Stran & Company, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a separate Q4 income statement. Comparative figures are for full-year 2020. The company provides outsourced promotional marketing solutions, including branded merchandise, e-commerce, loyalty programs, printing, and fulfillment.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $39.70 million | $37.75 million |
| Gross profit / margin | $11.84 million / 29.8% | $11.48 million / 30.4% |
| Operating income (loss) | $(0.44) million | $1.49 million |
| Net earnings | $0.24 million | $1.03 million |
| Basic / diluted EPS | $0.02 / $0.01 | $0.10 / $0.10 |
| Operating cash flow | $(5.83) million | $(1.99) million |
| Investing cash flow | $(0.39) million | $(0.18) million |
| Financing cash flow | $37.80 million | $0.38 million |
| Cash at year-end | $32.23 million | $0.65 million |
- At December 31, 2021, total assets were $51.20 million and stockholders’ equity was $41.61 million. Current assets were $47.56 million and current liabilities $7.83 million.
- The company reported no outstanding bank-line borrowings at year-end. Its new secured, demand revolving line with Salem Five has a maximum stated commitment of $7 million, bears interest at prime plus 0.5%, and is secured by substantially all company assets. Availability is subject to borrowing-base limits and covenants.
- Other notable obligations included $1.64 million of Wildman contingent earn-out liabilities ($0.67 million current; $0.98 million long-term), a $0.16 million Wildman note payable, and $1.09 million of office lease liabilities.
Changes versus 2020
- Sales increased 5.2%, but reported net earnings fell 77.1% and operating results shifted to a loss. Gross margin declined 0.6 percentage points.
- Management attributed sales growth to higher spending by existing clients, new customers, and the Wildman acquisition. Recurring organic sales, as defined by the company to exclude Census, Wildman, and PPE revenue, rose 49.5% to $31.2 million; this was offset by the nonrecurrence of Census work and lower PPE sales.
- Freight costs rose 85.5% to $3.89 million, increasing from 5.6% to 9.8% of sales. Purchases fell slightly, which management attributed to sourcing improvements, but higher freight and raw-material costs pressured margins.
- General and administrative expense rose 22.8% to $12.27 million, reflecting Wildman-related costs, ERP implementation, IPO and public-company expenses, and business growth.
- 2021 results included $0.77 million of PPP loan-forgiveness income. Without that item, reported earnings would have been lower; the company also recorded $0.08 million of other expense tied to Wildman earn-out payments.
Liquidity, financing, and outlook
- Operating cash use increased to $5.83 million, primarily reflecting increases in receivables and inventory. Year-end cash rose substantially mainly from financing, not operating cash generation.
- The November 2021 IPO generated approximately $17.94 million in net proceeds; a December private placement generated approximately $19.78 million net. The company said IPO proceeds had been used for debt repayment and working capital, with approximately $9.5 million unused at year-end. Private-placement proceeds were intended for acquisitions, technology, infrastructure, sales and marketing, and working capital.
- At year-end, 10.35 million warrants were outstanding. Private-placement warrants have downward price-adjustment provisions that, after shareholder approval, could reduce the exercise-price floor to $1.00 per share, creating potential dilution.
- Management said cash on hand should meet anticipated operating and payment needs for 2022 and the longer term, while noting that expansion or acquisitions could require additional financing. No formal revenue or earnings guidance is provided.
- Management expected recovery in customer demand and more in-person events to support sales, but expected pandemic-related supply-chain disruption, higher freight and raw-material costs to continue in 2022. It also noted increased home delivery associated with remote work, which could raise both fulfillment revenue and costs.
Management commentary, risks, and unusual items
- COVID-19 disrupted demand through fewer in-person events, business closures or reduced staffing, and lower customer marketing budgets. PPE sales fell from $4.2 million in 2020 to less than $250,000 in 2021; management did not expect a near-term return to prior PPE levels.
- The 2020 Census program contributed $10.5 million of sales, or 27.1% of 2020 revenue, and was not expected to recur. The company reported no major customer for 2021; TJX represented 7.5% of 2021 revenue, according to the business discussion.
- The Wildman acquisition contributed $8.3 million of 2021 sales, versus $2.2 million in 2020. In January 2022, the company completed the G.A.P. Promotions acquisition, whose business generated approximately $7.2 million of 2021 revenue. Consideration includes cash, restricted shares, installment payments, inventory cost, and earn-outs.
- Principal risks include prolonged pandemic impacts, freight and supply constraints, customer order reductions or nonpayment, price competition and margin pressure, acquisition integration, cybersecurity and privacy compliance, product liability, and reliance on a demand line that is payable on demand and secured by company assets.
- The board announced a $10 million share-repurchase authorization in February 2022; the company cautioned that repurchases may not occur and may be suspended or terminated. It does not expect to pay dividends in the foreseeable future.
- The auditor issued an unqualified opinion on the financial statements. The filing did not include management’s internal-control assessment or auditor attestation under the new-public-company transition period; management reported disclosure controls effective as of year-end.
Important facts for investors to verify
- Reconcile 2021 GAAP sales and earnings with management’s “recurring organic sales” measure and the nonrecurring Census, PPE, and acquisition contributions.
- Track operating cash flow, receivables, inventory, freight costs, and gross margin to assess whether sales growth converts to cash and profitability.
- Review the Salem Five borrowing base, demand and covenant terms, and any future draws, particularly given the facility’s security interest over company assets.
- Assess dilution from outstanding warrants and equity awards, including the private-placement warrant repricing provisions and any future share issuance or repurchases.
- Monitor the integration and performance of Wildman and G.A.P. Promotions, including contingent payments and the acquired businesses’ contribution to margins and cash flow.
- Confirm post-year-end developments and any updates to management’s 2022 expectations; the filing provides commentary, not quantified guidance.