Detailed narrative
Inventory Costing Issue and Remediation
Solesence identified a historical inventory costing methodology issue regarding indirect manufacturing cost allocation, leading to an NT 10-Q filing. The company has completed its evaluation and is implementing necessary restatements. Management emphasized that these adjustments do not impact underlying cash generation, day-to-day operations, or ability to serve brand partners. Remediation efforts include enhancing inventory costing processes, formalized periodic reviews of overhead cost pools, allocation methodologies, burden rates, and strengthening documentation and oversight for consistent application.
Q2 Financial Performance Overview
For Q2 2026, revenue was $15.3 million, down from $20.4 million in Q2 2025, which had benefited from a major new product launch. Despite lower revenue, gross margin was 31% (vs. restated 32% in Q2 2025), indicating improved labor efficiency. The company reported a net loss of $158,000 compared to net income of $3.2 million in the prior year, and adjusted EBITDA was $523,000 versus $3.7 million. The decline was attributed to lower revenue, a $938,000 decrease in net income from REFY one-time📎 events, and a non-recurring📎 $1.4 million ERC payment in Q2 2025.
Transform and Transcend Strategy & Operational Efficiency
The company continued disciplined implementation of its 'Transform and Transcend' strategy, focusing on operational efficiency. Improvements in labor efficiency were noted, contributing to the strong gross margin performance despite lower revenue. Management highlighted advancements in production efficiency, including cost efficiency and OEE (Overall Equipment Effectiveness) improvements, and the implementation of Kaizen events to optimize manufacturing processes. These efforts are expected to drive sustainable profitability.
Hair and Scalp Product Launches
Solesence launched two new products in the scalp care segment in July, leveraging new technologies. One is a scalp protection product combining dry shampoo and SPF, addressing a growing concern for scalp melanoma. The other is a scalp treatment utilizing proprietary Whisper technology for allantoin delivery, targeting erythematous irritation and keratolytic effects. The scalp care market is estimated to be a $3 billion addressable market, and the launches generated significant lead generation and new opportunities.
Sunscreen Technology and Market Outlook
The company discussed the FDA approval of a new non-mineral-based sunscreen platform (BEMT). Management views this as positive for the SPF market, increasing attention and innovation. Solesence plans to launch combo products with brand partners, utilizing BEMT alongside its proprietary mineral technologies and other booster technologies like Chromolume. They expressed confidence in the continued growth path for their mineral-based sunscreen business, seeing the new technology as complementary rather than competitive.
Full-Year Outlook and Momentum
Solesence expressed confidence in outperforming 2025 on a full-year revenue basis, projecting record growth for 2026. This confidence is underpinned by $64.9 million in shipped and on-hand orders for 2026 as of August 17, up from $60 million in the prior year. The second half of 2026 is expected to generate approximately $35 million in revenue, marking the strongest second-half performance in company history. Management reiterated that the accounting matter does not change the commercial reality or accelerating operational momentum of the business.