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

Good morning, everyone, and welcome to Stran & Company's Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alexandra Schilt, Investor Relations at Crescendo Communications. Over to you.

Good morning, and thank you for joining Stran & Company's 2026 Second Quarter Financial Results and Business Update Conference Call. With us today are Andy Shape, Chief Executive Officer; and David Browner, Chief Financial Officer. Yesterday, we issued a press release detailing our results, which is available on our website at ir.stran.com. Before we begin, please note that today's remarks may include forward-looking statements that involve risks and uncertainties as described in our SEC filings. With that, I'll turn the call over to Andy Shape. Please go ahead, Andy.

Thank you, Ally. Good morning, everyone, and thank you for joining us today. The second quarter was a strong period for Stran. We continue to execute on the strategy we've been building over the past several years, and the results are showing up in our numbers. We are deepening relationships with large enterprise customers, winning new business across attractive verticals, strengthening our position in casino and gaming, and continuing to invest in the technology and infrastructure necessary to support a larger and more scalable organization. Our opportunity extends well beyond traditional promotional products. Our goal is to become an increasingly important strategic partner to our customers, helping them manage complex branded merchandise, loyalty, incentive, e-commerce and fulfillment programs through an integrated platform. During the quarter, we made progress against that vision while navigating the normal variability that comes with the timing, size and mix of large customer programs. That progress is increasingly visible in our financial performance beginning with continued top line revenue growth in the second quarter. For the quarter, revenue increased 2.4% to $33.4 million, compared with $32.6 million in the prior year period. Gross profit increased to $10 million with a gross margin of 30%. We remain profitable generating operating income of $86,000 and net income of $309,000. Our core Stran business continued to be the primary driver of top line growth, with that segment revenue increasing 6.9% year-over-year, reflecting higher spending from existing clients as well as new customer business. We're also encouraged by what we saw with -- at Stran Loyalty Solutions, our business segment consisting of the Gander Group business. While SLS revenue declined year-over-year, the casino and gaming business can experience variability between quarters based on the timing and size of individual customer programs and orders. More importantly, the profitability of the business improved meaningfully during the quarter. SLS generated higher gross profit, expanded gross margin to 24.3% from 21% and nearly doubled segment operating income year-over-year. When we step back and look at the first 6 months of 2026, the underlying progress becomes even more clear. The first half represents the strongest 6-month period in Stran's history as a public company. First half revenue increased 5.4% to $64.6 million, gross profit increased 7.2% to $19.7 million and gross margin improved to 30.4%. Most importantly, we generated $731,000 of operating income, compared with an operating loss of $140,000 last year. The net income increased to $1.1 million from $250,000. EBITDA for the first half more than doubled to $1.6 million from $728,000 a year ago. Taken together, the second quarter and first half results demonstrate continued progress across areas that matter most to us: growing our core business, improving the profitability of SLS, strengthening the earnings profile of the company, and investing in the platform to support our next stage of growth. Beyond the financial results, we had a productive quarter on the business development front. We continue to win new enterprise relationships, expand into attractive verticals and build the kind of long-term programmatic business that drives durable revenue. In May, we announced multiple new contract wins within the customer -- within the consumer retail market, including a 3-year uniform program with a leading U.S. grocery retailer, that is expected to generate 6 figures in annual revenue, along with additional uniform and promotional product orders from regional grocery operations. These wins demonstrate the value of our broader approach. Establishing an initial relationship through a uniform or promotional program gives us an opportunity to execute, deepen that relationship and potentially expand into additional brand and merchandise fulfillment and marketing programs over time. That is central to our land-and-expand strategy: win the relationship, deliver at a high level and then increase the breadth of service that we provide as the relationship develops. We continued that momentum in June when we announced a new contract with a leading U.S. provider of construction material and systems serving commercial and residential markets. That engagement is expected to generate nearly 7 figures in annual revenue and includes branded merchandise, promotional campaigns and end-to-end program management. This win is significant not only for its expected initial contribution, but because it demonstrates our ability to apply the Stran platform across new industries and large enterprise organizations. As with many of our relationships, our objective is to establish a strong initial program and then identify opportunities to broaden the relationship over time. We also continue to strengthen our position in the casino and gaming market, which remains an important area of opportunity for Stran. Toward the end of the quarter, we announced the addition of an industry veteran, Kevin Lewis, as a contracted sales representative. Kevin brings extensive experience relationship across the casino and gaming industry along with an existing customer portfolio. This is particularly compelling when viewed alongside the improving financial performance of Stran Loyalty Solutions. As we discussed earlier, SLS delivered significantly stronger margins and profitability during both second quarter and first half of the year. Our objective is now to build on that stronger operating foundation by expanding the business we can bring through the platform. We continue to see favorable trends across promotional products and loyalty industries as companies place greater emphasis on customer engagement, employee retention and brand activation. At the same time, larger organizations increasingly want integrated partners that can combine technology, creative execution, fulfillment and program management at scale. That shift plays directly to Stran's strength and is reflected in our continued advancements within the industry. Most recently, Stran moved up 2 positions to #21 on the 2026 ASI Counselor Top 40 distributor list, a key industry benchmark based on verified North American promotional products revenue. That recognition reflects the scale we have built, the strength of our enterprise relationships, and our ability to continue gaining share in a large and fragmented market. Acquisitions also remain an important part of our growth strategy, but we will continue to be disciplined. We are focused on opportunities that expand our capabilities, add attractive customer relationships, strengthen key verticals and create meaningful long-term value. Our balance sheet gives us the flexibility to be patient and pursue the right opportunities at the right time. As we enter the second half of the year, we are operating from a stronger foundation with a growing core business, improving profitability at SLS, new enterprise wins and an expanding pipeline. Our focus is on converting that momentum into sustainable revenue, stronger profitability and increasing cash generation. Capital allocation remains part of that strategy. During the second quarter, we resumed our share repurchase program, purchasing and retiring approximately 131,000 shares for approximately $272,000. Since program inception, the company has repurchased a total of approximately 2.3 million shares for approximately $4.2 million at a weighted average of $1.81 per share. We will continue to balance repurchase with investments in the organic growth and strategic acquisitions, always with the objective of creating long-term shareholder value. I also want to highlight that our public warrants, which have an exercise price of approximately $4.81 per share, are scheduled to expire in the fourth quarter of 2026. As the warrants expire, we expect the overhang on our stock to be removed, which should simplify our capital structure and present a cleaner equity story for current and prospective investors. Stran has multiple paths to grow. Our focus is clear execute with discipline, continue improving the economics of the business, and translate that business into greater value for our shareholders. I'll now turn the call over to our CFO, David Browner, for a more detailed review of our financial results. David, please go ahead.

Thank you, Andy, and good morning, everyone. I'm pleased to provide a detailed overview of our financial performance for the 3 and 6 months ended June 30, 2026. For our 3 months results, total sales increased 2.4% to $33.4 million for the 3 months ended June 30, 2026, from $32.6 million for the prior year period. Sales by our Stran segment increased to $23.3 million for the 3 months ended June 30, 2026, from $21.8 million for the prior year period. Sales by our SLS segment decreased to $10.1 million for the 3 months ended June 30, 2026, from $10.8 million for the prior year period. Total gross profit increased 1.6% to $10 million or 30% of sales for the 3 months ended June 30, 2026, from $9.9 million or 30.3% of sales for the prior year period. The increase in the dollar amount of total gross profit was primarily attributable to customer mix and effective cost management. Gross profit for our Stran segment remained consistent with prior year period of $7.6 million for the 3 months ended June 30, 2026 in the prior year. With the Stran segment, the slight decrease in the dollar amount of gross profit was due to the customer mix. Gross profit for our SLS segment increased to $2.5 million for the 3 months ended June 30, 2026 or $2.6 million for the prior year period. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to an improved customer mix, effective cost management and lower tariffs. Total operating expenses increased 4.9% to $9.9 million for the 3 months ended June 30, 2026, from $9.5 million for the prior year period. As a percentage of sales, total operating expenses increased to 29.8% for the 3 months ended June 30, 2026, from 29.1% for the prior year. Operating expenses of our Stran segment increased to $6.9 million for the 3 months ended June 30, 2026, from $6.5 million for the prior year period. As a percentage of sales, operating expenses of our Stran segment decreased to 29.8% for the 3 months ended June 30, 2026, from 30% for the prior year period. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to higher sales-related costs and our investment in the Stran digital solutions to provide enhanced functionality and offerings to scale client programs. Operating expenses for our SLS segment decreased to $2 million for the 3 months ended June 30, 2026, from $2.1 million for the prior year period. As a percentage of sales, operating expenses of our SLS segment increased to 19.9% for the 3 months ended June 30, 2026, from 19% for the prior year period. For the SLS segment, the decrease in the dollar amount of operating expense was primarily attributable to a small reduction in headcount and lower sales-related costs. Operating expenses for other consisting of unallocated corporate costs, including salaries of corporate officers, audit-related fees, Board of Directors compensation and other stock-related charges, such costs increased by $106,000 to $995,000 for the 3 months ended June 30, 2026, from $889,000 for the prior year period. The increase was primarily due to the higher -- to higher legal and accounting expenses. Net income for the 3 months ended June 30, 2026 was $309,000, compared to a net income of $643,000 for the prior year period. This change was primarily due to an increase in gross profit. EBITDA for the 3 months ended June 30, 2026 was $551,000, compared to an EBITDA of $929,000 for the prior year period. For 6 months results, total sales increased 5.4% to $64.6 million for the 6 months ended June 30, 2026, from $61.3 million for the prior year period. Sales of our Stran segment increased to $46.7 million for the 6 months ended June 30, 2026, from $42.7 million for the prior year period. With the Stran segment, the increase in sales was primarily due to higher spending from existing clients as well as business from new customers. Sales by our SLS segment decreased to $17.9 million for the 6 months ended June 30, 2026, from $18.6 million for the prior year period. For the SLS segment, the decrease in sales was primarily attributable to a lower spend from existing clients. Total gross profit increased 7.2% to $19.7 million or 30.4% of sales for the 6 months ended June 30, 2026, from $18.4 million or 30% of sales for the prior year period. The increase in the dollar amount of total gross profit was primarily attributable to the customer mix and effective cost management. Gross profit of the Stran segment increased to $15 million for the 6 months ended June 30, 2026, from $14.4 million for the prior year period. For the Stran segment, the increase in the dollar amount gross profit was due to an increase in sales of $4 million, which was partially offset by an increase of cost of sales of $30.4 million. Gross profit of the SLS segment increased to $4.7 million for the 6 months ended June 30, 2026, from $4 million for the prior year period. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to an improved customer mix and effective cost management. Total operating expenses increased 2.4% to $18.9 million for the 6 months ended June 30, 2026, from $18.5 million for the prior year period. As a percentage of sales, total operating expenses decreased to 29.3% for the 6 months ended June 30, 2026, from 30.2% for the prior year period. Operating expenses for the Stran segment increased to $13.2 million for the 6 months ended June 30, 2026, from $12.2 million for the prior year period. As a percentage of sales, operating expenses of our Stran segment decreased to 28.2% for the 6 months ended June 30, 2026, from 28.5% for the prior year. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to an increased headcount and employee-related costs, higher sales-related costs and our investment in digital solutions -- or Stran digital solutions to provide enhanced functionality and offering to scale high programs. Operating expenses of our SLS segment decreased to [ $30.7 million ] (sic) [ $3.7 million ] for the 6 months ended June 30, 2026, from $4.2 million for the prior year period. As a percentage of sales, operating expenses of our SLS segment decreased to 20.8% for the 6 months ended June 30, 2026, from 22.6% for the prior year period. For the SLS segment, the decrease in the dollar amount of operating expenses was primarily attributable to a smaller -- or a small reduction in headcount and lower sales-related costs. Operating expenses for the other -- for other consists of unallocated corporate costs, including salaries for corporate officers, audit-related fees, Board of Director compensation and other stock-related charges. Such charges decreased by $78,000 to $2.05 million for the 6 months ended June 30, 2026, from $2.13 million for the prior year period. The decrease was primarily due to lower legal and accounting expenses. Net income for the 6 months ended June 30, 2026 was $1.1 million, compared to a net income of $250,000 for the prior year period. This change was primarily due to an increase in gross profit. EBITDA for the 6 months ended June 30, 2026 was $1.6 million, compared to an EBITDA of $128,000 for the prior year period. As of June 30, 2026, we had $12.6 million in cash and cash equivalents and investments. Now I'll turn the call back to Andy.

Thank you, David. At this time, we'll open up to questions. Operator, please call for questions.

[Operator Instructions] Our first question is coming from Greg Womack, who's a private investor.

Congratulations on the good quarter. Hoping we can get some more details on the primary drivers of revenue growth in the quarter. Was it between pricing new logos or deeper penetration at existing programs?

It was really a combination of all of those things. I mean that is our growth strategy, to try to -- we've got a great roster of clients already. We have over 30 Fortune 500 customers. So we try to expand and go deeper with them. It was a combination of that as well as some new business that we've also gotten through the addition of some additional sales reps, some new business development efforts and some new clients. So really, that's just a combination of getting more from our existing client base and finding new clients, which is what we continue to do going forward as well.