Q3 2024 Earnings Summary
- Significant expansion of production capacity: The company is expanding manufacturing capacity with a goal of reaching $200 million-plus range. They currently have the capacity to reach $100 million in sales and are adding more to potentially exceed that.
- Strong financial performance and improving margins: The company reported $0.04 earnings per share and is confident in improving operational efficiencies, potentially achieving 40% gross margins in future quarters.
- Diversification into higher-volume markets and global expansion: The company is expanding into the "masstige" market ($15-$20 per unit), accessing a higher volume market space. They are also experiencing less seasonality and see globalization as customers ship products outside of the U.S., indicating international growth potential.
- The company's focus on high-margin, prestige brands may limit its ability to tap into the larger mass-market segment, potentially capping revenue growth opportunities. As stated by the executives, "we definitely want to be selective so that we are really focused on delivering high-quality growth meaning that the margin on every unit... is better and better as we continue to grow."
- Margins may not be sustainable or may fluctuate due to product mix and production volumes, making profitability less predictable. The CEO mentioned that achieving higher margins depends on consistent production and that "the question about stringing them together in a quarter and then multiple quarters really has a lot to do with the trajectory of the business."
- The company's growth rate is expected to slow down over time as it becomes larger, which may concern investors looking for high growth. The CEO stated, "over a period of time that the curve is going to flatten and we won't grow as quickly... I don't think it will be a double or anything like that."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +112% YoY to $16.866 million | The substantial rise is driven by continued adoption of Solésence® products and expanded sales in the personal care segment, reflecting strong customer demand and successful product launches. |
Cost of Goods Sold | +68% YoY to $10.764 million | The increase reflects higher production volumes, partially offset by efficiency gains, but still below the rate of revenue growth, indicating improved operational scalability. |
Operating Income (EBIT) | Improved from -$1.224 million to $3.199 million | The swing to positive EBIT is mainly attributable to strong revenue growth, better gross margins, and effective cost control, despite facing variable demand and some inflationary pressures. |
Net Income | Improved from -$1.437 million to $3.046 million | The turnaround is due to increased top-line performance, disciplined expense management, and favorable product mix, yielding strengthened profitability amid ongoing market uncertainties. |
EPS – Basic | Improved from -$0.03 to $0.05 | This reflects net income growth and margin expansion, signaling the company’s ability to translate revenue gains into shareholder returns, while continued investment in innovation positions it favorably for further earnings momentum. |
-
Gross Margin Outlook
Q: Is 40% gross margin achievable next year?
A: Management believes achieving 40% gross margins is possible and likely to occur in some months. Consistent margins at that level depend on steady growth, but ups and downs make it harder. They expect margins to improve over time. -
Capacity Expansion
Q: Do you have capacity to reach $100 million sales?
A: The company currently has the capacity to reach $100 million in sales and is adding more capacity to achieve multiples of that. They plan to manage redundancies in production types due to varying customer packaging demands. Higher capacity exists than currently delivered due to demand uncertainties. -
Growth Outlook for 2025
Q: What's the growth expectation for full-year 2025?
A: Management anticipates double-digit growth next year but doesn't expect to double revenue. They note the difficulty in projecting exact growth due to cyclicality, product launches, and reorders. Next year should be stronger, with better insights expected in upcoming quarters. -
Potential Uplisting
Q: Is there any plan to uplist to a major exchange?
A: Uplisting is being actively discussed at the board level. The company aims to improve liquidity and recognizes the thinly traded nature of its stock. After establishing a series of strong quarters, they plan to pursue this further. -
Impact of China Tariffs
Q: Are you affected by potential China tariffs?
A: The company has diversified its supply chain to mitigate risks from China tariffs. For every Chinese source, there is an alternative non-Chinese source. This strategy ensures supply diversity and is part of their contingency planning. -
Product Diversification
Q: Can you expand products to broader markets?
A: They supply not only prestige brands but also leading companies in the "masstige" market ($15–$20 per unit). While being selective to focus on high-quality growth and margins, they consider casting a wider net as efficiencies improve. Future strategy includes balancing profitability with volume growth. -
Net Operating Loss Carryforwards
Q: Can you offset profits with tax loss carryforwards?
A: The company has a large NOL and plans to utilize it to mitigate tax liabilities. They are also benefiting from R&D tax credits. State-specific regulations may impact timing, but overall benefits are expected over coming years. -
Seasonality
Q: Is seasonality affecting your business?
A: The business is less seasonal since products are skincare and cosmetics with SPF, not just SPF. Retailers prefer to launch new products in late Q1 or early Q2, with reorders in Q3. Growth is also driving Q4 orders, and globalization is contributing to demand. -
Production Efficiency
Q: Will production improve next year?
A: They expect increased throughput and operational efficiency, aiming for capacity in the $200 million-plus range. Additional staff and maintenance engineers have been added to enhance operations. Delivering orders on time is leading to additional reorders within the same year. -
Share Count
Q: Are there outstanding preferred shares yet to convert?
A: All preferred shares have been converted to common stock; the share count stands at 71 million.