Capstone Therapeutics Q2 2025 Earnings Call Transcript

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August 15, 2025

Key Takeaways

  • Positive Sentiment: Capstone reported material margin and profitability gains in Q2 — gross profit +13% and gross margin rose to 24.4% from 21.4%, EBITDA more than doubled to $839k and adjusted net income flipped to +$308k.
  • Positive Sentiment: Capstone signed an accretive acquisition of Carolina Stone Products (purchase price $3.9M–$4.7M) adding ~$11M in revenue and ~$750k trailing EBITDA, with management expecting ~ $1M EBITDA in 2026 and immediate Southeast market entry.
  • Positive Sentiment: Management emphasizes a disciplined M&A strategy with an active pipeline and target valuations of 4–6x EBITDA, aiming to reach a $100M revenue and $10M adjusted EBITDA run rate in 2026.
  • Negative Sentiment: Revenue was essentially flat year‑over‑year and Capstone expects elevated first‑year corporate expenses (non‑recurring investor relations and other costs) that should normalize later in the year but could weigh on near‑term consolidated results.
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Earnings Conference Call
Capstone Therapeutics Q2 2025
00:00 / 00:00

There are 1 speakers on the call.

Operator

Welcome to Capstone Holding Corp's second quarter 2025 earnings presentation. Capstone is built to deliver, positioned to acquire, and ready to scale. This slide is our preamble and summary of our legal disclosure. The following content is fully qualified by the legal disclosures on the next two slides. Our goal is to share with you some of the strategic thinking and financial analysis we've been using to guide the growth of our business. This content aligns with our principles of being accountable and transparent with our shareholders. We operate in a hyper-dynamic environment. That's a fancy way of saying things change quickly. What we're telling you today is based on our best estimates and assumptions. We reserve the right to revise our views as new information becomes available. Despite uncertainty, we must plan. We must make operating and investment decisions.

Operator

This presentation lays out some of that thinking for your review. In Q2, Instone delivered significant margin expansion and earnings growth. Revenue was essentially flat year-over-year, but gross profit increased 13%. Gross margin improved from 21.4% to 24.4%, driven by growth in our owned higher-margin brands. EBITDA more than doubled, up 120% from $374,000 in Q2 2024 to $839,000 in Q2 2025. Adjusted net income swung from a loss of $129,000 last year to a positive $308,000 this year. This quarter demonstrates the strength of our brand strategy and disciplined SG&A control. Today, we signed the agreement to acquire Carolina Stone Products, a leading stone veneer installer and distributor in North Carolina. The deal is expected to close within 10 days.

Operator

Revenue is approximately $11 million, with trailing EBITDA of approximately $750,000. By 2026, we expect Carolina Stone to contribute $1 million in EBITDA. This is an immediately accretive acquisition. Carolina Stone provides immediate entry into the Southeast, one of the fastest-growing construction markets in the U.S. It establishes a platform for brand expansion and creates operating synergies across our business. This transaction is exactly what we outlined in our strategy. Disciplined acquisitions at attractive valuations that build scale and profitability. Our M&A pipeline remains active. We expect to close a second transaction within 60 days and are in discussions that could lead to a third by year-end. Favorable valuations, flexible deal structures, and disciplined execution keeps us on track to achieve $100 million in revenue and $10 million in EBITDA run rate for 2026.

Operator

Earlier expectations of 100 basis points of rate cuts have shifted. Our current outlook calls for a 50 basis point cut later this year, which should support demand. In the meantime, we are delivering margin expansion and stronger profitability through cost discipline. With Carolina Stone and our growing product portfolio, Capstone is assembling the business needed to hit our 2026 targets. Capstone's target remains $100 million in run rate revenue and $10 million in run rate adjusted EBITDA for 2026. We are on track to close our first M&A transaction, Carolina Stone Products, within 10 days. Our acquisition funnel is active, and valuations remain attractive at 4-6x EBITDA. We are staying disciplined, focusing on tuck-ins that expand our platform and add earnings momentum. Rate cuts expected later in 2025 should improve demand and set up for a strong 2026.

Operator

Carolina Stone is a premier installer and distributor of manufactured and natural stone veneer. It serves commercial, residential, and multifamily markets with premium brands, expert masonry installation, and strong project management. With warehouses and showrooms in North Carolina, it provides immediate coverage in the Triangle and Charlotte metros. This acquisition establishes Capstone's Southeast platform, expands distribution, and provides margin upside through higher-value products. The purchase price for Carolina Stone is $3.9 million with potential upside to $4.7 million. The multiple is 4.7x-5.2x EBITDA, in line with our disciplined acquisition criteria. Carolina Stone generates approximately $11 million in revenue and $750,000 in EBITDA. We expect this to grow to about $1 million of EBITDA in 2026. This transaction is a perfect fit with our strategy, disciplined, accretive, and growth-focused.

Operator

Our M&A pipeline remains strong. Market conditions are producing realistic seller expectations and limited competition. Some of the best targets are waiting, and Capstone is nurturing those relationships. We expect an additional transaction from our active pipeline by year-end, with the potential to sign a third acquisition before 2025 closes. We are capitalizing on a favorable deal environment while staying disciplined. Our acquisition strategy remains unchanged, tuck-ins to expand our platform and add earnings momentum, sister companies with product and channel synergies to unlock cost savings and mutual growth, and new platforms longer term to drive their own tuck-ins. Valuations remain attractive at 4-6x EBITDA, typically with 20%-45% non-cash consideration. We remain disciplined on pricing, structure, and fit. Instone had a strong second quarter. Gross margins increased from 21.4%-24.4% year-over-year, reflecting the mix shift to owned higher-margin brands.

Operator

SG&A stabilized towards an $8.5 million run rate. Toro and Pangaea are continuing to gain traction with dealers and expanded to new geographies. With rate cuts expected later in 2025, demand should improve. Combined with margin expansion and disciplined cost control, the groundwork is laid for a strong 2026. On this page and the next, you'll find a summary of Q2 results. Please refer to the 10-Q for more detail. As a public company, Capstone incurs corporate costs beyond those of its subsidiaries, currently Instone. Fixed costs include leadership, board, legal and compliance. Variable costs, like investor relations and marketing, can be scaled upwards or downwards as needed. When valuing our core business, we believe many corporate costs, including Capstone overhead, are non-essential to our subsidiaries' operations. Capstone corporate expenses are not expected to scale quickly as we grow, allowing Capstone to expand profitably as it executes its strategy.

Operator

The first year includes a number of non-recurring expenses, such as higher investor relations spend. We expect Capstone expenses to normalize over the third and fourth quarter. These are our key principles, a promise to our investors. We will be transparent. We will always tell you how we are doing. We will be accountable. We will make commitments and share targets. Some may be stretch goals, but we will put our full effort behind them, and we will be adaptable. Markets change and conditions change. Capstone, ticker symbol CAPS, is executing with discipline, margin expansion, accretive M&A, and a clear path to the $100 million in revenue, $10 million EBITDA run rate goals.

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