Stran & Company, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022, compared with FY2021. Although the request references 2022 Q4, this annual filing does not provide a clear standalone fourth-quarter financial result.
Business context
Stran provides outsourced marketing solutions, including branded promotional products, e-commerce and loyalty programs, creative services, printing, warehousing, and fulfillment. It generally sources products from third-party manufacturers and resells them to customers. In 2022, the company acquired the promotional-products businesses or assets of G.A.P. Promotions, Trend Brand Solutions, and Premier NYC.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $58.95 million | $39.70 million |
| Gross profit / margin | $16.57 million / 28.1% | $11.84 million / 29.8% |
| Operating loss | $1.51 million | $0.44 million |
| Pre-tax earnings (loss) | $(1.48) million | $0.13 million |
| Net earnings (loss) | $(0.78) million | $0.24 million |
| Basic and diluted EPS | $(0.04) | $0.02 basic; $0.01 diluted |
| Operating cash flow | $(2.41) million | $(5.29) million |
| Cash and cash equivalents at year-end | $15.25 million | $32.23 million |
| Short-term investments at year-end | $9.78 million | — |
| Total assets / stockholders’ equity | $56.63 million / $39.36 million | $51.20 million / $41.61 million |
Sales rose 48.5%; management attributed growth to higher spending by existing customers, new business, and acquisitions. Excluding the three 2022 acquisitions, recurring organic sales increased 32.1% to $52.5 million. The acquisitions contributed $6.5 million of 2022 sales, principally from G.A.P. Promotions ($5.4 million) and Trend Brand Solutions ($1.1 million); Premier NYC contributed no sales in 2022.
Cost of sales increased to 71.9% of sales from 70.2%, and gross margin declined 1.7 percentage points. Purchases rose to 63.4% of sales from 60.4%, while freight declined to 8.5% from 9.8%. General and administrative expense increased 47.3% to $18.1 million, reflecting acquisition and integration costs, technology implementation, public-company costs, lead-generation initiatives, and organic growth. These costs, along with higher purchasing costs, contributed to the swing from 2021 net income to a 2022 net loss.
Liquidity, debt, and cash flow
- Cash and short-term investments totaled approximately $25.0 million at year-end. Management stated that available cash should cover anticipated operating needs and cash obligations for the next 12 months and the longer term.
- Operating activities used $2.41 million of cash. Investing activities used $11.65 million, primarily for short-term investments, acquired customer-list intangibles, and property and equipment. Financing activities used $2.91 million, mainly for share repurchases, partly offset by warrant exercises.
- The company had a secured revolving demand credit line of up to $7.0 million, with no borrowings outstanding at December 31, 2022. It bears interest at prime plus 0.5%, is secured by substantially all company assets, and is due on demand; the lender may demand repayment at any time. The facility also has financial covenants and restrictions, including limits on acquisitions without lender consent.
- Contingent earn-out liabilities were $4.66 million in total ($1.81 million current and $2.85 million long-term). A further $162,358 was due under the Wildman seller note. Lease liabilities were approximately $0.78 million.
- The company repurchased 1,777,657 shares for $3.33 million during 2022 under a program authorizing up to $10 million; $6.67 million remained authorized at year-end. Repurchases may be suspended or discontinued.
Material changes, outlook, and risks
- Program clients generated 82.2% of 2022 revenue, up from 75.7% in 2021. The largest customer represented 8.8% of revenue; the top 10 represented 42.5%. Most customer contracts lack minimum purchase guarantees.
- Management expected the return of in-person events and pent-up demand to support sales, while warning that higher raw-material costs, freight expenses, and supply-chain disruption could persist into 2023. The filing gives no quantified revenue or earnings guidance.
- In January 2023, Stran agreed to acquire substantially all assets of T R Miller Co. for cash payments, installments, inventory cost, and potential earn-outs. The agreement was subject to closing conditions; the filing does not establish completion.
- Key risks include supply interruptions and inflation, freight and pricing pressure, customer order cancellations and nonpayment, acquisition integration and financing, cybersecurity and privacy compliance, product liability, and the demand-on-call secured credit facility.
- The company recorded a $179,120 unrealized loss on short-term investments and a $155,947 intangible-asset impairment in 2022. PPE sales were below $250,000 in both 2022 and 2021, versus $4.2 million in 2020.
- The audited statements present an income-tax benefit of $699,187 for 2022, despite MD&A wording that describes an income-tax provision of approximately $0.7 million. The net loss and pre-tax loss are reported in the statements as $(778,441) and $(1,477,628), respectively.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an ICFR attestation.
Investor facts to verify
- Reconcile the reported 2022 tax benefit with the MD&A description of the tax provision, and review the deferred-tax-asset assumptions.
- Assess whether margin compression, acquisition-related costs, and the operating cash outflow persist as acquired businesses are integrated.
- Review the composition and liquidity of short-term investments, and cash obligations associated with the $6.0 million rewards-program liability.
- Confirm the status and funding terms of the TRM acquisition and the timing and potential size of acquisition earn-outs.
- Evaluate the demand-on-call credit facility, its asset-based borrowing limits and covenants, and the company’s ability to meet obligations without drawing it.
- Consider dilution and ownership effects from outstanding warrants and equity awards, alongside the share repurchase program; management and directors beneficially owned 53.1% of common stock as of March 27, 2023.