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SI

SOLESENCE, INC. (SLSN)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue declined to $14.60M, down 13.5% year over year and down sequentially from a record Q2; gross margin compressed to 23% (vs 36% YoY and 29% in Q2), resulting in a net loss of $1.1M and -$0.02 EPS .
  • Management attributed margin pressure to manufacturing inefficiencies, facilities consolidation costs that could not be capitalized, and elevated indirect costs; leadership changes aim to address product design, labor efficiency, and inventory control .
  • Operational KPIs improved: average labor cost per unit fell ~25% YoY, OEE rose ~10pp, and “shipped and open orders” rose to ~$64M (vs ~$60M in Q2 and ~$34M in Q3’24), supporting a full-year revenue increase vs 2024; management set a gross margin “floor” of 30% with a long-term target “40%+” .
  • The tone acknowledged investor frustration on operations and margin timing; management plans an investor presentation in coming weeks; one caller noted the stock “has plunged in recent weeks,” underscoring the need for clearer execution milestones and guidance .

What Went Well and What Went Wrong

What Went Well

  • Labor efficiency and throughput: “virtually eliminating overtime,” average labor cost per unit down ~25% YoY, OEE +10pp; consolidation from three facilities to two to remove mid–six-figure annual costs and enable a high six- to low seven-figure annual direct labor reduction going forward .
  • Organizational upgrades: creation of a unified Innovation & Product Integrity group (R&D + Quality) under a new VP to improve “made right the first time” execution; CEO emphasized delivering products that meet OTC drug-grade performance while offering a “joyful experience” at cost ≤20% of retail value .
  • Demand indicators: shipped and open orders reached ~$64M (vs ~$60M in Q2 and ~$34M in Q3’24), supporting management’s expectation that full-year 2025 revenue will be up ~$12M YoY and that SLSN will grow at multiples of the industry over time .

What Went Wrong

  • Revenue and margin deterioration: revenue fell to $14.60M (-13.5% YoY), gross margin declined to 23% (vs 36% YoY), and net swung to a -$1.1M loss from +$3.0M YoY; drivers included manufacturing operating inefficiencies and facilities improvements expensed in the quarter .
  • Elevated operating costs: OpEx rose to $4.15M (vs $2.90M YoY) due to employee-related costs, legal, allowance for credit loss, severance, and uplisting-related costs; a one-time ~$0.4M severance charge will not repeat .
  • Execution credibility questions: investor Q&A highlighted concerns about recurring “simple mistakes” and operations, plus a misstatement on the earn-out of ERC timing (later corrected in-file to Q2), reinforcing the need for disciplined processes and communications .

Financial Results

Summary P&L and Margins

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$16.87 $14.63 $20.36 $14.60
Gross Profit ($USD Millions)$6.10 $3.31 $5.88 $3.37
Gross Margin (%)36% 23% 29% 23%
Net Income ($USD Millions)$3.05 $0.08 $2.67 -$1.12
Diluted EPS ($)$0.04 — (breakeven noted) $0.04 -$0.02

Non-GAAP Profitability

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Adjusted EBITDA ($USD Millions)$3.59 $0.61 $3.49 -$0.44

Revenue Mix

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Product Revenue ($USD Millions)$16.79 $14.58 $20.26 $14.53
Other Revenue ($USD Millions)$0.08 $0.05 $0.10 $0.06
Net Revenue ($USD Millions)$16.87 $14.63 $20.36 $14.60

KPIs and Operational Metrics

KPIQ3 2024Q2 2025Q3 2025
Shipped + Open Orders ($USD Millions)~$34 ~$60 ~$64
OEE Change (YoY, pp)n/an/a+10pp
Avg Labor Cost per Unit (YoY)n/an/a~-25%
Facilities (count)3 3 2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025Not quantified previouslyExpect FY25 up roughly $12M YoY; shipped+open orders around $64M supporting outlook New specificity
Gross MarginFY 2026+Not quantified“30% is the floor,” long-term objective “40%+” New targets
SG&A Run-RateNear-termNot providedOperating “in that zone” of ~$3.0M/quarter; includes leadership/HR additions and higher legal near-term; ~$0.4M severance in Q3 will not repeat New detail
Labor/ThroughputNext few quartersNot providedLabor cost/unit down ~25% YoY; OEE +10pp; consolidation to 2 sites; expected high six- to low seven-figure annual labor savings New ops framework

Note: Management refrained from quantitative 2026 revenue guidance given macro uncertainty and evolving consumer sentiment .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q1)Current Period (Q3)Trend
Operations excellence: automation/OEEQ1: start-up costs on a major launch; plan to improve fixed-cost absorption and variable cost control . Q2: sequential margin improvement in peak season .OEE +10pp; labor cost/unit -25% YoY; overtime “virtually eliminated”; consolidation 3→2 sites .Improving ops metrics, execution still in transition.
Inventory managementLimited explicit prior commentary.Elevated focus; new leadership and daily variance surveillance to curb waste and drive profitability .Increasing emphasis; expected to support margins.
Gross margin outlookQ1: margins to rebound from start-up costs .23% in Q3; target 30% “floor”, 40%+ long-term; indirect costs to improve over next “couple of quarters” .Near-term pressured; medium-term recovery plan.
Demand/bookingsQ1: shipped+open orders >$45M . Q2: record revenue/units .Shipped+open orders ~$64M; brand partners still expecting outperformance; consumer-order lead times shorter .Order book strengthening despite macro.
Tariffs/macroQ1: limited near-term cost impact; expect to pass through packaging tariffs .Management cites general industry softening; still expects growth above industry .Macro a headwind; SLSN still aiming to outgrow.
R&D/IP and product integrityQ1: new patents across platforms .Unified Innovation & Product Integrity group under new VP to improve “made right the first time” .Continued investment and process integration.
Legal/regulatory backdropQ1/Q2: none material;BASF matter characterized as commercial differences, settled amicably (Q&A) .Legacy issue behind; legal costs near-term elevated.
Leadership/structureQ1: CFO search initiated .CEO transition; new CFO appointed; leadership expansion in HR/ops .Governance strengthening.

Management Commentary

  • “Despite a challenging third quarter, we are confident that our wider organizational and commercial strategies will solidify Solésence’s future as a dynamic, highly profitable growth company.” — Kevin Cureton, CEO .
  • “The culmination of all these efforts will provide the sound operational foundation necessary to efficiently deliver the highest quality products to our brand partners.” — Laura Riffner, CFO .
  • “Our goal is 30% [gross margin] is really the floor… we expect to achieve margins in that 40-plus-percent range.” — Kevin Cureton .
  • On demand and partners: “Without exception, each [strategic brand partner] is expecting to outperform the market… Their success is our success.” — Kevin Cureton .
  • On operations: “Average labor cost per unit [down] close to 25% YoY… OEE… up 10 percentage points… consolidation alone will yield a mid-six-figure reduction in annual operating costs.” — Kevin Cureton .

Q&A Highlights

  • Revenue outlook and comps: Management expects FY25 revenue to be up ~$12M YoY, supported by ~$64M shipped+open orders; tough YoY comp vs record Q3’24 and shorter customer lead times weighed on Q3 .
  • Margin path: Direct margin improving via labor/OEE gains; indirect costs from transition/consolidation weighed on Q3; management targets ≥30% gross margin near-term, 40%+ long-term .
  • SG&A and one-offs: SG&A “in that zone” of ~$3M/quarter near term with higher legal and leadership additions; ~$0.4M severance in Q3 will not repeat; doubtful accounts to flow through SG&A .
  • Execution discipline: Investors raised concerns about recurring errors; management emphasized strengthened product design controls and unified quality/R&D oversight; ERC timing misstatement was corrected in-file (credit received in Q2) .
  • Tone vs prior quarters: Acknowledged operational shortcomings and industry softening; reiterated competitive advantages in mineral-based SPF and commitment to provide an investor deck to improve transparency .

Estimates Context

  • S&P Global consensus estimates for Q3 2025 appeared unavailable for EPS and revenue (no published consensus count); as a result, we cannot assess beat/miss vs Street for this quarter. Values retrieved from S&P Global.
  • Actuals: Revenue $14.60M; EPS -$0.02 .
MetricQ3 2025 ConsensusQ3 2025 Actual
Revenue ($USD Millions)n/a*$14.60
Diluted EPS ($)n/a*-$0.02

*Consensus values unavailable from S&P Global for this quarter.

Key Takeaways for Investors

  • Near-term: Q3 margin compression and OpEx elevate execution risk; watch for sequential margin improvement as indirect costs normalize post-consolidation and labor/OEE gains flow through in Q4/Q1 .
  • Full-year setup: ~$64M shipped+open orders and management’s ~$12M YoY revenue uplift expectation support FY25 growth despite Q3 softness; monitor conversion of the order book to shipments and any year-end demand shifts .
  • Margin milestones: Track gross margin trajectory toward the ≥30% “floor” across the next “couple of quarters” and progress toward the longer-term 40%+ target; sustained labor efficiency and yield control are the key drivers .
  • Cost base: SG&A to run around ~$3M/quarter near term with legal elevated; one-time ~$0.4M severance in Q3 should roll off—model modest SG&A easing ex-legal while leadership investments persist .
  • Demand durability: Brand partners reportedly outgrowing the market; shorter lead times and lower inventories introduce quarterly variability—expect lumpiness but improving throughput should aid fulfillment .
  • Communication/catalysts: An investor presentation is forthcoming and could improve transparency and institutional interest; clearer KPIs (OEE, labor/unit, scrap/variance) and cadence on margin recovery are likely stock catalysts .
  • Risk checks: Macro softness in beauty, execution on inventory control and product design precision, and any residual legal costs remain watch items; ERC timing was corrected to Q2 in-file, highlighting the need for disciplined disclosure .