[Management View]
Solesence management acknowledged the first quarter in two years without year-over-year revenue growth, attributing it to a difficult comparison with a record quarter in 2024 and conservative inventory behavior by customers. They emphasized open orders of $64 million as an indicator of ongoing demand and highlighted initiatives aimed at improving product design, labor efficiency, and inventory control.

[Outlook]
The company projects full-year revenue to rise by approximately $12 million, with year-to-date sales up $10 million through three quarters. Leadership did not provide detailed guidance for 2026 but expressed intent to outpace overall industry growth, particularly in the mineral-based, SPF-infused beauty segment.

[Financial Performance]
Revenue for Q3 2025 was $14.5 million, a 14% decrease year-over-year. Gross profit was $3.4 million with a gross margin of 23%, down from $6.1 million and 36% in the previous year. Operating expenses increased to $4.2 million from $2.9 million, attributed to higher employee costs and Nasdaq uplisting-related expenses. The company reported a net loss of $1.1 million compared to net income of $3 million in 2024.

[Q&A Highlights]
Question 1: Are we making the same mistakes repeatedly, and what optimism can we have for sales?
Answer: Kevin Carrington acknowledged some areas have taken longer to repair, particularly inventory management. He assured that changes made are on the right path to fixing these issues. He noted that full-year revenue is up $10 million over the prior year, indicating strong growth despite conservative inventory levels by brand partners.

Question 2: Will simple mistakes continue to cause problems?
Answer: Carrington clarified that the BASF lawsuit was not due to a contractual mistake but commercial differences. He emphasized the importance of details in product design and specifications, assuring improvements are underway to enhance profit performance.

Question 3: Is the lower gross margin due to reorganization work?
Answer: Carrington explained that lower gross margins were partly due to consolidation expenses and transition costs. Improvements in direct labor efficiency were noted, but higher indirect expenses during the transition impacted margins.

Question 4: Can you shed light on Q4 sales and margins, and provide an outlook for 2026?
Answer: Carrington projected full-year revenue to be up $12 million, with improvements in direct margin levels expected. He refrained from detailed 2026 guidance but expressed confidence in growth rates exceeding industry averages.

Question 5: What is the expected run rate for SG&A expenses?
Answer: Carrington indicated a $3 million quarterly SG&A expense level, reflecting higher baseline staffing and nonrecurring costs. He noted a $400,000 severance expense that will not repeat, suggesting some mitigation of costs going forward.

Question 6: Will margins return to COVID-era levels, and what does growth at multiples of the industry mean?
Answer: Carrington stated the goal is for margins to reach 40% over time, with 30% as the floor for guidance. He explained that SPF-infused beauty, particularly mineral-based, is gaining share, supporting growth at multiples of the industry rate.

Question 7: Was the ERC payment in Q3 2025, and how did it impact financials?
Answer: Laura confirmed the ERC payment was in Q3 2025, impacting the bottom line positively.

[Sentiment Analysis]
Analysts expressed concerns over repeated operational mistakes and sought clarity on future sales and margin expectations. Management maintained a confident tone, emphasizing strategic adjustments and growth potential despite industry challenges.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 |
|-----------------------|---------|---------|
| Revenue | $14.5M | $16.9M |
| Gross Profit | $3.4M | $6.1M |
| Gross Margin | 23% | 36% |
| Operating Expenses | $4.2M | $2.9M |
| Net Income/Loss | -$1.1M | $3M |
| Adjusted EBITDA | -$435K | $3.6M |

[Risks and Concerns]
Key risks include revenue decline due to lower demand and inventory adjustments, gross margin compression from manufacturing inefficiencies, and net income loss. Management is focused on addressing these through strategic initiatives and operational improvements.

[Final Takeaway]
Solesence faces challenges with declining revenue and compressed margins, but management is actively implementing strategic changes to address these issues. The company remains confident in its ability to grow at a rate exceeding industry averages, particularly in the mineral-based, SPF-infused beauty segment. Investors should watch for improvements in operational efficiency and margin recovery as key indicators of future performance.