Capstone Holding Corp. (CAPS)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $7.90M, down 16% year over year and 23% sequentially, but modestly above Wall Street revenue consensus; EPS loss of $0.47 beat consensus given limited coverage. Weather, tariffs and higher fixed freight costs weighed on volumes and margins .
• Revenue beat vs consensus by ~5.2% and EPS beat by ~$0.63; however gross margin compressed to 16.8% (down ~180 bps YoY), and operating loss widened vs last year as SG&A rose on legal/audit and IR spend .
• Management reiterated 2025 targets: end‑of‑year run‑rate revenue of $100M and Adjusted Instone EBITDA ≥ $10M, supported by tuck‑in and platform acquisitions; Instone’s 2025 plan calls for $47.5–$49.0M revenue and $3.1–$3.5M Adjusted EBITDA .
• Liquidity actions are ongoing (March public offering of $3.25M; Equity Line up to $20M; revolver maturity extended to June 2025), but covenant non‑compliance and reliance on the ABL remain key watch items and potential stock catalysts on updates .

What Went Well and What Went Wrong

What Went Well

• Delivered revenue modestly above Street in a seasonally weak quarter; gross profit still positive despite fixed freight headwinds .
• Executed capital actions to bolster liquidity (IPO proceeds of $3.25M; revolver extension; $20M equity line framework), improving working capital to $2.1M as of 3/31/25 .
• Strategic agenda intact: “double the size of the business” via acquisitions; aiming for $100M revenue run‑rate and ≥$10M Adjusted Instone EBITDA by YE25. “We remain focused on scaling efficiently.” .

What Went Wrong

• Net sales fell to $7.90M (‑16% YoY; ‑23% QoQ) as veneer volumes declined $1.3M; gross margin fell to 16.8% due to lower volumes and fixed freight .
• SG&A rose 12% YoY (+$291K) on investor relations (+$172K) and legal/audit (+$111K), widening operating loss to $(1.43)M .
• Continued reliance on ABL and covenant non‑compliance at quarter‑end; extension signed to June 2025, with longer‑term covenant reset still pending—a key risk to monitor .

Financial Results

Consolidated Performance vs Prior Periods and Estimates

Note: Asterisk values retrieved from S&P Global.

Q1 2025 Actuals vs Wall Street Consensus

Note: Consensus values retrieved from S&P Global; coverage based on 1 estimate for both revenue and EPS.

Segment View (TotalStone vs Parent)

Key KPIs and Balance Sheet Highlights

Guidance Changes

Note: Management characterizes these as targets/plans rather than formal GAAP guidance; Adjusted Instone EBITDA is non‑GAAP (definition provided) .

Earnings Call Themes & Trends

No Q1 2025 earnings call transcript located; management provided a March investor presentation and a June FAQ.

Management Commentary

• “As the parent company, our mission is clear: double the size of the business through targeted, strategic acquisitions—and we believe we’re well on our way. We remain focused on scaling efficiently.”
• “By end of the year, targeting run‑rate Revenue of $100 million and Adjusted Operating Income / EBITDA of $10 million for operating subsidiaries.”
• “The combination of Toro and Pangea continues to resonate with dealers. Roll out to new customers and territories continues.”

Q&A Highlights

No Q1 2025 call transcript found. Management published an Investor FAQ emphasizing:

• Growth strategy and active acquisition pipeline; capital structure and public float details .
• Emphasis on transparency and periodic updates to the resource to support investor understanding .

Estimates Context

• Q1 2025 results modestly beat revenue consensus (+5.2%) and were a significant EPS beat given limited coverage (1 estimate each) .
• Given margin compression and SG&A step‑up, Street may need to adjust near‑term margin assumptions while considering seasonality and freight normalization into Q2–Q3 .
  Note: Consensus values retrieved from S&P Global.

Key Takeaways for Investors

• Near‑term: Despite a seasonally weak quarter, delivery above consensus and improved liquidity are supportive; monitor June revolver extension terms and covenant reset for stock reaction risk/reward .
• Medium‑term: Execution on tuck‑in/platform acquisitions is central to achieving the $100M/≥$10M run‑rate; deal multiples of 4–6x EBITDA and non‑cash consideration (20–45%) suggest accretive pathways if integration is disciplined .
• Margins: Freight normalization is tailwind; fixed cost absorption requires volume recovery—seasonality and proprietary brand traction (Toro/Pangea) are key drivers to watch .
• Operating leverage: SG&A increases for IR/legal/audit likely normalize; sustained cost control and efficient scaling are critical to expanding EBIT/EBITDA margins .
• Product mix: Veneer softness vs landscape strength implies mix sensitivity; brand rollout and geographic expansion should diversify and stabilize top‑line .
• Governance/controls: Disclosure controls remediation (controller hire) reduces execution risk over time; watch subsequent quarters for process improvements .
• Trading setup: Updates on M&A pipeline and liquidity events (equity line utilization, covenant amendments) are likely catalysts; positioning should consider binary outcomes around financing milestones .

Appendix: Non‑GAAP Notes—Adjusted Instone EBITDA excludes interest, taxes, D&A, management and board fees, share‑based comp, fair value changes and transaction costs; forward‑looking non‑GAAP targets do not have GAAP reconciliations due to acquisition uncertainty .

Bolded beats/misses:

• Revenue: Q1 2025 $7.90M vs consensus $7.51M — bold beat .
• EPS: Q1 2025 $(0.47) vs consensus $(1.10) — bold beat .

Safe Harbor and disclosures: Targets and presentation content include forward‑looking statements and non‑GAAP measures as described by management .