Good day, and thank you for standing by. Welcome to the Solésence second quarter 2026 conference call. Today's call is being recorded. On today's call, we have Kevin Cureton, President and Chief Executive Officer of Solésence, and Laura Riffner, Chief Financial Officer of Solésence. 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 may contain certain 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, demands 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 activities, and armed conflict, and other risks indicated in the company's filings with the Securities and Exchange Commission. Except as required by federal security 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, Lisa. 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 & 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 & 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.
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, please press star one one again. One moment while we compile the Q&A roster. We also ask that you limit yourself to one question. One moment. Our first question for the day will be coming from the line of James Liberman.
Yes. Thank you. I just got a little bit of a disconnect, but I think I heard you. It's James Liberman, I'm happy to ask away. Thank you for your honesty and for the work you're doing preparing the company for its growth. It sounds like the $64 million number you gave going forward sounds like a really good base from which to grow. Could you give a little talk and discuss, give us some color regarding the hair and scalp products that you mentioned earlier and how we might view that and what type of a market you're looking at, what kind of scope? I have some follow-on questions to that, but if you could start in on that area, I'd like it.
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.
As is the case within our industry, that's still early to say when that will develop into revenue, but we're off to a good start with that new technology.
Thank you. One moment for the next question. As a reminder as well, if you would like to re-queue to ask a follow-up question, please feel free to do so. The next question will be coming from the line of Wayne Ruhn. Please go ahead.
Hello?
Hello, Wayne.
Hi. How are you?
I am doing well. How are you, sir?
Well, I have been in the hospital for four weeks, so it could be better. I would like to know, are we going to see, at the end of the year, higher sales growth? This is maybe a two-part question, but I hope you allow me that. Are we getting less trouble with inventory control and a better handle on production efficiencies? Because if we are, it gives me a reason for optimism. If we are not, I would be a little frustrated because it has been an ongoing issue for a while, and I was hoping we would make. Excuse me. The medicine makes me stutter a little. Is that less a concern than it was a year or two ago? Are we making progress in inventory control and production efficiency? If so, give yourself a pat on the back and tell Laura to behave herself.
All right, Wayne. Thank you for your question. First of all, we wish you the best in your recovery, and certainly wish all the best to you in your health and in the future. To comment on, we've got our three different questions here. One was related to sales growth, which I will comment about. Then I think we can throw it back to Laura, who did comment a bit about production efficiency and inventory control. If we start with sales growth, as Laura mentioned during her remarks, we can project now confidently that on a year-over-year basis, we will grow, versus 2026. We will set on a revenue basis, a record for growth this year. We are excited about the momentum that we see in the business.
As you may recall, we made some changes to our commercial leadership back at the beginning of the year, and we are excited about what that does mean as we continue to expand our business, both domestically and now as we start to work on globalization of the business as well. With that being said, I will turn it over to Laura, to comment about our production efficiency and inventory control.
Hi, Wayne. I would like to reiterate Kevin's expression that we wish you well in your recovery. Regarding your questions, with production efficiency, that has been a very significant focus for the organization since I have been here. Certainly over the last 9- 10 months, I have seen improvements, or the organization has seen improvements in efficiency related to things like cost efficiency in production, related to OEE in production. We have implemented Kaizen events to take a look at the organization from the production and manufacturing standpoint to look at our processes and put into place improvements where it makes sense. To get to, I think, the point of your question of is there reason to have optimism, my answer is yes.
I think there is a lot of reason to have optimism with our production efficiency, where we started this year, the advancements we have made, and where I see that we are going.
Great. I think Wayne also wanted to chat about inventory control as well. Laura, you want to provide any color on that?
Of course. Wayne, there's certainly a lot of different aspects to inventory control that we could talk about. I guess I might make an assumption that you are referring to the costing methodology issue that has come to light.
He's got it.
Oh, okay. Assuming, Wayne, that is the situation, it was an issue in our costing methodology that we identified. The moment it was identified, it got raised to the appropriate levels within the organization, was taken quite seriously, and considerable and appropriate efforts were taken to resolve and remediate the situation. I feel very confident moving forward. We're in a very good place there also.
Yeah. Just to echo on what Laura has said about production efficiency, in particular. Within her remarks, she also recognized the improvement on a relative basis that we are seeing in gross profit performance. As everyone realizes with a manufacturing business like ours, scale does also have a factor in that. When we are referencing the gross profit numbers that we achieved in 2026 this past quarter versus last year on lower revenue, that's a reinforcement of the fact that the labor efficiency that Laura mentioned is coming through. Operational excellence is a key element for us, and we are still focused on delivering that through this year and on a continuing basis.
Thank you. If you would like to ask a question, please press star one one on your telephone. One moment for the next question, please. Our next question will be coming from the line of James Liberman with American Trust Investment Services with a follow-up question. Please go ahead.
Yes. Thank you. Could you talk a little bit more about how your scalp products and new products you're introducing are differentiated from some of the many other products that are out there?
Yeah. Thanks, Jim. There are a couple of points of differentiation. We have launched two different products to be specific, or two different product groups. One is in scalp protection, and that product is the first of its kind that is a combination of a dry shampoo and an SPF product. As people may know, that one of the areas that The Skin Cancer Foundation has cited as an increasing area of concern for melanoma is the scalp. And oftentimes it can be more deadly because it's harder to diagnose. It's not an area that we're typically looking at or examining. So it's an area of importance, and I can tell you that with the launch of that product, we received a lot of good feedback of how folks felt like it was well aligned with a need in the marketplace.
The other scalp product is a treatment product. As you also may know, those products are growing, in fact, it is the fastest or one of the top two or three fastest-growing product categories in the market right now. What we do is, as you also may know, Jim, we typically don't enter these markets without having some novelty relative to the patent protection that we can deliver. This scalp treatment technology utilizes our WHSPR technology, which is a delivery system for allantoin, which really allows us to deliver at higher levels for a proven ingredient for addressing and soothing erythema, irritation, and helping with keratolytic effects on scalp and other areas. We're excited about what that technology might deliver, and that product line will deliver in the future.
Well, that's great to hear. Do you see this as being a larger market than the current market you're in?
No, we see it as a nice adjacency. If you look at the overall hair care market, it is a very large market, but we are really targeting a specific segment within it. We see it as a nice adjacency to extend our participation. We believe we've got a nice total addressable market, which is greater than $50 billion. So our addressable market is good, but it's nice to have an additional segment that is high growth for us to address and also offer another way for us to leverage our technologies with our brand partners.
Thank you very much. I wondered if I might ask one other question. I think the FDA approved a non-mineral based sunscreen platform recently. Are you seeing any changes in interest in your mineral-based sunscreen technology?
Great question, Jim. We are excited for two reasons. One, we think that the introduction of this new technology, the abbreviated name or the name everyone is using in industry is BEMT, is good for our marketplace. While it is new to the U.S., it is not new to the world. It has been around for over 20 years. We are pretty confident in what this technology will deliver and what our mineral technology's place is in the market as well. It is the one technology that, as we have been introducing others, like the Chromalüm technology, that is a new adjacent technology that can enhance the performance of our other sunscreen actives.
We see that as a technology that can be used along with the BEMT. We anticipate, as we have mentioned in some of the press that we have done over the past couple of months, that we will launch products with our brand partners that are combos, utilizing the BEMT and our proprietary mineral technologies and other booster technologies along with it. We are excited about the attention this is bringing to the SPF market. We are not worried relative to its impact on our business. We still see an exciting growth path for what we do.
Thank you very much. I am looking forward to the very strong second half of the year. Appreciate it.
So are we. Thank you, Jim.
Thank you. One moment for the next question, please. Our next question is coming from the line of Stefano Bolis. Please go ahead.
Hello, Kevin and Laura, and thanks for taking my questions.
Thank you, Stefano.
Hi, Stefano.
About the settlement with the dispute with REFY. The fact that in the settlement you have this still open window for agreeing on some new formulation or product, does it mean you are still actively working with REFY to come up with a new product or a satisfactory formulation for what is their need?
Hi, Stefano. Yes. The agreement does give us an opportunity to work together on a possible development of a new SPF product. That door is still open.
At the moment, you are not having So that was like a unique, single product. You are not providing at the moment to them any other product?
Yeah. Thank you, Stefano. I will just briefly comment on that because it is consistent with our policies with other brand partners or potential brand partners without their permission to talk about the developments that we have, we are not permitted to say much more than what Laura has just said. We do value our relationship with REFY.
Okay. Thanks a lot.
Thank you.
Thank you. There are no more questions in the queue. At this time, I would like to turn the call back over to Kevin for closing remarks. Please go ahead.
Thank you, Lisa. Thank all of you for joining us today. While this accounting issue remains an important matter, our core strengths are unchanged, as you've just heard through the discussion. Solésence continues to operate as a market leader in a high growth business, providing a product line with one of the highest growth rates in the category. When paired with our proven operational improvements, these strong fundamentals demonstrate that our underlying momentum continues to build as we execute on the work ahead. To help our stakeholders better understand our long-term trajectory as we continue to advance our Transform and Transcend initiatives, we recently uploaded a strategic vision document to our investor relations website, which we encourage you all to review.
Looking ahead to the second half of the year, we expect continued progress in our strategy as we demonstrate that Solésence is on the right path to growing our company's enterprise value at a rate significantly greater than the market and creating long-term value through combining financial and operational excellence with world-leading innovation in skin health. Again, thank you for your continued support, and we look forward to updating you in the next quarter.
This concludes today's programming. Thank you so much for joining. You may now disconnect.