Executive Summary

Net sales fell to $4.28M, down 46.3% year over year and 20.5% sequentially, reflecting the Dryel® divestiture, expiration of the Batiste distribution agreement, softer Alpha Skin Care sales to China, and customer inventory tightening; net loss narrowed to $0.74M from $2.47M in Q3’21 as cost actions and mix improved margins .
Gross margin expanded to 44.9% from 36.0% y/y on mix (no longer distributing lower-margin Batiste; pruning low-profit shampoo customers), partially offset by inflation and supply-chain challenges in certain BIZ products .
Liquidity is tight: cash $0.01M, restricted cash $0.13M, $0.94M revolver availability, with maturities in 2023 (revolver July 1; La Plata term loan Nov 9) and a going concern warning pending execution of expense cuts, asset sales, and debt extensions .
No formal quantitative guidance; management expects a challenging operating environment and is “committed to further cost reductions and efficiencies” – near-term stock catalysts include liquidity/debt restructuring progress and evidence of sustainable margin stabilization amid lower sales base .

What Went Well and What Went Wrong

What Went Well
- Gross margin improved meaningfully to 44.9% vs 36.0% y/y, driven by mix benefits from exiting distributed Batiste and low-profit shampoo customers; HBC margin rose to 54.6% from 32.9% .
- Operating expense reductions helped narrow net loss to $0.74M vs $2.47M y/y; selling and G&A were down y/y, aided by personnel and logistics savings .
- Management reaffirmed focus on cost structure: “we are committed to further cost reductions and efficiencies to optimize our business” (Tisha Pedrazzini, President) .
What Went Wrong
- Revenue deterioration: net sales declined 46.3% y/y to $4.28M and 20.5% q/q from $5.38M amid Dryel® sale, Batiste distribution end, China Alpha distributor change, and customer inventory management; household sales fell 28.5% y/y while HBC fell 62.9% y/y .
- Supply chain disruptions constrained BIZ powder in-stock levels, pressuring volume; management also cited inflationary pressures on materials and logistics .
- Liquidity risk: minimal cash and limited borrowing capacity with 2023 maturities; management disclosed substantial doubt absent successful restructuring and cost actions (going concern) .

Financial Results

Metric	Q3 2021	Q1 2022	Q2 2022	Q3 2022
Net Sales ($USD Millions)	$7.970	$5.790	$5.383	$4.277
Gross Profit ($USD Millions)	$2.870	$2.934	$2.275	$1.919
Gross Margin (%)	36.0%	n/a	n/a	44.9%
Loss from Operations ($USD Millions)	$(0.930)	$(0.301)	$(4.151)	$(0.603)
Net Loss ($USD Millions)	$(2.468)	$(0.451)	$(4.333)	$(0.744)
Diluted EPS ($)	$(0.20)	$(0.04)	$(0.34)	$(0.06)

Segment breakdown (Three months ended September 30):

Segment	Q3 2021 Net Sales ($M)	Q3 2021 Gross Margin (%)	Q3 2021 Loss from Ops ($M)	Q3 2022 Net Sales ($M)	Q3 2022 Gross Margin (%)	Q3 2022 Loss from Ops ($M)
Household Products	$3.846	39.4%	$(0.548) total HBC, see below	$2.748	39.4%	$(0.371)
Health & Beauty Care	$4.124	32.9%	$(0.548)	$1.529	54.6%	$(0.232)

KPIs and liquidity (period-end):

KPI ($USD Thousands unless noted)	Dec 31, 2021	Mar 31, 2022	Jun 30, 2022	Sep 30, 2022
Cash	$770	$22	$66	$14
Restricted Cash	$500	$375	$250	$125
Accounts Receivable, net	$3,516	$2,399	$1,693	$1,791
Inventories	$5,677	$6,174	$5,842	$6,289
Accounts Payable	$2,647	$2,289	$2,161	$1,750
Current Portion of Long-term Debt	$1,000	$840	$180	$2,684
Long-term Debt (net of current)	$1,876	$1,321	$1,528	$555
Available Revolver Capacity ($)	n/a	n/a	n/a	$944

Notes:

HBC distributed sales (Batiste) were $0 in Q3’22 vs $1.535M in Q3’21; HBC manufactured sales fell 40.9% y/y to $1.529M on China distributor change and pruning low-profit customers .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Overall outlook	FY 2022/near term	n/a	“We expect the operating environment to remain challenging… committed to further cost reductions and efficiencies”	n/a
Liquidity and capital structure	Next 12 months	n/a	Management implemented expense reductions; pursuing debt extensions/restructuring and considering asset sales/workforce reduction to address liquidity; going concern warning absent successful execution	n/a

No numerical revenue/EPS/margin guidance was issued in Q3’22 filings/press materials –.

Earnings Call Themes & Trends

No earnings call transcript was located for Q3’22; themes below reflect press releases and 10-Q.

Topic	Previous Mentions (Q1 and Q2 2022)	Current Period (Q3 2022)	Trend
Supply chain/logistics	BIZ powder supply constraints; elevated logistics/fuel costs; “supply chain remains uncertain”	“Supply chain challenges with certain BIZ products”; mix benefits offset some pressure	Mixed: disruptions persist; margin mix improved
Inflation	Inflation impacting materials/logistics; cost actions underway	Inflation continued to pressure costs; mitigation via pricing/cost savings planned	Unchanged headwind
China/Alpha strategy	Q1: China lockdowns; Q2: terminated exclusive China distributor; new GTM strategy	Lower Alpha sales to China continued after distributor termination	Still a drag
Portfolio mix/pruning	Ended Batiste distribution; impairment of Kids N Pets/Messy Pet in Q2; pruning low-profit shampoo customers	HBC distributed sales now zero; improved gross margin on mix; elimination of low-profit customers highlighted	Margin positive; sales negative
Cost structure/efficiency	Reduced overhead; optimizing production/logistics	“Committed to further cost reductions and efficiencies”	Ongoing focus
Liquidity/capital structure	n/a	Low cash; $944 revolver availability; 2023 maturities; going concern warning; pursuing debt restructuring and other actions	Deteriorated; action plan in place

Management Commentary

Strategy and cost focus: “Our team is adapting to the changing environment… we remain focused on delivering for our retail customers and consumers… we are committed to further cost reductions and efficiencies to optimize our business.” – Tisha Pedrazzini, President .
Macro and operating environment: Management cites ongoing inflation and supply-chain challenges, with plans to offset via pricing and cost savings, while acknowledging increased significance of inflation into Q4 and 2023 .
Liquidity and going concern: “Absent any other action, the Company likely will require additional liquidity to continue its operations over the next 12 months.” Actions include expense reductions, debt extensions/restructuring, potential asset sales and workforce reduction; substantial doubt exists if plans aren’t implemented .

Q&A Highlights

N/A – no earnings call transcript available in the company’s filings/press materials set for Q3’22.

Estimates Context

Wall Street consensus estimates (S&P Global) were unavailable for SLGD for Q3 2022 due to missing SPGI/CIQ mapping; therefore, comparisons versus consensus are not provided. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

Structural reset of revenue base: exits (Dryel® sale, Batiste distribution end) and China distributor change materially reduced sales; expect a smaller top-line near term absent replacement growth drivers .
Mix-driven margin stabilization: gross margin up to 44.9% y/y on portfolio/pricing/mix despite inflation; sustainability hinges on maintaining mix and executing further cost reductions .
Cost actions are working but must accelerate: opex reductions narrowed losses; management plans additional efficiency moves, which are key to cash conservation .
Liquidity is the central risk and catalyst: minimal cash, limited revolver capacity, and 2023 maturities with going concern language – progress on debt extensions/restructuring or asset monetizations is the primary near-term stock driver .
Sequential pressure persisted: sales fell from $5.38M to $4.28M q/q due to customer inventory controls and supply chain issues; monitoring retailer ordering patterns into Q4 is critical .
Segment lens: HBC margins improved sharply (54.6%) after exiting distributed Batiste and low-profit customers, but absolute sales declined; household margins steady (39.4%) with lower volume .
Governance/controls watch: material weakness related to goodwill impairment review remains under remediation following ERP implementation; watch for control status updates .

Scott's Liquid Gold - Inc. (SLGD)·Q3 2022 Earnings Summary