November 5, 2014

Caesarstone Reports Third Quarter 2014 Results

  • Third Quarter Revenue Up 30.7% to a New Record of $123.3 million
  • Diluted EPS of $0.75; Adjusted diluted EPS of $0.76, up 63.1%
  • Raises Full Year Guidance for Revenue and Adjusted EBITDA
  • Declares a Special Dividend of $0.57 per Share, Record date of November 26, 2014

MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its third quarter ended September 30, 2014.

Revenue in the third quarter of 2014 increased by 30.7% to $123.3 million compared to $94.3 million in the same quarter of the prior year. On a constant currency basis, third quarter revenue growth was 31.1% compared to the same period last year. Growth in revenue was broad-based with strong continued increases in the United States, Australia and Canada, up 47.8%, 36.3% and 27.2%, respectively, compared to the same period in the prior year.

Yosef Shiran, Chief Executive Officer, commented, "We are pleased with our results for the third quarter in the United States, which continues to be our largest and fastest growing market, as well as in Australia and Canada. We were happy to see success this quarter from our new product, Calacatta Nuvo, which we recently launched in our key markets. Strong demand for our product offering, along with improved manufacturing throughput, contributed to our significant increase in revenue, profitability and cash flow."

Gross margin in the third quarter was 43.7% compared to 44.5% in the same period in the prior year. Significant favorable product mix and scale were offset by strong growth from IKEA, which includes lower-margin fabrication and installation revenue, as well as some impact from foreign exchange fluctuations and, to a lesser extent, raw material price increases.

Operating expenses in the third quarter were $22.7 million, or 18.4% of revenue. Benefits of scale drove this improved performance in comparison to the prior year's third quarter level of $21.1 million, or 22.4% of revenue.

Operating income in the third quarter grew by 49.3% to $31.2 million, a margin of 25.3%, compared to $20.9 million, a margin of 22.2%, in the third quarter of 2013.

Adjusted EBITDA, which excludes share-based compensation expense, the excess cost of acquired inventory and other non-recurring costs, increased by 42.4% to $35.9 million in the third quarter, a margin of 29.1%. This compares to adjusted EBITDA of $25.2 million, a margin of 26.8% in the third quarter of the prior year.

Finance income in the third quarter was $1.0 million compared to finance expense of $1.1 million during the same period in the prior year. The change was predominantly related to the impact of foreign exchange rate fluctuations.

The Company reported net income attributable to controlling interest for the third quarter of 2014 of $26.5 million compared to $16.1 million in the same quarter in the prior year. Diluted earnings per share for the third quarter were $0.75 on 35.3 million shares. This compares to $0.46 per diluted ordinary share on 35.3 million shares in the prior year's third quarter. On an adjusted basis, diluted earnings per share in the third quarter were $0.76 compared to $0.47 in the prior year.

The Company's balance sheet as of September 30, 2014 remained solid with cash and short term bank deposits of $77.7 million.

The Company also noted today that it remains on schedule with respect to its capacity expansion project in Richmond Hill, Georgia for its sixth and seventh lines to begin production in the second quarter and fourth quarter of 2015, respectively. The Company also continues to prepare for further manufacturing capacity at its Richmond Hill facility to serve additional expected demand.

Dividend

The Company announced today it will pay a special dividend of $0.57 per ordinary share to shareholders of record on November 26, 2014, payable on December 23, 2014. The Company believes that, due to its strong cash balance, recent operating cash flow and outlook for the business, this dividend will not affect its ability to fund its growth strategy, anticipated capital expenditures and working capital needs for the foreseeable future. The dividend payment is subject to withholding tax as discussed in the taxation section of the Company's annual report on Form 20-F for the year ended December 31, 2013.

Guidance Increase

Following the strong third quarter, the Company today increased its revenue guidance for the full year of 2014 to a new range of $445 to $450 million as compared to its prior range of $435 million to $445 million.

Additionally, the Company raised its expected range of adjusted EBITDA for the full year to $115 million to $118 million, compared to its prior expected range of $112 million to $117 million.

Conference Call Details

Yosef Shiran, the Company's Chief Executive Officer, and Yair Averbuch, the Company's Chief Financial Officer, will host a conference call today, November 5, 2014, at 8:30 a.m. ET to discuss the results of the third quarter ended September 30, 2014, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.caesarstone.com. To access the call, dial toll-free 1-888-539-3696 or +1-719-457-2083 (international). Israeli participants can dial in at 1-80-924-5906. The pass code is 7387896.

To listen to a telephonic replay of the conference call, dial toll-free 1-877-870-5176 or +1-858-384-5517 (international) and enter pass code 7387896. The replay will be available beginning at 11:30 a.m. ET on November 5, 2014 and will last through 11:59 PM ET November 19, 2014.

About Caesarstone

Caesarstone manufactures high quality engineered quartz surfaces, which are used in both residential and commercial buildings as countertops, vanities, wall cladding, floors and other interior surfaces. The wide variety of colors, styles, designs and textures of Caesarstone® products, along with Caesarstone's inherent characteristics such as hardness, non-porous, scratch and stain resistance and durability, provide consumers with excellent surfaces for their internal spaces which are highly competitive to granite, manufactured solid surfaces and laminate, as well as to other engineered quartz surfaces. Caesarstone's four collections of products — Classico, Supremo, Motivo and Concetto — are available in over 50 countries around the world. For more information about the Company, please visit our website www.caesarstone.com. (CSTE-E)

Non-GAAP Financial Measures

The non-GAAP measures presented by the Company should be considered in addition to, and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income attributable to controlling interest to adjusted net income attributable to controlling interest and net income to Adjusted EBITDA are provided in the schedules within this release. The Company provides these non-GAAP financial measures because it believes that they present a better measure of the Company's core business and management uses the non-GAAP measures internally to evaluate the Company's ongoing performance. Accordingly, the Company believes that they are useful to investors in enhancing an understanding of the Company's operating performance.

Forward-Looking Statements

Information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Company's plans, objectives and expectations for future operations, including its projected results of operations and the expected timing of expanding its manufacturing facilities. These forward-looking statements are based upon management's current estimates and projections of future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These factors include, but are not limited to: the strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices; unpredictability of seasonal fluctuations in revenue; the outcome of silicosis claims and the claim by our former quartz processor; fluctuations in currency exchange rates; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in the final prospectus for our initial public offering and other documents filed with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Consolidated balance sheets
     
As of
U.S. dollars in thousands September 30,

2014

December 31,

2013

(Unaudited) (Audited)
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents and Short term bank deposits $ 77,747 $ 92,248
Trade receivables, Net 67,401 52,304
Other accounts receivable and prepaid expenses 28,477 22,853
Inventories   75,706   57,867
 
Total current assets   249,331   225,272
 
LONG-TERM ASSETS:
Severance pay fund 3,979 3,973
Long-term deposits and prepayments   815   1,603
 
Total long-term assets   4,794   5,576
 
PROPERTY, PLANT AND EQUIPMENT, NET   131,065   93,634
 
OTHER ASSETS   10,889   13,372
 
GOODWILL   39,134   39,702
 
Total assets $ 435,213 $ 377,556
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit $ 1,386 $ 5,454
Short-term loans from related parties 2,883 1,194
Trade payables 53,713 50,624
Account payables to related parties 1,519 1,408
Accrued expenses and other liabilities   23,779   20,890
 
Total current liabilities   83,280   79,570
 
LONG-TERM LIABILITIES:
 
Long-term loan and financing leaseback from a related party 9,529 12,342
Accrued severance pay 4,545 4,472
Other long-term liabilities 1,065 1,704
Deferred tax liabilities, net 4,465 6,245
Share based payment   974   -
 
Total long-term liabilities   20,578   24,763
 
REDEEMABLE NON-CONTROLLING INTEREST   8,854   7,624
 
COMMITMENTS AND CONTINGENT LIABILITIES
 
EQUITY:
Ordinary shares 366 364
Additional paid-in capital 139,802 138,757
Accumulated other comprehensive income 1,512 3,680
Retained earnings   180,821   122,798
 
Total equity   322,501   265,599
 
Total liabilities and equity $ 435,213 $ 377,556
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Consolidated statements of income (Unaudited)
  Three months ended September 30,   Nine months ended September 30,
U.S. dollars in thousands (except per share data)   2014       2013     2014       2013  
 
 
Revenues $ 123,284 $ 94,320 $ 333,762 $ 259,741
Cost of revenues   69,358     52,322     193,027     139,206  
 
Gross profit   53,926     41,998     140,735     120,535  
 
Operating expenses:
Research and development 616 422 1,929 1,448
Marketing and selling 13,540 12,863 41,107 38,333
General and administrative   8,542     7,796     25,647     24,524  
 
Total operating expenses   22,698     21,081     68,683     64,305  
 
Operating income 31,228 20,917 72,052 56,230
Finance expenses (income), net   (1,029 )   1,113     1,956     898  
 
Income before taxes on income 32,257 19,804 70,096 55,332
Taxes on income   4,838     3,343     10,428     7,996  
 
Net income $ 27,419   $ 16,461   $ 59,668   $ 47,336  
 
Net income attributable to non-controlling interest   (874 )   (358 )   (1,647 )   (997 )
Net income attributable to controlling interest $ 26,545   $ 16,103   $ 58,021   $ 46,339  
Basic net income per ordinary share $ 0.76   $ 0.46   $ 1.66   $ 1.34  
Diluted net income per ordinary share $ 0.75   $ 0.46   $ 1.64   $ 1.32  
Weighted average number of ordinary shares used in computing basic income per ordinary share   34,999,925     34,732,961     34,875,423     34,642,246  
Weighted average number of ordinary shares used in computing diluted income per ordinary share   35,333,542     35,322,419     35,379,125     35,148,613  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Condensed Consolidated statements of cash flows on a Non GAAP Basis (Unaudited)
   
Nine months ended

September 30,

U.S. dollars in thousands   2014     2013  
 

Cash flows from operating activities:

 
Net income $ 59,668 $ 47,336
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,740 11,100
Share-based compensation expense 1,942 1,980
Accrued severance pay, net 67 95
Changes in deferred tax, net (2,400 ) 1,396
Capital gains - (22 )
Foreign currency translation gains - (132 )
Increase in trade receivables (15,097 ) (10,361 )
Increase in other accounts receivable and prepaid expenses (5,004 ) (8,203 )
Increase in inventories (17,839 ) (3,157 )
Increase (decrease) in trade payables (2,163 ) 8,572
Increase (decrease) in warranty provision (503 ) 359
Increase in accrued expenses and other liabilities including related parties 1,638 6,509
   
Net cash provided by operating activities   33,049     55,472  
 
 

Cash flows from investing activities:

 
 
Settlement of contingent liability in connection with Prema Asia acquisition (150 ) -
Purchase of property, plant and equipment (42,429 ) (17,424 )
Decrease (increase) in long term deposits and prepaid expenses 788 (396 )
   
Net cash used in investing activities   (41,791 )   (17,820 )
 
 

Cash flows from financing activities:

 
Repayment of long-term loans - (5,372 )
Short-term bank credit and loans, net (4,068 ) 1,932
Repayment of a financing leaseback related to Bar-Lev transaction (899 ) (854 )
   
Net cash used in financing activities   (4,967 )   (4,294 )
 
 
Effect of exchange rate differences on cash and cash equivalents (792 ) (1,145 )
   
Increase (decrease) in cash and cash equivalents and Short term bank deposits (14,501 ) 32,213
Cash and cash equivalents Short term bank deposits at beginning of the period   92,248     72,733  
 
Cash and cash equivalents and Short term bank deposits at end of the period $ 77,747   $ 104,946  
 
 

Non - cash investing:

Purchase of fixed assets with credit from suppliers 5,252 6,438
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
           
Three months ended Nine months ended
September 30, September 30,
U.S. dollars in thousands   2014     2013   2014     2013  
 
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 27,419 $ 16,461 $ 59,668 $ 47,336
Finance expenses (income), net (1,029 ) 1,113 1,956 898
Taxes on income 4,838 3,343 10,428 7,996
Depreciation and amortization 4,196 3,803 12,740 11,100
Excess cost of acquired inventory (a) 123 31 231 173
Share-based compensation expense (b) 524 480 1,942 1,980
Inventory - change of estimate (c) - - (3,458 )
Follow-on offering expenses (d) - - 657 1,470
Provision for employees fringe benefits (e) - - 939 -
Settlement with the tax authorities (f)   (134 )   -   (134 )   -  
Adjusted EBITDA (Non-GAAP) $ 35,937   $ 25,231 $ 88,427   $ 67,495  
 
(a)

Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

(b)

In 2013, share-based compensation consists of expenses related to the stock options granted to employees of the Company. In 2014, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as expenses related to share-based rights granted during the period.

(c) Relates to a change in estimate for the value of inventory following the implementation of the Company's new ERP system in April 2013.
(d)

In 2013, consists of direct expenses related to a follow-on offering that closed in April 2013, including a bonus paid by the Company's former shareholder, Tene, to certain of its employees that under US GAAP the Company is required to expense against paid-in capital. In 2014, consists of direct expenses related to a follow-on offering that closed in June 2014.

(e)

Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel.

(f) Relates to a refund of Israeli value added tax (VAT) associated with a bad debt from 2007
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
           
Three months ended Nine months ended
September 30, September 30,
U.S. dollars in thousands   2014   2013   2014     2013  
 
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest $ 26,545 $ 16,103 $ 58,021 $ 46,339
Excess cost of acquired inventory (a) 123 31 231 173
Share-based compensation expense (b) 524 480 1,942 1,980
Inventory - change of estimate (c) - - - (3,458 )
Follow-on offering expenses (d) - - 657 1,470
Provision for employees fringe benefits (e) - - 939 -
Settlement with the tax authorities (f) (134 ) - (134 ) -
Tax adjustment (g)   -     -   342     -  
Total adjustments 513 511 3,977 165
Less tax on non-tax adjustments (h)   90     69   523     24  
Total adjustments after tax 423 442 3,454 141
 
Adjusted net income attributable to controlling interest (Non-GAAP) $ 26,968   $ 16,545 $ 61,475   $ 46,480  
Adjusted diluted EPS (i) $ 0.76   $ 0.47 $ 1.74   $ 1.32  
 
(a) Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.
(b) In 2013, share-based compensation consists of expenses related to the stock options granted to employees of the Company. In 2014, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as expenses related to share-based rights granted during the period.
(c) Relates to a change in estimate for the value of inventory following the implementation of the Company's new ERP system in April 2013.
(d)

In 2013, consists of direct expenses related to a follow on-offering that closed in April 2013, including a bonus paid by the Company's former shareholder, Tene, to certain of its employees that under US GAAP the Company is required to expense against paid-in capital. In 2014, consists of direct expenses related to a follow on offering that closed in June 2014.

(e)

Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel.

(f) Relates to a refund of Israeli value added tax (VAT) associated with a bad debt from 2007
(g) Tax adjustment as a result of tax settlement with the Israeli tax authorities.
(h) The tax adjustments for the three and nine months ended September 30, 2014 and 2013 were based on the effective tax rate (excluding adjustments to the tax line item) for these periods, respectively.
(i) In calculating adjusted diluted (non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of stock-based compensation expenses in accordance with FASB ASC 718.
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Geographic breakdown of revenues by region (Unaudited)
           
Three months ended Nine months ended
September 30, September 30,
U.S. dollars in thousands 2014 2013 2014 2013
 
 
USA 50,463 34,144 135,984 88,740
Australia 30,791 22,584 79,554 65,579
Canada 16,937 13,312 44,056 37,156
Israel 11,228 10,947 32,411 31,478
Europe 6,151 5,962 18,129 16,351
Rest of World   7,714   7,371   23,628   20,437
$ 123,284 $ 94,320 $ 333,762 $ 259,741

Investor Relations:
ICR, Inc.
James Palczynski, Partner, +1-203-682-8229

Source: Caesarstone Sdot-Yam Ltd.

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