SOLESENCE, INC. Q1 FY2025 earnings call

• Jess Jankowski noted the company's transformation since rebranding to Solesence, its uplisting to NASDAQ, and record first quarter revenues. He highlighted the company's position as a leading CDMO in the beauty market with innovative technology and regulatory expertise.
• Kevin Cureton discussed record unit volumes and revenues, resolved start-up challenges related to a key brand partner's product launch, new patents for technology, and efforts to manage tariffs on packaging materials. He also emphasized continuous improvement in handling new product launches and margin expansion plans.

In the first quarter of 2025, Solesence achieved record revenues of $14.6 million, representing a nearly 50% year-over-year increase. Revenue was primarily driven by sales to large brand partners, including consumer products sales to new launch partners and Active Pharmaceutical Ingredients (APIs) sales to BASF. Gross profit was $3.3 million, or 23% of revenue, compared to $3.6 million, or 36% of revenue, in the same period of 2024. Excluding one-time production start-up costs related to a new product launch, the gross margin would have been similar to the previous year's margin.

• Anticipates margin rebound starting in the second quarter as more product is shipped to new brand partners. Expects record revenues in the second quarter of 2025. Book-of-business is currently in excess of $45 million, with more orders expected in the second half of 2025. Anticipates continued top-line growth driven by growing brand partners and reorders.

• Operational failures related to one-time production start-up costs impacting gross margins. Tariffs on packaging materials, though the impact is expected to be manageable by passing costs through. Dependence on raw material sourcing, though key materials are not sourced from China now, and lessons learned from production start-ups to reduce risks in future launches.

Q: The analyst asked about the one-time operational failures and margin impact, specifically if the $2 million was the true impact and assurance these won't happen again.

A: Jess Jankowski responded it was in the range of that, due to inefficiencies in manufacturing lasting longer than expected, but saw it as a learning experience not expected to repeat. Kevin Cureton added it was due to packaging variance and rework, with changes to processes to avoid recurrence.

Q: The analyst inquired about anticipating operational issues and correcting them before impact.

A: Jess Jankowski stated they are already better than before, with processes in place to avoid recurrence. Kevin Cureton elaborated on quality checks and process changes to ensure first-time production right.

Q: The analyst asked about tariff situation, sourcing from China, and impact on raw materials vs packaging.

A: Jess Jankowski clarified China is not a source for key raw materials like zinc, but cerium oxide from China was a past issue now resolved. Tariffs impact more on packaging materials sourced from China.

Q: The analyst expressed disappointment in repeated operational issues and concern about mindset to prevent recurrence.

A: Jess Jankowski emphasized these issues are expected but magnitude should not happen, with the company addressing it at the highest level and working to minimize failure rates.

Q: The analyst asked about balance sheet items like accounts receivable and inventory line of credit.

A: Jess Jankowski explained accounts receivable ballooned due to increased volume from the launch, and the line of credit supports working capital, with efforts to cut inventory and manage cash flow.