Software Acquisition Group Inc. III (NASDAQ:SWAG) Q3 2023 Earnings Call Transcript

Software Acquisition Group Inc. III (NASDAQ:SWAG) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Greetings, and welcome to the Stran & Company Third Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alexandra Schilt, Vice President of Crescendo Communications, the firm’s Investor Relations. Ma’am, the floor is yours.

Alexandra Schilt: Good morning, and thank you for joining Stran & Company’s 2023 third quarter financial results and business update conference call. On the call with us today are Andy Shape, Chief Executive Officer; and David Browner, Chief Financial Officer. The company issued a press release today, November 6, 2023, containing its 2023 third quarter financial results, which is also posted on the company’s website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. The company’s management will now provide prepared remarks reviewing the financial and operational results for the 3 months ended September 30, 2023.

A close-up of a hand tapping away at a keyboard, using the company's software to carry out a transaction.

Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding timing and financial impact of Stran’s ability to implement its business plan, expected revenues and future success. These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Stran’s control. With that, we will now turn the call over to Andy Shape, Chief Executive Officer. Please go ahead, Andy.

Andy Shape: Thank you, Ale, and thanks, everyone, for joining us today. I’m extremely proud to report that we generated a 42% increase in the revenue to a record $19.3 million for the third quarter of 2023, reflecting the success of our business growth initiatives. Even more notable, our gross profit increased by 50% to $6.4 million with a gross profit margin increasing to 33% compared to 31% for the same period last year. And most importantly, we achieved net income of approximately $684,000. This is a major achievement for the company. As you may -- as many of you are aware, Stran has historically been a profitable company. But with our cost as a public company, coupled with our investments in the business as well as onetime costs associated with M&A activity, we reported to losses in recent quarters.

We believe our strong growth and return to profitability is a testament to the investments we have made, while carefully managing our expenses, which demonstrates both the scalability and earnings potential of our business. Moreover, we are proud to have grown organic revenue 30% to $15.4 million for the third quarter and achieved these results despite a challenging macroeconomic environment with many of our peers witnessing declining sales. We believe this demonstrates our strong competitive position and increased market share. We expect the growth trajectory to continue throughout the remainder of the year as, historically, the fourth quarter has always been our strongest in terms of sales as customers utilize the remainder of their annual marketing budgets and with the holiday season upon us.

We believe our revenue growth is a direct result of executing on our business growth strategy, which has included aggressive M&A landing, expanding our customer contracts as well as effectively streamlining operations. Regarding M&A, we have completed a meaningful acquisition, including G.A.P. Promotions, Trend Brand Solutions, Premier NYC and TR Miller, all within less than 2 years. Each has brought important strategic advantages to Stran and our operations, including expanding our geographic footprint; increasing our warehousing and manufacturing capabilities; and bringing elite clientele to our already impressive roster of clients. I’m pleased to report that for all 4 acquisitions are now fully integrated into our operations, and we’ve seen a seamless transition into Stran.

While these acquisitions did come with the integration costs and other onetime expenses, we are witnessing the benefits of our strategy. We expect profitability of each of these businesses will continue to increase over time. As I’ve mentioned, M&A has been an integral part of our growth strategy as the promotional products industry is ideal for consolidation. And while we will not move away from exploring M&A opportunities as they arise, we are focusing on organic growth and maximizing the potential of our completed acquisitions while expanding into new verticals and geographies to support our growth. Moreover, our expanded sales and marketing programs are positively impacting our pipeline. In fact, we have secured multiple contracts with both new and existing customers, including our recently announced 6-figure contract with a leading medical group that specialize in the treatment of gastrointestinal disorders.

This new customer has over 200 locations throughout the United States and over 3,000 employees. We’re in the process of launching a new marketing program for this customer, and we’ll also be providing holiday and recruitment gifts as well as new hire kits to its employees. We believe this contract is further validation of our ability to address the needs of our customers regardless of industry. In addition, we expanded our relationship with an existing customer and have launched a loyalty redemption program for them. We support this online sports entertainment client through a combination of physical and experiential rewards designed to drive behavior. This program is example of one of several such programs based on our e-commerce loyalty program platform, which supports all aspects of client and consumer engagement from product ideation to production, technology, logistics, inventory management, fulfillment and reporting in order to ensure a seamless experience for both the client and their consumers.

We received more than 22,000 orders in the first week alone from this program, generating over $2 million in sales. The maximum number of orders from this program is approximately 45,000 units for a total sales of approximately $4 million. We look forward to further executing this program for our client and exploring implementation of similar programs with other clients as well. We also continue to launch new online stores for our customer and now actively managing over 280 online customer stores. These provide long-term value for our customers as well as an easy and simple access to these products. In addition, we are continually being recognized in industry, and I’m honored to jump 21 places to 24th in advertising specialties institutes 2023 annual listing of the most powerful people in the promotional products industry, which follows our top 40 rankings as well.

ASI serves the network of 25,000 suppliers, distributors and decorators in the $25.8 billion promotional products industry and being acknowledged within their awards validates our progress, including accelerated revenue growth and our ongoing business efforts to become a leader within the industry. Furthermore, we are continuing to enhance our technology capabilities. And as previously discussed, we are actively working to fully implement NetSuite into our operations along with additional e-commerce incentives using Adobe’s e-commerce platform, Magento Open Source. We believe that our overall technology strategy and investments will continue to improve the overall efficiency of our business. Reflecting our confidence in our financial positions and the outlook of the business, we have resumed our stock repurchase program.

As of September 30, 2023, we have repurchased approximately $3.4 million worth of stock over the course of the program. While there are limitations as to how many shares we are allowed to repurchase at any given time, we believe the stock repurchase program can be an effective tool to drive long-term shareholder value given the volatility in the capital markets. We’ve also reported that members of the management team have purchased Stran stock in the open market as filed with the SEC. Overall, we have and continue to execute a well-designed growth strategy, which has resulted in profitability for the third quarter of 2023, along with new contracts, enhanced business operations and new technology offerings. We remain committed to our growth strategy, which we believe will secure our position as a leader within the $25 billion promotional products industry.

At the same time, we have preserved a strong balance sheet with $19.7 million in cash and investments as of September 30, 2023. This provides us with the flexibility to explore strategic opportunities as they arise. So to wrap up, we plan to continue to apply our growth strategy by innovating and investing in technology, initiating marketing efforts to help deepen and develop client relationships and selectively pursuing acquisitions to sustain our growing operations. At this point, I’d like to turn the call over to our Chief Financial Officer, David Browner, to go over the financials in detail. Please go ahead, David.

David Browner: Thank you, Andy. Revenue increased 42% to approximately $19.3 million for the 3 months ended September 30, 2023, from approximately $13.6 million for the 3 months ended September 30, 2022. The increase was primarily due to the higher spend from existing customers as well as business from new customers. Additionally, the acquisitions of the assets of each of the G.A.P. Promotions in January 2022; Trend Brand Solutions in August 2022; Premier NYC in December of 2022; and TR Miller in June 2023, respectively, accounted for an aggregate of approximately $13.9 million or 20.4% of sales for the third quarter of 2023 compared to approximately $1.7 million or 12.6% of sales for the third quarter of 2022 from the acquisitions of G.A.P. Promotions assets in January ‘22 and the acquisitions of Trend Brand Solutions assets in August of 2022.

Recurring organic sales defined as sales, excluding revenue from the acquisition of assets of each G.A.P. Promotions, Trend Brand Solutions, Premier NYC and TR Miller, increased 29.5% or approximately $3.5 million to approximately $15.4 million for the 3 months ended September 30, 2023, compared to approximately $11.9 million for the 3 months ended September 30, 2022. Gross profit increased 50% to approximately $6.4 million or 33% of revenue for the 3 months ended September 30, 2023, from approximately $4.2 million or 31.3% of revenue for the 3 months ended September 30, 2022. The increase in the dollar amount of gross profit was due to the increase in sales, partially offset by an increase in purchasing and freight costs. Net income for the 3 months ended September 30, 2023, was approximately $0.7 million compared to a net loss of approximately $0.7 million for the 3 months ended September 30, 2022.

This change was primarily due to an increase in sales during the 3 months ended September 30, 2023, partially offset by an increase in operating expenses. At September 30, 2023, the company had approximately $19.7 million of cash and investments and no long-term debt. At this point, I’ll turn the call back over to Andy.

Andy Shape: Thank you, David. We’re extremely proud of the progress we have made to date, resulting in profitability, new contracts and increased exposure of Strong. We look forward to witnessing additional benefits from our growth initiatives and we’ll provide additional updates as they unfold. I’d like to thank you for joining the call today. At this point, we’d like to open up the call to questions. Operator?

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