February 10, 2016

Caesarstone Reports Fourth Quarter and Full Year 2015 Results

  • Q4 Revenue Up 12.1% to $127.4 million; up 21.6% on a Constant Currency Basis
  • Q4 Net Income Attributable to Controlling Interest of $18.7 million; Diluted EPS of $0.53; Adjusted diluted EPS of $0.55
  • FY15 Revenue Up 11.6% to $499.5 million; up 22.1% on a Constant Currency Basis
  • FY15 Net Income Attributable to Controlling Interest of $77.8 million; Diluted EPS of $2.19; Adjusted diluted EPS of $2.36
  • Company Issues FY16 Guidance and Announces $40 million Share Repurchase Program

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 fourth quarter and fiscal year ended December 31, 2015.

Revenue in the fourth quarter of 2015 increased by 12.1% to $127.4 million compared to $113.6 million in the prior year. On a constant currency basis, fourth quarter revenue growth was 21.6% year-over-year. Growth was primarily driven by continued demand in the United States, the Company's largest market, with Canada and Australia delivering the highest growth rates on a constant currency basis.

Yosef Shiran, Chief Executive Officer, commented, "We are pleased with our results for the quarter and year. We successfully grew our business, accomplished the opening of our new manufacturing facility in the United States, strengthened our brand leadership position around the world, introduced new, innovative designs and expanded our product offering. We are positioned well to further grow our business."

Gross margin in the fourth quarter was 37.9% compared to 43.0% in the prior year period. The decrease was primarily driven by costs related to the ramp up of both lines in the Company's U.S. manufacturing facility and the impact of significant negative exchange rate fluctuations, which were partially offset by favorable product mix and lower raw material costs.

Operating expenses in the fourth quarter were $25.6 million, or 20.1% of revenues. This compares to the prior year fourth quarter's level of $25.9 million, or 22.8% of revenues. The improvement was primarily due to increased operating leverage as well as a foreign exchange benefit.

Operating income in the fourth quarter was $22.6 million, a decrease of 1.5% compared to $23.0 million in the fourth quarter of 2014. This decrease is the result of lower gross profit.

Adjusted EBITDA, which excludes the impact of share-based compensation expenses, the excess cost of acquired inventory, expenses for legal settlements and loss contingencies and other non-recurring items, was $30.4 million in the fourth quarter, a margin of 23.9%. This compares to adjusted EBITDA of $28.1 million, a margin of 24.8%, in the fourth quarter of the prior year.

Finance expenses in the fourth quarter were $0.7 million compared to finance income of $0.9 million during the same period in the prior year. The change was primarily due to lower net gains related to currency exchange rates fluctuation in the fourth quarter of 2015 compared with the fourth quarter of 2014.

The Company reported net income attributable to controlling interest for the fourth quarter of 2015 of $18.7 million compared to $20.4 million in the same quarter in the prior year. Diluted earnings per share for the fourth quarter were $0.53 on 35.45 million shares, compared to $0.58 on 35.44 million shares in the prior year. On an adjusted basis, diluted earnings per share in the fourth quarter were $0.55 compared to $0.59 in the prior year.

Full-Year Results

Revenues for the full year of 2015 grew by 11.6% to $499.5 million compared to $447.4 million in 2014. On a constant currency basis, growth was 22.1% year over year. The revenue increase was led by the United States, which grew by 20.3% and remains the Company's largest market. On a constant currency basis, revenue growth was broad-based, with Canada and Australia delivering the highest growth rates.

Full-year gross margin was 40.1%, a decrease of 230 basis points compared to the prior-year. The gross margin decline year-over-year was driven primarily by the excess costs related to the ramp-up of production in the Company's U.S. manufacturing facility and the impact of significant negative exchange rate fluctuations, which were partially offset by favorable product mix and lower raw material costs.

Operating expenses in 2015 were 20.8% of revenue compared to 21.1% in the prior year, reflecting the benefits of scale and increased volume. Operating expenses in 2015 included $4.7 million non-cash legal settlement and loss contingencies expenses.

Operating income margin in 2015 was 19.3%, compared with 21.2% in the prior year, reflecting lower gross margin and legal settlement and loss contingencies expenses mentioned above.

Adjusted EBITDA in 2015 increased by 7.8% to $125.7 million, a margin of 25.2%, compared to $116.6 million, a margin of 26.1%, in 2014.

Adjusted net income attributable to controlling interest for the full year of 2015 was $83.7 million, a slight increase compared to 2014 level of $82.5 million. Adjusted diluted earnings per share were $2.36 in 2015, compared to $2.33 in the prior year.

The Company's balance sheet as of December 31, 2015 remained solid, following strong cash flow from operations, with cash, cash equivalents and short-term bank deposits of $62.8 million, after $76.5 million cash spent on capital expenditures.

The Company is ramping up its U.S. manufacturing facility in Richmond Hill, Georgia with both lines operating at a higher pace. This ramp will enable the Company to better serve the U.S. market and support the Company's ongoing growth.

Share repurchase

The Company also announced today that its Board of Directors has authorized a $40 million ordinary share repurchase program. The Board noted that this authorization reflects its commitment to drive value to shareholders, the Company's strong balance sheet, and confidence that Caesarstone is well positioned to generate significant future free cash flow. Under the authorization, the Company may repurchase shares in the open market from time to time, subject to regulatory requirements. The program does not obligate the Company to acquire any specific number of shares and may be suspended or discontinued at any time.

Guidance

The Company today issued guidance for the full-year of 2016. Taking into consideration, among other items, current exchange rates, it expects its 2016 revenue to be in the range of $550 million to $565 million, and adjusted EBITDA to be in the range of $138 million to $145 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, February 10, 2016, at 8:30 a.m. ET to discuss the results, 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 1-888-359-3624 or +1-719-325-2215 (international). The toll-free Israeli number is 1 80 924 5906. The pass code is 5795404.

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 5795404. The replay will be available beginning at 11:30 a.m. ET on Wednesday, February 10, 2016 and will last through 11:59 p.m. ET February 24, 2016.

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, particularly polymer resins and pigments; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and the claim by our former quartz processor; unpredictability of seasonal fluctuations in revenues; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F 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
Condensed consolidated balance sheets
 
        As of
U.S. dollars in thousands

December 31,

2015

   

December 31,

2014

(Unaudited) (Audited)
ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits $ 62,807 $ 54,327
Trade receivables, net 59,185 56,217
Other accounts receivable and prepaid expenses 32,230 22,729
Inventories   95,479     80,212  
 
Total current assets   249,701     213,485  
 
LONG-TERM ASSETS:
Severance pay fund 3,296 3,744
Other receivables long-term   8,603     759  
 
Total long-term assets   11,899     4,503  
 
PROPERTY, PLANT AND EQUIPMENT, NET   225,438     172,993  
 
OTHER ASSETS   6,883     10,059  
 
GOODWILL   35,821     37,960  
 
Total assets $ 529,742   $ 439,000  
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit $ 3,241 $ -
Short-term loans from related parties 2,492 2,748
Trade payables 46,382 59,430
Account payables to related parties 759 1,227
Accrued expenses and other liabilities   27,986     25,774  
 
Total current liabilities   80,860     89,179  
 
LONG-TERM LIABILITIES:
 
Long-term loan and financing leaseback from a related party 8,472 8,993
Legal settlements and loss contingencies long-term 11,190 -
Accrued severance pay 4,309 4,217
Long-term warranty provision 934 1,145
Deferred tax liabilities, net 14,767 4,935
Share-based payment   148     805  
 
Total long-term liabilities   39,820     20,095  
 
REDEEMABLE NON-CONTROLLING INTEREST   8,841     8,715  
 
COMMITMENTS AND CONTINGENT LIABILITIES
 
EQUITY:
Ordinary shares 370 369
Additional paid-in capital 142,765 139,964
Accumulated other comprehensive loss (1,892 ) (534 )
Retained earnings   258,978     181,212  
 
Total equity   400,221     321,011  
 
Total liabilities and equity $ 529,742   $ 439,000  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Condensed consolidated statements of income
       

Three months ended

December 31,

 

Twelve months ended

December 31,

U.S. dollars in thousands (except per share data) 2015   2014 2015   2014
(Unaudited) (Unaudited) (Unaudited) (Audited)
 
Revenues $ 127,361 $ 113,640 $ 499,515 $ 447,402
Cost of revenues   79,143     64,724     299,290     257,751  
 
Gross profit   48,218     48,916     200,225     189,651  
 
Operating expenses:
Research and development 993 699 3,052 2,628
Marketing and selling 15,047 14,763 59,521 55,870
General and administrative 9,599 10,464 36,612 36,111
Legal settlements and loss contingencies, net   (64 )   -     4,654     -  
 
Total operating expenses   25,575     25,926     103,839     94,609  
 
Operating income 22,643 22,990 96,386 95,042
Finance expenses, net   688     (908 )   3,085     1,045  
 
Income before taxes on income 21,955 23,898 93,301 93,997
Taxes on income   2,563     3,310     13,843     13,738  
 
Net income $ 19,392   $ 20,588   $ 79,458   $ 80,259  
 
Net income attributable to non-controlling interest   (682 )   (173 )   (1,692 )   (1,820 )
Net income attributable to controlling interest $ 18,710   $ 20,415   $ 77,766   $ 78,439  
Basic net income per ordinary share $ 0.53   $ 0.58   $ 2.21   $ 2.25  
Diluted net income per ordinary share $ 0.53   $ 0.58   $ 2.19   $ 2.22  

Weighted average number of ordinary shares used in

computing basic income per ordinary share

  35,294,755     35,117,542     35,252,596     34,932,000  

Weighted average number of ordinary shares used in

computing diluted income per ordinary share

  35,451,861     35,440,620     35,463,698     35,394,499  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Selected Condensed consolidated statements of cash flows (Unaudited)
 
        Twelve months ended

December 31,

U.S. dollars in thousands 2015     2014
 

Cash flows from operating activities:

 
Net income $ 79,458 $ 80,259

Adjustments required to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization 22,334 17,176
Share-based compensation expense 2,293 2,642
Accrued severance pay, net 540 (26 )
Changes in deferred tax, net 7,051 (2,580 )
Legal settlemnets and loss contingencies, net 4,653 -
Increase in trade receivables (2,968 ) (3,913 )
Decrease (increase) in other accounts receivable and prepaid expenses (3,069 ) 1,393
Increase in inventories (15,267 ) (22,345 )
Increase (decrease) in trade payables (8,659 ) 1,811
Decrease in warranty provision (447 ) (4 )

Increase (decrease) in accrued expenses and other liabilities including

related parties

(258 ) 1,611
   
Net cash provided by operating activities   85,661     76,024  
 
 

Cash flows from investing activities:

 

Settlement of contingent liability in connection with Prema Asia acquisition

- (150 )
Purchase of property, plant and equipment (76,495 ) (86,373 )
Decrease (increase) in long term deposits (1,228 ) 844
   
Net cash used in investing activities (*)   (77,723 )   (85,679 )
 
 

Cash flows from financing activities:

 
Dividend paid - (20,025 )
Changes in short-term bank credit and loans, net 3,241 (5,454 )
Repayment of a financing leaseback related to Bar-Lev transaction (1,092 ) (1,192 )
   
Net cash provided by (used in) financing activities   2,149     (26,671 )
 
 
Effect of exchange rate differences on cash and cash equivalents (1,607 ) (1,594 )
   
Increase (decrease) in cash and cash equivalents and short-term bank deposits 8,480 (37,920 )
Cash and cash equivalents and short-term bank deposits at beginning of the period   54,327     92,248  
 
Cash and cash equivalents and short-term bank deposits at end of the period $ 62,807   $ 54,328  
 

Non - cash investing:

Changes in trade payables balances related to purchase of fixed assets (4,389 ) 6,992
 

(*) Cash used in investing activities does not include changes in bank deposits as such balance is included in the "cash and cash equivalents and short term bank deposits" line at the beginning and end of the period.

 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries (Unaudited)
 
       

Three months ended

December 31,

     

Twelve months ended

December 31,

U.S. dollars in thousands 2015     2014   2015     2014
 
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 19,392 $ 20,588 $ 79,458 $ 80,259
Finance expenses, net 688 (908 ) 3,085 1,045
Taxes on income 2,563 3,310 13,843 13,738
Depreciation and amortization 6,706 4,436 22,334 17,176
Legal settlements and loss contingencies (a) (64 ) - 4,654 -
Excess cost of acquired inventory (b) - - - 231
Share-based compensation expense (c) 1,147 700 2,293 2,642
Follow-on offering expenses (d) - - - 657
Provision for employees fringe benefits (e) - - - 939
Settlement with the tax authorities (f)   -  

-

 

-

  (134 )
Adjusted EBITDA (Non-GAAP) $ 30,432   $ 28,126   $ 125,667 $ 116,553  
 
 
(a)   Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims.
(b) 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.
(c) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company.
In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.
(d) 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 Intitute 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

December 31,

 

Twelve months ended

December 31,

U.S. dollars in thousands 2015   2014 2015   2014
 

Reconciliation of net income attributable to controlling

interest to adjusted net income attributable to controlling

interest:

Net income attributable to controlling interest $ 18,710 $ 20,415 $ 77,766 $ 78,439
Legal settlements and loss contingencies (a) (64 ) - 4,654 -
Excess cost of acquired inventory (b) - - - 231
Share-based compensation expense (c) 1,147 700 2,293 2,642
Follow-on offering expenses (d) - - - 657
Provision for employees fringe benefits (e) - - - 939
Settlement with the tax authorities (f) - - (134 )
Tax adjustment (g)   -     -   -   342  
Total adjustments 1,083 700 6,947 4,677
Less tax on non-tax adjustments (h)   103     95   1,031   618  
Total adjustments after tax 979 605 5,916 4,059
 
Adjusted net income attributable to controlling interest (Non-GAAP) $ 19,689   $ 21,020 $ 83,682 $ 82,498  
Adjusted diluted EPS (i) $ 0.55   $ 0.59 $ 2.36 $ 2.33  
 
(a)   Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims.
(b) 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.
(c) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company.
In addition, includes expenses for phantom awards granted and the related payroll expenses as a result of exercises.
(d) 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 Intitute 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) Tax adjustments for the three and twelve months ended December 31, 2015 and 2014 were based on the effective
tax rates for these periods, respectively.
(i) In calculating adjusted diluted (Non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of
share-based compensation expense in accordance with FASB ASC 718.
 
   
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Geographic breakdown of revenues by region (Unaudited)
                 

Three months ended

December 31,

Twelve months ended

December 31,

U.S. dollars in thousands 2015 2014 2015 2014
 
 
USA $ 56,549 $ 49,599 $ 223,341 $ 185,583
Australia 30,687 27,985 110,290 107,539
Canada 17,879 13,843 70,739 57,898
Israel 9,592 8,874 39,645 41,286
Europe 5,479 4,980 23,948 23,109
Rest of World   7,175   8,359   31,551   31,987
$ 127,361 $ 113,640 $ 499,515 $ 447,402
 

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

Source: Caesarstone Sdot-Yam Ltd.

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