only a few people control the majority of the business. The top 50 people within our industry, distributors within our industry, really only make up 24%. So it's highly fragmented. So there's a huge opportunity for us to do a roll-up strategy, attract acquisitions and really continue our growth by differentiating ourselves. In terms of what makes us different, we - as we talked -- as I talked about, we really consider ourselves program managers where we offer innovation, creativity within our products, but then offer a technology solution that makes it easier for those customers to have access to those products. We have the flexibility to offer different methods for our customers to have access to those products as well as different ways of billing and monitoring and managing their inventory as well as having a really robust supply chain management. Being in business for 27 years has given us advantage because we have preferred relationships with different suppliers, and it has really allowed us to capitalize on our experience and our relationships as well as our buying power as #32 of the country. As well as the final is our culture and our vision and strategies. Really, we're looking to be a true leader in this industry. No one else is really positioned to do that, and that's what we're looking to do is going and looking at where do we fit into this. And one of the ways we do that is with our technology platform. So we spent millions of dollars on investing in our front-end platform for our customers, built on the Magento platform. But in addition to that, we're also in the process of implementing NetSuite as our full ERP so that when we bring in all that data from our current business as well as acquisitions, it's a lot more seamless and efficient. So we're in the process of launching NetSuite right now so that we could free up time for our employees, we can bring on and tack on acquisitions a lot more efficiently and effectively by having that be our true ERP to really execute that. So combining our investment in our front-end technology along with our investment in our back-end technology and our built-up infrastructure is going to allow us to scale even further. In addition to our technology, looking at the services that we provide really creates what we call competitive flywheel. So the more we start offering them from technology, more services, more everything is really the more they start spending with us. So we've become more value to them, we're introduced to other buyers. And we become an extension of their marketing team where they start to buy more and more from us. So that flywheel really creates a recurring revenue stream that is very important for our customer retention as well as our long-term strategy. Now looking at where Stran fits in with the competitive analysis, there's really -- we're in a very unique position where there really are not many publicly held companies within the promotional products advertising space. There's a few that are divisions of companies, a few that are on the London Exchange, but there's no true promotional products company listed on either NASDAQ or New York Stock Exchange where their core offering is promotional merchandise and custom branding. So really where we fit in there, we really feel we're in a unique position to really capitalize on this market. There's some private equity behind some of the leaders in our space, but no publicly held companies that that's their core offering. So where we look at Stran is saying our focus on service, our creativity, flexibility, customer-specific technology, our strategy, where we're program managers and our financial strength and scalability really is where we check all the boxes, whereas some of the online e-tailers who may be direct marketing that are looking for small to medium businesses for a onetime order, don't offer all of those. The franchise model where they're aggregating people and just having them almost to be a bank where they're a franchise where they not really have a clear strategy, we differentiate ourselves above them. The large and flexible players are the ones that are not their core offering, that may just offer promotional products as an add-on or a tack-on. It's not their core business. So really, we feel like we're going to surpass them from a competitive standpoint because we're really concentrating on that as our core offering, not as just a tack-on. And then finally, the majority of the customers within our -- the competitors within our industry are the small mom and pops, which are smaller than $5 million, a few employees where they really haven't built up an infrastructure, they don't have the technology. And a lot of those have great customers, a great business, but they really haven't been able to scale. So a lot of them are the ones that we're attracting and looking for, for our acquisition strategy. We want to look at our customer base. As you can see here, we have quite a bit of household names that you know for customers where we are an extension of their marketing team, where we offer an online store for them, we distribute products, whether that's B2B, B2C or a combination of B2B and B2C, where a customer may want to sell their products to consumers, but it's not their core offering, whether that's a beverage company or a consumer goods company or a financial service company. It's not really their core offering, but there may be a need for that product as well as for marketing needs, HR needs or anything like that. So this is just a sampling of our customers, but with quite a few more than just those. Looking forward for our growth strategy. Really, we look at this as 5 building blocks is getting more from our existing clients. So having that excellent client customer base really allows us to go and penetrate those even more. But we also want to find new clients. We get quite a bit of referrals. We have a sales team of 18 people that are going after an attracting new business with the support of our marketing team. We also want to offer more services and more solutions for both our existing customers and new customers, continue to innovate and develop new technology that will differentiate Stran from our competitors as well as give some of our customers' offerings that no one else has or that maybe no one else has thought of. And then finally, our acquisition strategy, which is our largest opportunity within this industry is to find accretive acquisitions that really will complement Stran and I'll talk about our acquisition strategy on this next slide. We're really what we're looking for our businesses that complement our current offerings. So whether that's geographical footprint, right now, we have our main offices headquartered in Quincy, Massachusetts, just outside of Boston. We -- in September of 2020, we acquired a company in Warsaw, Indiana. So we have a footprint there. We also have an office in South Carolina -- Charleston, South Carolina and in Fairfield, Connecticut. So we're looking to add a geographic footprint in other areas of the country as well. The other one is looking for smaller promotional products in the $2 million to $5 million range or up to $10 million who maybe lack the programmatic and the GAP acquisition that we recently closed last week is a great example of this. They were very specific in the beverage niche, have some great clients, have some great capabilities, but they've never taken advantage of the technology or the distribution offerings that we have. So once we are able to go out to their current customer base and try to get more of their business, add more services and create that flywheel effect, we are very confident that we're able to expand that business even further. And then finally, is ad business with complementary offerings, whether that's packaging services, loyalty incentive, in-house separation, fulfillment or anything along those lines that really complement us that allow us to go potentially more vertical than we currently are. And this slide right here talks about our demonstrated M&A success. So as I mentioned, we acquired Wildman Imprints in Warsaw, Indiana in September of 2020, where both of these acquisitions were an asset purchase. Last week, we closed an acquisition of GAP, which is Gloster, Massachusetts, about 30 miles north of our current office, which historically did about $7 million, Wildman did about $10 million, both were asset purchase agreements, where we took on all of their employees, and we're looking to repurpose some of those employees to make them more efficient and to really capitalize on the current client base but grow those. And both of them had a structure where we gave a little bit of cash upfront for either inventory or a onetime payout. In addition, we did a 3-year earn-out for Wildman and a 2-year earn-out for GAP where that's spread out over time. So both of these were very limited cash outlay upfront. Wildman Imprints only cost about $600,000 upfront, whereas GAP really only cost us about $500,000 in cash upfront. We had to pay a little bit of extra cash more to buy the AR, but it didn't affect our balance sheet as negatively really out of pocket was really only $600,000 of cash out of pocket. So we look at continuing to do acquisitions like this that are highly accretive, don't cost us a lot of cash, looking at the amount of capital that we raised, we can do quite a bit of these, and we're talking to dozens and reviewing quite a few opportunities out there. It's really not a matter of if we can find and what we can find and really what works best for our company and to really differentiate ourselves from our competition. We also want to look at incremental revenues to tack on packaging, loyalty, print and trade show on the promotional product space. So when we combine all those, it really opens up a huge opportunity to capitalize on $387 billion out there, and it's really a big opportunity. We want to talk about our financial highlights. I talked about $37 million in revenue with 24% CAGR from 2017 to 2020 with a consistent gross profit of 30%. And we accomplished that by working with our Fortune 500 customers and over the 2,000 customers, as well as having 280 online stores. So right now, we have a technology platform for over 280 different customers that they use to order merchandise. So that creates recurring revenue for us as well as completing those acquisitions. So this slide just shows what we're able to do as a private company, self-funding, was able to have that 24% growth year-over-year going from $19 million in revenue -- or just under $20 million to almost $40 million in revenue in the short 4 years using our own capital. Once we start using additional growth capital, we feel like we can really accelerate this even further. And the next slide really shows how we've been able to consistently do that from inception of our business. And really, any time we've seen a downturn, we've been able to rebound very quickly by being flexible, nimble and really reinvesting in our company. So this just shows long-term consistent growth that we continue on -- plan on continuing to do and even accelerate it even further with the new growth capital that we have by building infrastructure as well as doing acquisitions so that we can really become a true leader within this space. The next slide here just shows some investment highlights. To recap, this is not a new start-up company. We've been in business. We are true leaders. We're professionals within this space. We're well known with a reputation that has been around. We've had proven success in the past, and we're hoping that we get additional investors who can help us along this journey that really help us accelerate that growth even further to become a true leader within our space. So that's just a quick recap of our company. We do have an appendix that has some case studies and a little bit more on our customer base, our strategy and who we are, but I figure it'd be better to open up at this time for Q&A, answer any questions and really go over anything that anybody has.

Thank you, Andy. We'll take some questions at this time. Our first question is, congratulations on your recent acquisition of GAP Promo. Can you provide more details on this, including why you completed it? And why and how you believe it benefits your existing business operations?

Sure. Thank you. Yes. So GAP, we're really excited about GAP. So GAP is a company that we've known for years. We've competed against them. We've seen their capabilities with their sourcing, their creative and their ability to create really different and unique point-of-sale and point-of-purchase displays that are used by almost exclusively beverage companies, alcoholic beverage companies. So we really looked at GAP and been impressed with them for the past, say, 10 years, and this acquisition opportunity came up. So their top line revenue was over $7 million. They've been profitable since inception as well. So really, what we want to do, what we saw with them is they have these great capabilities with their creativity, their sourcing and their client base. But really, what we want to do is capitalize on their -- our ability to offer a technology solution and distribution solution for those large customers. So they have a lot of large customers that haven't taken advantage of our technology, our distribution, our supply chain and other scalable things that we can offer to create that flywheel effect for our customers. So that's why we feel it's good as we feel like we can take that $7 million worth of business, accelerate and expand that quite a bit quickly and effectively while also taking advantage of some of their capabilities for some of our current clients that really we haven't been able to capitalize in that unique point of sale and point of purchase. So together, when we bring them together, we really complement one and another. They have a great team of people that are starting to fully integrate with us. Some of their employees are here actually today. Well, there are employees now, but some of them are here today starting to work out of our office in Quincy. So we're really excited about that to add to our top line as well as our capabilities.

Our next question is regarding acquisition pipeline, what multiples do you see? And are they usually accretive out of the gate?

So when we're looking at multiples for what we pay, we use a couple of different factors for how we look at that. But within our industry, the first one we look at is a multiple of gross profit margin. So we look at that, it could be, say, 1 to 2x gross profit margin. The average gross profit margin with our industry is about 30%. So if someone's doing $10 million in revenue and they're working at a $3 million in gross profit, we may pay anywhere from $3 million to $6 million for that. And usually, that would be structured within some cash upfront, a combination of equity and earn-out and cash payment. So that's the first factor that we use. The second is a multiple of EBITDA and that can be anywhere from, say, 3 to 6x is really what we look at as a barometer. There may be other times where they may be operating very efficiently and maybe higher than that, but that's just a barometer of what we do. So those are the multiples that we use. And in terms of are they accretive immediately, yes, that is what we're looking for. So we're trying to find opportunities that do become accretive immediately. We're not looking for companies that are operating at a major loss where we're looking to go and try to fix them. We may find some of that had some short-term losses that when we bring in some of their infrastructure internally where we can get rid of redundancies, we can make it more profitable very quickly. But yes, we are expecting most of the acquisitions that we approach to be immediately accretive. And within this industry, the multiples aren't really that high when we're looking at cash to pay out to them. So hopefully, that answers that question. But we're talking to -- our pipeline is very deep. We're part of some associations that have distributors who we know a lot of them are getting tired and fatigue. We're seeing a lot of COVID fatigue. So that's one of the other things that really we're finding that people are saying this has been very difficult. Over the past 2 years, if we can join a team that has the infrastructure, that has the capital, that has the guidance for us to be part of something bigger, they -- we're really attracting those acquisitions. And as I mentioned, we have dozens of them in the works right now, just trying to find the right ones and the right timing.

Thanks, Andy. Our next question is, can you provide any more details about the health care company contract that you announced? Was it a transactional client that was converted into a programmatic client?

That was not. So unfortunately, due to our contract with them, we're not allowed to disclose who the customer is and their name just because of our obligations of the contract with them. So we can't share who it was. But that did come in through one of our partnerships with one of our partners, who we've been speaking with for years with this particular customer about what they were doing. So the program that they -- that we're executing for them really is trying to really modify consumer behavior for a health care company that's trying to reduce health care costs. So women who are pregnant, they're trying to promote it with prenatal care to drink water and to really go to the doctor and take their vitamins and do everything, as well as breastfeeding their children because this carrier has found that when women go to their doctor and then post birth breastfeed the baby, they really reduces their health care costs. So if women participate in that program, they receive some free gifts as well as a free breast pump so that they promote breastfeeding because that lowers the health care cost. And then the other side of it is a hypertension program where they have also found that when these consumers have a blood pressure monitor, so they can take their blood pressure, ensure that when they're feeling sick or they're feeling down that they're taking their medical -- blood pressure medication as well as going and see their doctor only when really they need to and their blood pressure is high. So if they participate in this program, they get a free blood pressure monitor as well as some other gifts and collateral that really promote taking your blood pressure and healthy living. So it is a program that is a 3-year contract with a 2-year extension with a minimum spend of $6 million, we expected based on the first month to exceed that. But that's what the contract is -- it's not a guarantee, but it is expected to be a minimum of $6 million. So that's about all the details I can share on it. It's a very interesting program that I think we can replicate for other health care providers as well as anyone who may self-insure. So that's a case study that once we have a little bit more data it can show that ROI for this customer that we can really roll it out to other customers as well.

Do you have a date or what is the estimated date for reporting Q4 earnings?

So Q4 earnings and our 10-K for full year of 2021 will be filed sometime in March. It's due March 31. I think we're expecting to hopefully have that ready before that, but those numbers will come out in March.

Great. And last question we have time for is where do you see the company in 3 years?

The company in 3 years, I think we are going to continue to see a growth through both organic growth and acquisition strategy where we really become a top leader within our space. So we want to continue to build our infrastructure to have a really efficient company that's really humming on all cylinders that really is able to take on acquisitions where we could be as picky and choosy as we want for acquisitions because we've shown a success with the companies that we have brought on by showing how we've grown them. So I think in 3 years, we'll be a much different company where we'll have quite a few more employees, quite a bit more revenue drive and accomplishing that through driving efficiencies as well as having our clear strategy of who we are and what we do. So significantly more revenue, significantly more profitability, significant for our employees and just continue our growth strategy.

Well, thank you so much, Andy. That's all we have time for at this time. I'll turn it back to you for any closing remarks.

Well, thank you, everyone, for your time. We're a great company that's been around for quite a while. We're in a unique opportunity to really accelerate the growth of this company with an industry that really needs someone to take control of it. And with the steps that we've taken to raise capital, have the platform, have a publicly traded company, I feel like Stran is the company to really capitalize on this industry that no one really has done yet within the public market. So we hope that our investors agree and are willing to come along for the ride with us. And we appreciate everyone who has invested and look forward to those new investors. So thank you.

Thank you. That does conclude the Stran & Company presentation. You may now disconnect. The next section will begin shortly. Please consult the conference agenda for the next presenting company.