Prepared remarks
Good day, and thank you for standing by. Welcome to the Solesence First Quarter 2026 Conference Call. Today's call is being recorded. On today's call, we have Kevin Cureton, President and Chief Executive Officer of Solesence; and Laura Riffner, Chief Financial Officer of Solesence. During this call, management will make statements that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This conference call may contain statements that reflect the company's current beliefs and a number of important factors that could cause actual results for future periods to differ materially from those stated on this call. These important factors include, without limitation, a decision of a customer to cancel purchase order or supply agreements, demand for and acceptance of the company's personal care ingredients, advanced materials and formulated products, changes in development and distribution relationships, the impact of competitive products and technology, possible disruption in commercial activities occasioned by public health issues, terrorist activity and armed conflict and other risks indicated in the company's filings with the Securities and Exchange Commission. Except as required by federal securities laws, the company undertakes no obligation to update or revise these forward-looking statements to reflect new events, uncertainties or other contingencies. I'll now hand the conference over to Kevin Cureton, President and Chief Executive Officer. Please go ahead, sir.
Thank you, operator. Welcome, everyone, to our call today. I'd like to thank our investors for their dedication and belief and our team for their tireless effort in growing the world's most innovative skin health company. As many of you know, over the past six years, we have transformed from a small-scale materials company into a leading developer and manufacturer of SPF-infused beauty products in the United States. The evolution of our company resulted in growth at a compounded annual rate of over 50%, enabled us to uplist to the Nasdaq exchange and contributed to an increase in our market capitalization of more than 5x. Our growth was not limited to our top-line performance. Along with this top-line growth, a global patent portfolio was created around consumer-preferred products and technologies. These changes in our business model bring new operating complexity as well as exciting new opportunities. The increased operating complexity requires us to significantly modify our business processes to fully capture the value we have created and build the foundation for our next phase of growth. The opportunities allow us to change our service model to increase our ability to capture a greater share of overall market and channel value to more completely gain both the operating margins and enterprise value typically enjoyed by technology-driven companies. In March, we introduced Transform and Transcend to our investor community, the strategic initiative we began at the end of 2025. Transform and Transcend is our structured multi-year initiative designed to transform our operational execution to transcend beyond the traditional CDMO model into a strategic supply-side innovation partner that drives superior financial performance for both our brand partners and our company. It is focused on aligning our operational performance with the strength of our technology platforms and positioning the business for long-term sustainable profitability and growth. Our performance in the first quarter of 2026 reflects the early stages of our disciplined execution against our plan. It is a period of intentional investment, organizational realignment and implementation of new processes and procedures. This is work that we expect will position us for improved operational and financial results as we move through the year. With that context in mind, I'll turn it over to Laura to walk you through our first quarter financial results. Laura?
Thank you, Kevin. For the first quarter of 2026, revenue was $13 million compared to $14.6 million in the first quarter of 2025. As we had guided in the annual earnings call, we had shipped and open orders that would have resulted in more comparable year-over-year revenue results, but soft OTIF performance resulted in some delays in shipments. Despite lower revenue, gross margin increased by 300 basis points to 26%. This small but impactful improvement was related to improved labor efficiency and the elimination of product quality-related waste that we experienced in Q1 of 2025. As Kevin mentioned, our first quarter results reflect the early-stage investments associated with Transform and Transcend, particularly within our operational infrastructure. In the first quarter, we implemented two key changes at the employee level. First, we introduced an updated shift structure. Through this reallocation of our personnel, we are addressing the extended process changeovers and related downtime that were one of the biggest contributors to the elevated labor costs we experienced as we scaled our production volume. To ensure that our personnel also have the knowledge necessary to be as productive as possible, we also invested in training them in this new lean manufacturing structure. While these investments resulted in some near-term pressure on profitability, they are aligned with a clearly defined road map to strengthen our operating model and improve our margin profile over time. As a result of these investments and our shipment performance, net income for the first quarter was a loss of $0.8 million compared to net income of $0.08 million in the prior year. Adjusted EBITDA for the first quarter was a loss of $107,000 compared to adjusted EBITDA of positive $609,000 for the first quarter of last year. From a demand perspective, our shipped and open orders now total $47 million. While booking trends remain encouraging, this remains aligned with our previously communicated expectations for a more normalized revenue environment in 2026. Our priorities for 2026 remain centered on executing our Transform and Transcend initiative, beginning with operational excellence. This includes improving inventory management through our SIOP implementation, improving efficiencies across our manufacturing and supply chain processes and enhancing procurement and working capital discipline. We are reiterating our previously communicated guidance for the year in which we established a 30% floor for gross profit margins and we remain on track to return to double-digit EBITDA margins by the end of the year as we realize improvements in labor efficiency and the six-figure annual savings from our facility consolidation. I'll now turn it back to Kevin.
Thank you, Laura. As we prepare to open up for questions from analysts and investors, we should share a couple of additional progress points related to our initiative. First, we remain on track with our guidance and plan for implementation of the initiative. In fact, we have already made important progress within three of the four pillars. Laura has already shared the improvements we saw in Pillar 1, operational excellence, as shown by the improvement in our gross margin and reduced inventory levels. In parallel with this foundational work, we are continuing to advance the second pillar of Transform and Transcend, which focuses on leveraging our intellectual property to expand our addressable market. Yesterday, we announced the launch of two new proprietary technologies, Chromalum and WHSPR. These technologies build on our existing platform and enable us to develop SPF-infused hybrid products for our brand partners that combine UV protection, skin health benefits and the joyful user experience consumers desire. As we have mentioned, the continued convergence of health, wellness and beauty is reshaping consumers' expectations and creating a significant commercial opportunity for brands that can substantiate their claims. WHSPR and Chromalum open product categories and formats that were previously out of reach to brands and consumers prior to their launch. Consistent with our goals for our second pillar, these technologies also expand our ability to participate in adjacent categories in the future, including hair and scalp care. Importantly, these launches demonstrate that our innovation engine continues to move forward even as we invest in strengthening our operational foundation. We are also progressing in the third pillar of Transform and Transcend, which is focused on evolving our service model to capture a greater share of the value chain for ourselves and our brand partners. Our co-marketing activations, which we are evolving into a formal program have been well received by our brand partners. We have now completed four of these initiatives with brands that include Color Science, BloomAX and Seal, which has helped drive product level performance while deepening our strategic relationships. While there are many more miles to go on this Transform and Transcend journey, our early footsteps have reinforced that we are on the right track toward achieving our ultimate goal, maximizing enterprise value while delivering joy and enhancing human health and well-being. Operator, we are now ready for questions.
Our first question comes from Wayne Rowan, Private Investor.
Yes. Laura, thank you for the timeliness of getting the report out like we're used to. Thank you very much. I appreciate it. I guess my number one concern is, are we getting less interest in our product or is the sales number going down? Or do you anticipate ramping up our sales for the last three quarters of this year and thus achieving profitability and thank you for your time.
Thank you, Wayne, and it's always good to hear from you. As Laura mentioned, first quarter was primarily impacted by our OTIF performance, On-Time and In-Full performance, which was impacted by some of the changes in our processes during Q1 that we expect to really deliver on improved results through the remainder of the year. We had guided in Q4 that we thought this was a year and still believe this is a year of rationalized performance relative to revenue. That doesn't mean that there's less interest in what we do. It really is just a reflection of market conditions as we see it this year. There still continues to be quite a bit of excitement in the new technologies that we deliver and specifically in the SPF-infused beauty space.
Questions and answers
Our next question comes from James Lieberman with American Trust Investment Services. What we expect is to really deliver on improved results through the remainder of the year. We guided in Q4 that we thought this was a year of rationalized performance relative to revenue, and we still believe that. That doesn't mean there's less interest in what we do; it really is just a reflection of market conditions as we see them this year. There continues to be quite a bit of excitement in the new technologies that we deliver, specifically in the SPF-infused beauty space.
I appreciate that it's a work in progress and the significant investments you've made to streamline operations, improve efficiency, and expand the range of your products and offerings. Did I hear correctly that there were some stocking and shipment delays that would have increased revenue for the quarter? Did I hear that correctly?
That's correct, Jim.
Could you give a little bit more color to that?
Yes. I think the best way to frame this is to remember that in our work we must receive both the raw materials used to make the formulations and the components needed to put the formulation into its package. Both need to be aligned and on time. What we can tell you is that this was not consistently the case, particularly at the beginning of the quarter, and it relates to some SIOP processes we are currently working on. We saw substantial improvements as we exited the quarter and entered Q2. As we've indicated, we expect continued improvement in how we manage inventory, prepare for manufacturing, and meet or beat the On-Time In-Full performance expected by our brand partners. I believe Laura specifically commented that OTIF in Q1 would have been in line with prior quarters with proper OTIF. Is that accurate, Laura?
Correct.
Yes. That is really just the point to hopefully address your question, Jim, relative to where revenue was and where we expect performance to be going forward.
I would now like to turn the call back over to Kevin. We do have one follow-up.
It's Jim Lieberman, again. Getting a little bit more texture and color. It sounds like this $47 million number that you gave is how would you describe that? Is that orders almost like a backlog number or revenues in progress and including backlog? Is that how that one might look at that? I have just a follow-on to this question.
Okay. Just to be clear, Jim, this number has been something we started a couple of years ago sharing, and we actually are looking at whether it's actually providing the guidance that we expected to provide to our investors. Basically, this number is a combination of the orders that have already been shipped within the year as of today and the open orders that we would have. That could be considered a backlog by some, but those really are orders that are forward-looking. They're not due for delivery yet, for example, but will be due for delivery within the year. That's the guidance that we were providing with that $47 million. That really should be compared to where we were at the same time last year, which is what we were usually providing.
That's what I thought, but I was just trying to get clarification because I sort of feel that that does give a very healthy picture going forward anyway. As you're expanding and you have these good relationships in place, I'm inferring that you have a very healthy outlook for the year. I know you said this, but it does feel like that's actually happening. Then with your better profit margins, I am feeling more optimistic. I know there's a lot of moving parts. I'm optimistic about the progress you're making. I also went online and noticed a number of other products and companies you're actually doing business with, which I haven't noticed before. I like the fact that there are more products that I can look at and recommend to people. Thank you for your progress.
Thank you, Jim. We're also very confident about where 2026 is going to land for our results. Very confident about it.
I would now like to turn the call back over to Kevin Cureton for any closing remarks.
Thank you. To everyone, thank you again for joining us today. As I'm sure you can tell, we remain confident in the long-term value creation opportunity ahead of us and in our ability to execute through our Transform and Transcend strategy. During the next week, more information will be available about our Transform and Transcend initiative as we will post a one-pager on the Investor Relations section of our website. That one-pager will provide details on our strategy and a general timeline for each of our initiatives. We also look forward to providing further updates on our strategy and our business as the year progresses and as the impact of the different initiatives becomes more visible. Again, thank you for your continued support, and we look forward to updating you in the next quarter. Cheers.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.