Stran & Company, Inc. — Q3 2023 Form 10-Q
Business context and period. The company provides outsourced marketing solutions, including branded promotional products, e-commerce, fulfillment, and loyalty programs. This unaudited quarterly report covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $19.30 million | $13.58 million | $52.55 million | $40.64 million |
| Gross profit / margin | $6.37 million / 33.0% | $4.25 million / 31.3% | $16.14 million / 30.7% | $11.23 million / 27.6% |
| Operating income (loss) | $0.43 million | $(0.65) million | $(2.23) million | $(1.93) million |
| Net income (loss) | $0.68 million | $(0.69) million | $(0.85) million | $(1.68) million |
| Basic and diluted EPS | $0.04 | $(0.03) | $(0.05) | $(0.09) |
Cash flow and liquidity. Nine-month operating cash outflow was $3.38 million, versus $6.54 million in 2022. Investing outflow was $1.82 million, versus $10.73 million, largely reflecting lower investment purchases; financing outflow was $0.61 million, versus $2.66 million. Cash declined $5.82 million to $9.44 million. At September 30, cash plus investments was approximately $19.69 million; current assets were $48.23 million and current liabilities $16.92 million (working capital approximately $31.31 million; current ratio approximately 2.85).
The company had no borrowings under its $7.0 million revolving line of credit. The facility is secured by substantially all company assets, bears interest at prime plus 0.5% (9.0% at quarter-end), is due on demand, and includes financial and operating requirements. Contingent earn-out liabilities totaled approximately $7.97 million ($3.08 million current and $4.88 million long-term). Lease liabilities totaled $1.32 million.
Changes versus the prior comparable periods
- Q3 revenue rose 42.2%; nine-month revenue rose 29.3%. Management attributed growth to higher spending by existing customers, new customers, and acquisitions.
- Excluding acquisitions, recurring organic sales increased 29.5% in Q3 and 19.3% for the nine-month period. Acquired businesses contributed approximately $3.9 million of Q3 sales and $9.4 million of nine-month sales, including T R Miller, acquired in June 2023.
- Gross margins improved in both periods. Q3 operating results turned profitable, while the nine-month operating loss widened to $2.23 million as general and administrative expenses grew 39.7% to $18.37 million.
- Nine-month net loss narrowed to $0.85 million from $1.68 million. Results included higher interest and investment gains than the prior-year period; the company also cited an earn-out accrual adjustment as contributing to other income.
Outlook, commentary, and risks
- Management said current cash was expected to cover operating needs and cash obligations for the 12 months through September 30, 2024, and the longer term. It noted that expansion or acquisitions could require additional capital; financing may not be available on acceptable terms, and equity financing could dilute shareholders.
- No specific revenue or earnings guidance was provided. Management expects its effective tax rate to remain similar to the 21% federal rate, while noting that state taxes and discrete events may cause fluctuations.
- Cash use reflected growth-related working-capital movements, including higher accounts receivable and deposits and a lower rewards-program liability. Unearned revenue increased to $4.27 million from $0.63 million at year-end; rewards-program liabilities declined to $2.75 million from $6.00 million.
- Acquisition-related costs, T R Miller integration and due-diligence costs, public-company expenses, lead generation, and implementation of a NetSuite ERP system contributed to higher operating expenses. The T R Miller acquisition included $2.12 million cash consideration and a $4.55 million contingent earn-out liability.
- One customer represented approximately 13.6% of nine-month revenue; the company reported no receivable from that customer at September 30. Program clients represented 80.7% of nine-month revenue.
- The company reported no material legal proceedings, no material changes to internal control over financial reporting, and effective disclosure controls. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether organic growth, customer spending, and acquired-business contributions continue, and whether gross-margin gains can translate into sustained operating profitability.
- Cash conversion and working-capital trends, including receivable collections, deposits, unearned revenue, and rewards-program balances.
- The amount, timing, and performance conditions of acquisition earn-outs and other purchase obligations, particularly those associated with T R Miller.
- Availability and terms of the callable, asset-secured credit line, and compliance with its covenants if liquidity needs increase.
- Potential dilution: 10,074,195 warrants were outstanding; certain PIPE warrants have downward exercise-price adjustment provisions. Verify the applicable terms and potential share impact.