SOLESENCE, INC. Q3 FY2025 earnings call

• Kevin Carrington took over as President and CEO, marking a transition from Jess Jankowski. - Q3 2025 was not a year-over-year revenue increase, but full-year revenue is expected to be up $10 million from the prior year. - Factors hindering growth: product design, labor efficiency, and inventory control. - Product design: Reorganized the innovation and product integrity group (combining R&D and quality) under Yoana Divorce Act, who was named a 2025 Innovator Honoree. - Labor efficiency: Made investments in automation and OEE, reducing average labor per unit by ~25% YOY and increasing OEE by 10 percentage points, with further savings expected from facility consolidation. - Inventory control: Increased material surveillance and control, with senior leaders focusing on supply chain challenges.

In the third quarter of 2025, revenue was $14.5 million, a 14% year-over-year decrease. Gross profit was $3.4 million compared to $6.1 million in 2024, with gross margin at 23% versus 36% in the same period last year. The revenue decrease was due to a general softening in the industry and changes in brand partners' inventory levels and lead times.

• Full-year revenue is expected to be up versus the prior year. - Margins are expected to improve as indirect costs are addressed over the next few quarters. - Refrained from providing detailed 2026 guidance but plans to release an investor presentation in the coming weeks for more clarity on future expectations.

• Factors that could cause actual results to differ materially from forward-looking statements include customer order cancellations, demand for products, changes in development/distribution relationships, competitive products/technology, public health issues, terrorist activity, and armed conflict.

Q: Are we making the same mistakes over and over?

A: Some areas like inventory management took time to repair, but changes made are expected to fix issues. Full-year revenue is up $10 million, and growth trend is strong.

Q: Why was the third quarter earnings release delayed?

A: New leadership team wanted to ensure it was done right.

Q: What about sales for the fourth quarter?

A: Expect full-year revenue to be up versus 2024.

Q: Regarding the lawsuit and simple mistakes?

A: BASF lawsuit wasn't due to a simple contract mistake; details matter and are being addressed to improve profit performance.

Q: On gross margin and SG&A expenses?

A: Lower gross margins were due to consolidation expenses and transition to new structures; SG&A expenses are in a higher zone due to leadership additions and one-time items like severance, but some one-time items won't repeat.

Q: Target margins for 2026?

A: Refrained from detailed 2026 guidance but expects margins to improve and aims for 30% or higher as indirect costs are addressed.

Q: Growth relative to industry?

A: Industry is slowing, but mineral-based SPF-infused beauty is growing faster, and the company expects to grow at a multiple of the industry's growth rate due to technology leadership and brand partner growth plans.