Solesence's Q3 2025 Earnings Call: Clashing Growth Projections, Revenue Forecasts, and Margin Recovery Optimism

Date of Call: November 11, 2025

Financials Results

• Revenue: $14.5M, down 14% YOY
• Gross Margin: 23%, compared to 36% in the prior year

Guidance:

• Full-year shipments/open orders projected around $64M, implying roughly +$12M vs prior year.
• Company expects full-year revenue to be up versus 2024 and to finish the year stronger.
• Management sets 30% as the floor for 2026 gross margins and retains a long-term target of 40%+.
• Expect indirect cost and inventory-control improvements to normalize margins within the next few quarters.
• Company will publish an investor presentation with more detailed 2026+ guidance in the coming weeks.

Business Commentary:

* Leadership Transition and Focus on Growth: - Kevin Cureton was named as the new President and CEO, replacing Jess Jankowski, who was instrumental in the company's transformation from a materials company to a product-focused organization. - The transition highlights the company's confidence in its future growth opportunities and commitment to maintaining the same level of innovation and scientific excellence under Cureton's leadership.

• Challenges and Operational Improvements:
• Solesence experienced a decrease in revenue for Q3 2025, marking the first quarter without a year-over-year increase since Q3 2023.

• The decline was attributed to inventory management issues and manufacturing inefficiencies, which led the company to implement changes such as consolidating facilities and reorganizing operations to improve labor efficiency and inventory control.

• Gross Margin and Expense Management:

• Gross margin for Q3 decreased to 23%, down from 36% in the same period last year.

• This drop was due to manufacturing inefficiencies and restructuring costs, including the uplisting to NASDAQ, and the company expects improvements in gross margin as it addresses these issues over the next couple of quarters.

• Brand Partner and Market Performance:

• Solesence's strategic brand partners are projected to outperform the market, with their products representing 30% to 60% of their business volume.
• Despite the challenging Q3 performance, the company remains confident in its ability to grow at a multiple of the industry's growth rate, supported by strong growth in the SPF-infused beauty segment and its leadership in mineral-based SPF technologies.

Sentiment Analysis:

Overall Tone: Neutral

• Management noted "Q3 2025 represented the first quarter in almost 2 years, where we did not have a year-over-year revenue increase." CFO: "Revenue for the third quarter was $14.5 million, a decrease of 14% year-over-year." Management also said it is "confident" full-year revenue will be higher (~$64M) and that "30% is really the floor" for 2026 margins, while outlining operational fixes.

Q&A:

• Question from Wayne Rowan (Unknown firm): Are we making the same mistakes repeatedly and where is optimism for sales? Why was Q3 released later than usual? Do you expect greater sales in Q4?
  Response: Management: Acknowledged lingering issues (especially inventory), implemented reorganizations and controls, confirmed full-year revenue trend is positive (~$10–12M higher year‑to‑date) and expects improvement in coming quarters; Q3 timing was due to new leadership wanting accuracy.

• Question from Ron Richards (Unknown firm): Given past contract/sourcing errors and recent operational mistakes ($2M error, conference call timing errors), will these simple mistakes stop and improve?
  Response: Management: Said the BASF matter was commercial, not a simple clerical error, emphasized that details matter, and highlighted steps to tighten product specifications and controls to prevent repeat simple errors.

• Question from Stefano Bolis (Unknown firm): Is the lower gross margin (~23%) due to the reorganization or other factors?
  Response: Management: Lower gross margin driven by non-capitalizable consolidation/transition expenses and higher indirect costs despite meaningful direct labor improvements; expect indirect-cost reductions to materialize over the next few quarters.

• Question from Tony Ruben (Unknown firm): With sales up ~$10M YTD, what will Q4 sales and margins look like and what's the outlook for 2026?
  Response: Management: Projects ~ $64M in shipments/open orders for the year (≈+$12M vs prior year), expects direct-margin improvements and normalization of margins over the next few quarters, will not give detailed 2026 figures now but expects to grow at a multiple of the industry; investor presentation forthcoming.

• Question from Stefano Bolis (Unknown firm): Is the SG&A run rate now ~$3M per quarter or were there one-offs (uplisting, severance, credit losses)?
  Response: Management: Plans to operate around the current SG&A level (near $3M) reflecting added leadership and legal costs, but noted one-offs (e.g., ~$400k severance) will not recur and some cost categories should improve.

• Question from Ron Richards (Unknown firm): Clarify the ERC payment — was it in Q3 2025 and did it improve results by about $1.2–1.3M?
  Response: CFO: Confirmed the ERC payment was recorded in Q3 2025 and it favorably impacted the quarter by roughly $1.2M (plus related interest), and without it the bottom line would have been worse.

Contradiction Point 1

Growth Expectations and Industry Comparison

It involves differing statements about the company's growth expectations relative to the industry's growth rate, which are crucial indicators for investors.

Can you clarify how the company can grow at multiples of the industry's rate when the industry is softening? - Unknown Analyst (Tony Ruben)

2025Q3: We're confident in sustaining growth at a multiple of the industry's rate through our technology leadership and SPF-infused product focus. - Kevin Cureton(CEO)

How will the company's scaling efforts impact profit margins this year? - James Lieberman (America Trust Investment Services)

2025Q2: In summary, we expect to grow at multiples of the industry's growth rate this year. - Jess Jankowski(CEO)

Contradiction Point 2

Sales and Revenue Forecasts

It involves changes in financial forecasts, specifically regarding sales and revenue expectations, which are critical indicators for investors.

Do we have chances for higher sales this quarter? - Wayne Rowan

2025Q3: Our expectation on a full-year basis is that we will see an improvement over prior year, with positive revenue versus 2024. - Kevin Cureton(CEO)

How might profit margins improve this year as the company scales? - James Lieberman (America Trust Investment Services)

2025Q2: I want to be clear that while we expect to grow at multiples of the industry's growth rate this year, we do not expect to be at scale in 2025. - Jess Jankowski(CEO)

Contradiction Point 3

Gross Margin Recovery

It involves differing expectations regarding the recovery of gross margins, which impacts financial projections and investor confidence.

Can you provide sales and margin guidance for Q4 and 2026? - Unknown Analyst (Tony Ruben)

2025Q3: Gross margins may initially dip to low 70s due to the Blackwell ramp but are expected to recover to mid-70s quickly. - Kevin Cureton(CEO)

What were the full-year gross margins excluding one-time startup costs? - Unidentified Analyst (Rueben)

2025Q1: We achieved full-year gross margins above 30%, with Q1 being the anomalous quarter. We expect margins to be back on track in the coming quarters. - Jess Jankowski(CEO)

Contradiction Point 4

Sales Growth Expectations

It involves contrasting expectations for sales growth, which directly impacts financial forecasts and investor expectations.

What are the sales and margin forecasts for Q4 and 2026? - Unknown Analyst (Tony Ruben)

2025Q3: We expect to improve margins over the next couple of quarters, normalizing back to levels seen a year ago. For 2026, we anticipate growing at multiples of the industry's growth rate, but we're cautious due to market uncertainty. - Kevin Cureton(CEO)

What were full-year gross margins excluding one-time startup costs? - Unidentified Analyst (Rueben)

2025Q1: Our goal for 2025 is to grow revenue organically in line with the addressable market, recovering the revenue growth we lost in Q1 and Q2 of 2024. - Jess Jankowski(CEO)