SOLESENCE, INC. Q1 FY2026 earnings call

• Company Evolution and Strategic Context

  • Over the past six years, Soul Essence has transformed from a small-scale materials company into a leading developer and manufacturer of SPF-infused beauty products in the U.S., achieving 50%+ compound annual growth, a NASDAQ uplisting, and a more than 5x increase in market capitalization, alongside building a global patent portfolio.
  • The company launched the multi-year Transform and Transcend strategic initiative (first introduced to investors in March 2026, launched internally at the end of 2025) to transition beyond the traditional contract development and manufacturing organization (CDMO) model to a strategic supply-side innovation partner, with goals of aligning operational performance with technology strengths and building long-term sustainable profitability and growth.

• Q1 2026 Operational Investments and Changes

  • Early-stage execution of Transform and Transcend included intentional organizational realignment, process implementation, and investments that created near-term profitability pressure. Two key employee-level changes were rolled out: an updated shift structure to address extended process changeovers and production downtime, and training for a new lean manufacturing framework.

• Strategic Pillar Progress

  • Pillar 1 (Operational Excellence): Achieved early progress, including higher gross margins and reduced inventory levels; the company is implementing a new SIOP inventory management system to improve manufacturing and supply chain efficiency, and strengthening procurement and working capital discipline.
  • Pillar 2 (IP-driven Addressable Market Expansion): Announced the launch of two new proprietary technologies, Chromalume and Whisper, which enable development of SPF-infused hybrid beauty products that combine UV protection, skin health benefits, and improved user experience. The new technologies open previously inaccessible product categories and position the company to expand into adjacent segments including hair and scalp care.
  • Pillar 3 (Value Capture Through Evolved Service Models): Rolled out four co-marketing activations with brand partners including ColorScience, BloomFX, and CL; the program has been well-received, driving improved product performance for partners and deepening strategic relationships.

Segment-level financial performance and revenue contribution percentages were not disclosed in the provided transcript. For Q1 2026, the company reported total revenue of $13 million, a 11% decrease from $14.6 million in Q1 2025. Gross margin increased 300 basis points year-over-year to 26%, driven by improved labor efficiency and elimination of product quality-related waste. Net income was a loss of $0.8 million, compared to a net income of $0.08 million in Q1 2025. Adjusted EBITDA was a loss of $107,000, compared to a positive adjusted EBITDA of $609,000 in the prior year quarter. The total open order book (including delivered and undelivered orders for 2026) stood at $47 million at the end of Q1, aligned with management's prior expectations for a normalized 2026 revenue environment.

• Management is reiterating all previously communicated full-year 2026 guidance.
• The guidance maintains a 30% floor for full-year gross profit margins.
• The company remains on track to achieve double-digit adjusted EBITDA margins by the end of 2026, driven by expected labor efficiency improvements and six-figure annual cost savings from facility consolidation.
• 2026 is expected to deliver a more normalized revenue environment, aligned with prior expectations, with improved shipment and revenue performance over the remaining three quarters of the year as operational improvements are implemented.

• Forward-looking statements are subject to material risks that could cause actual results to differ materially from expectations, including: customer cancellation of purchase orders or supply agreements; weaker-than-expected demand and market acceptance for the company's personal care ingredients, advanced materials, and formulated products; changes to development and distribution partnerships; competition from competing products and technologies; and disruption to commercial activities from public health events, terrorist activity, or armed conflict.
• Near-term operational risks include ongoing on-time-in-full (OTIF) shipment performance disruptions from process changes and misaligned raw material and component delivery schedules, which reduced Q1 2026 revenue and created short-term profitability pressure from Transform and Transcend implementation investments.

Q: Wayne Ruin asked if the Q1 year-over-year revenue decline is the result of weaker product interest, and whether sales will ramp up over the final three quarters of 2026 to achieve full-year profitability. / A: Kevin Curitan clarified that the revenue decline was caused by soft OTIF shipment performance tied to Q1 process changes for the Transform and Transcend initiative, not lower customer interest in the company's products. Management maintains that 2026 is expected to be a year of rationalized revenue aligned with prior guidance, and demand for the company's SPF-infused beauty products and new technologies remains strong, with improved performance expected in the remainder of the year.

Q: James Liberman asked for confirmation that inventory and shipment delays were the sole cause of Q1's lower revenue, and requested additional details on the delays. / A: Management confirmed that with aligned OTIF performance, Q1 revenue would have been in line with prior year levels. Delays stemmed from inconsistent alignment of raw material and packaging component deliveries, tied to ongoing implementation of new SIOP inventory and planning processes. Substantial improvements were seen by the end of Q1 and into Q2, with continued improvement in inventory management, manufacturing preparation, and OTIF performance expected going forward.

Q: James Liberman asked for clarification on what the $47 million open order figure represents, specifically whether it includes backlog of undelivered orders. / A: Management explained that the $47 million figure combines orders already shipped in 2026 to date and remaining open, undelivered orders scheduled for delivery within 2026, which can be interpreted as a full-year order backlog. Management noted it is reviewing whether this metric continues to provide useful guidance to investors, and confirmed that the current figure supports a healthy outlook for 2026 full-year performance.