Solesence, Inc. Common Stock 2026 Q2 Earnings Call

Thank you to our investors, brand partners, and teammates who join us today for your continued support. We have an important issue to discuss today, the NT 10-Q, the impact on this past quarter's results, and how we move forward. Laura will take us through much of the first part of this discussion. As you prepare to hear Laura's remarks, however, please keep three things in mind. First, the highest priority for Laura and for me is ensuring that Solésence operates with uncompromising integrity across every aspect of our business, from our manufacturing floors to our financial reporting. This is to ensure that all our stakeholders, shareholders, teammates, brand partners, and supply partners can have faith in the results we report. We fully appreciate the seriousness of this accounting matter, and we are addressing it accordingly.

While solving a legacy costing matter is never easy, addressing it head-on and retooling our internal controls is precisely what it takes to mature into the world-class enterprise we plan to be. Therefore, Laura and I have been laser-focused on ensuring we take the necessary steps to ensure our financial foundation is reliable and rigorous. That's the second point I wanted to make. The third point is that we expect our business strategy, our growth prospects, and our plans for growing the company's enterprise value will remain unchanged and unaffected by this matter. With that, I'll turn over the call to Laura.

Thank you, Kevin. Before walking through our second quarter financial performance, I want to address our recent Form NT 10-Q filing and provide full clarity on our accounting evaluation. During our quarter in review, we identified an issue with our historical inventory costing methodology regarding how indirect manufacturing costs were allocated to inventory. Working closely with our advisors, we have completed our evaluation and are implementing the necessary restatements to correct this inventory valuation issue. I want to be clear about what the restatement means for our shareholders. The adjustments relate to the accounting for certain costs within inventory and do not affect the underlying cash generated or used by the business, our day-to-day operations, or our ability to serve our brand partners. The adjustments relate primarily to the accounting for certain costs within inventory and the resulting recognition of those costs in the financial statements.

As part of our remediation efforts, we are enhancing our inventory costing processes and related controls, including additional formalized periodic reviews of overhead cost pools, allocation methodologies, and burden rates. We are also strengthening the documentation and oversight of these processes to support their consistent application going forward. We will continue implementing these remediation activities. Turning to our operational execution, we continued the disciplined implementation of our Transform and Transcend strategy in the second quarter, building on our foundational work to drive operational efficiency. For Q2 2026, revenue was $15.3 million compared to $20.4 million in the second quarter of 2025, which had been a quarter that benefited from a major new product launch and pipeline fill. While Q2 2026 revenue from this product was lower than in Q2 2025, we continue to see gains in both reorders and forecasts for this product line.

The drop in revenue for this product line was partially offset by growth with other brand partners in the prestige beauty sector. In Q2 2026, we achieved a 31% growth margin versus a restated 32% in Q2 2025. This growth margin performance on a 25% lower revenue level as compared to last year is a clear sign of continued improvement in labor efficiency, in line with our Transform and Transcend goals, and we are pleased to see that momentum has continued in the second quarter. Second quarter had a loss of $158,000 compared to net income of $3.2 million in the prior year. Adjusted EBITDA for the second quarter was $523,000, compared to $3.7 million for the second quarter of last year.

The decline in net income and Adjusted EBITDA versus the prior year was related to the lower revenue as compared to 2025, and one-time events related to Refy that decreased net income by approximately $938,000, and the ERC payment we received in Q2 2025 that positively increased net income last year by $1.4 million. Looking forward, we can now confidently expect to outperform 2025 on a full-year revenue basis. Underpinning our confidence is that as of August 17th, our shipped and on-hand orders for 2026, which includes orders shipped as well as those we expect to ship this year, totaled $64.9 million, up from $60 million in the same period in 2025.

We also expect the third quarter to show sequential improvement in both revenue and profitability, and we project that the second half of 2026 will generate approximately $35 million in revenue, marking the strongest second half performance in the company's history. Overall, while we are disappointed that this issue with our legacy accounting methodology existed, we are fully committed to addressing it and are prepared to do so while maintaining the consistent progress in our first and foundational pillar of Transform & Transcend, Operational Excellence. While much work remains, we are confident in our ability to continue the positive momentum of Q2. I'll now turn it back to Kevin.

Thank you, Laura. As I mentioned earlier, we want to make sure it's absolutely clear that we take these inventory valuation changes seriously, and like you, are frustrated and disappointed by issues like this that result from how this business was grown and managed in the past. However, it should not be overlooked that as we exit Q2 and enter Q3, Solésence has gained momentum to achieve double-digit growth, a consistent part of our history. We have also implemented the tools and processes to deliver sustainable profitability commensurate with our expectations as a technology-driven company and those of our investors. More importantly, this accounting matter does not change the commercial reality of our business. Our operational momentum is accelerating, our brand partners are growing, and we are entering the strongest second half in Solésence history with $64.9 million in shipped and on-hand orders.

With that, Lisa, we are ready for questions.

All right. Thank you, Jim. It's good to hear from you. Yeah, so the market you specifically mentioned, the scalp care segment, is a new segment for us. We launched this year, in fact, just back in July, utilizing some of our new technologies. That market is an area where we approximately believe it's about a $3 billion addressable market for what we do. Obviously, there's lots of work to still be done there, but the good feedback that we can provide is that during July and from the launch of that product, we had one of the best volumes in terms of lead generation and new opportunity generation based upon that launch. I think we're off to a good start.