November 2, 2016

Caesarstone Reports Third Quarter Results

  • Third Quarter Revenue grew 5.5% to a new record of $144.3 million; Up 3.8% on a Constant Currency basis
  • Third Quarter Diluted EPS of $0.65; Adjusted Diluted EPS of $0.70
  • Revises Full-Year 2016 Guidance Range for Revenue and Adjusted EBITDA

MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its third quarter ended September 30, 2016.

Revenue in the third quarter of 2016 increased by 5.5% to a new record of $144.3 million as compared to $136.8 million in the same quarter of the prior year. On a constant currency basis, third quarter revenue growth was 3.8%. Growth in reported revenue was driven primarily by continued strong performances in Australia and Canada, which grew 21.8% and 13.0%, respectively; Israel and Rest of World, up 6.4% and 14.8%, respectively, also contributed to overall growth, partially offset by the United States and Europe, which declined 5.4% and 1.2%, respectively.

Yonathan Melamed, Chairman, commented, "We are pleased to continue to achieve record revenue with growth in many regions demonstrating the strength of our brand globally and the success of our innovative products. At the same time, given the strength of the ongoing market opportunity for quartz, we are not satisfied with our third-quarter performance in the United States. We have taken significant actions to enhance a number of key operating capabilities. We have a strong business with excellent products, high level service and a tremendous brand and we believe we can reaccelerate our business in the United States."

Gross margin in the third quarter was 40.5%, an increase of a full percentage point as compared to a margin of 39.5% in the same period in the prior year. The improved margin was primarily attributable to lower raw material costs.

Operating expenses in the third quarter were $30.3 million, or 21.0% of revenues, as compared to $29.4 million, or 21.5% of revenues, in the same quarter last year. The Company noted that legal settlements and loss contingencies expenses were $1.0 million in third quarter of 2016 compared with $4.7 million in the same quarter last year, when the Company initially recorded a liability related to Silicosis claims. Excluding these costs, operating expenses were $29.3 million, or 20.3% of revenues, as compared to $24.7 million, or 18.0% of revenues, in the same quarter last year. This increase reflects a significant expansion of the Company's sales and marketing capabilities in the United States to support its plan to resume growth in all channels of distribution.

Operating income in the third quarter was $28.2 million, a margin of 19.5%, compared to $24.7 million, an operating margin of 18.1%, in the third quarter of 2015.

Adjusted EBITDA, which excludes share-based compensation, legal settlements and loss contingencies expenses and non-recurring items, was $37.5 million in the third quarter of 2016, a margin of 26.0%. This compares to adjusted EBITDA of $36.2 million in the prior year's third quarter, a margin of 26.5%. This year-over-year margin decrease reflects increased sales and marketing investments, primarily in the United States, partially offset by improved gross margin, as described above.

Finance expense in the third quarter was $1.1 million compared to $0.1 million during the same period in the prior year. The change was primarily due to net losses related to currency exchange rates fluctuations in the third quarter of 2016 of $0.2 million as compared with net gains of $0.7 million in the third quarter of 2015.

The Company's reported net income attributable to controlling interest increased by 12.8% to $22.3 million for the third quarter of 2016 as compared to $19.8 million in the same quarter last year. Adjusted diluted net income per share for the third quarter was $0.70 on 34.5 million shares as compared to last year's third quarter level of $0.69 on 35.5 million shares. This lower share count reflects the impact of the Company's recently completed share repurchase program that was initiated in February 2016. Through the end of the third quarter, the Company repurchased 1.1 million shares for a total of $39.4 million.

The Company's balance sheet as of September 30, 2016 remained strong with cash, cash equivalents and short-term bank deposits of $74.5 million, sequential growth of $18.9 million as compared to June 30, 2016, despite $9.7 million of cash deployed for share repurchase during the third quarter.

Guidance

The Company reduced its 2016 annual guidance to reflect the third quarter results and the continued organizational and operational transition in the United States. The Company now anticipates full year 2016 revenue in the range of $524 million to $534 million and for adjusted EBITDA in the range of $125 million to $130 million.

Conference Call Details

Yonathan Melamed, the Company's Chairman, and Yair Averbuch, the Company's Chief Financial Officer, will host a conference call today 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 1-877-407-4018 or +1-201-689-8471 (international). The toll-free Israeli number is 1 80 940 6247. Upon dialing in, please request to join the Caesarstone Third Quarter Earnings Call.

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 13647437. The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 2, 2016 and will last through 11:59 p.m. ET on November 16, 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, Supernatural, 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; 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 Ltd. and its subsidiaries
Condensed consolidated balance sheets
   
As of
U.S. dollars in thousands

September
30, 2016

December 31,
2015

(Unaudited) (Audited)

ASSETS

 
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits $ 74,542 $ 62,807
Trade receivables, net 73,873 59,185
Other accounts receivable and prepaid expenses 37,880 32,230
Inventories   102,005     95,479  
 
Total current assets   288,300     249,701  
 
LONG-TERM ASSETS:
Severance pay fund 3,418 3,296
Other receivables long-term   7,912     8,603  
 
Total long-term assets   11,330     11,899  
 
PROPERTY, PLANT AND EQUIPMENT, NET   222,100     225,438  
 
OTHER ASSETS   5,123     6,883  
 
GOODWILL   36,548     35,821  
 
Total assets $ 563,401   $ 529,742  
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit $ 8,667 $ 3,241
Trade payables 44,958 46,382
Related party and other loan 3,387 3,251
Accrued expenses and other liabilities   29,463     27,986  
 
Total current liabilities   86,475     80,860  
 
LONG-TERM LIABILITIES:
 
Long-term loan and financing leaseback from a related party 8,398 8,472
Legal settlements and loss contingencies long-term 12,684 11,190
Accrued severance pay 4,370 4,309
Long-term warranty provision 1,022 934
Deferred tax liabilities, net 14,223 14,767
Share-based payment   30     148  
 
Total long-term liabilities   40,727     39,820  
 
REDEEMABLE NON-CONTROLLING INTEREST   10,702     8,841  
 
 
EQUITY:
Ordinary shares 370 370
Treasury shares - at cost (39,430 ) -
Additional paid-in capital 145,772 142,765

Accumulated other comprehensive (loss) income

280 (1,892 )
Retained earnings   318,505     258,978  
 
Total equity   425,497     400,221  
 
Total liabilities and equity $ 563,401   $ 529,742  
 
     
Caesarstone Ltd. and its subsidiaries
Condensed consolidated statements of income
   

Three months ended
September 30,

Nine months ended
September 30,

U.S. dollars in thousands (except per share data)   2016         2015     2016     2015  
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Revenues $ 144,306 $ 136,816 $ 403,568 $ 372,154
Cost of revenues   85,845     82,729     242,514     220,147  
 
Gross profit   58,461     54,087     161,054     152,007  
 
Operating expenses:
Research and development 929 630 2,578 2,059
Marketing and selling 17,967 14,116 51,775 44,474
General and administrative 10,370 9,904 30,251 27,012
Legal settlements and loss contingencies, net   1,020     4,719     2,753     4,719  
 
Total operating expenses   30,286     29,369     87,357     78,264  
 
Operating income 28,175 24,718 73,697 73,743
Finance expenses, net   1,120     106     2,318     2,397  
 
Income before taxes on income 27,055 24,612 71,379 71,346
Taxes on income   4,282     4,193     10,213     11,280  
 
Net income $ 22,773   $ 20,419   $ 61,166   $ 60,066  
 
Net income attributable to non-controlling interest   (430 )   (613 )   (1,639 )   (1,010 )

Net income attributable to controlling interest

$ 22,343   $ 19,806   $ 59,527   $ 59,056  
Basic net income per ordinary share $ 0.65   $ 0.56   $ 1.71   $ 1.68  
Diluted net income per ordinary share $ 0.65   $ 0.56   $ 1.70   $ 1.67  

Weighted average number of ordinary shares used in
computing basic income per ordinary share

 

34,412,294

   

35,294,755

   

34,867,064

   

35,238,001

 

Weighted average number of ordinary shares used in
computing diluted income per ordinary share

 

34,450,561

   

35,464,130

   

34,927,479

   

35,468,422

 
 
 
Caesarstone Ltd. and its subsidiaries
Selected Condensed consolidated statements of cash flows (Unaudited)
       
Nine months ended September 30,
U.S. dollars in thousands   2016     2015  
 

Cash flows from operating activities:

 
Net income $ 61,166 $ 60,066

Adjustments required to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization 21,043 15,628
Share-based compensation expense 2,533 608
Accrued severance pay, net (74 ) 191
Changes in deferred tax, net (5,975 ) (2,116 )
Capital loss 27 -

Legal settlements and loss contingencies, net

2,753 4,719
Compensation paid by a shareholder 266 -
Increase in trade receivables (13,595 ) (4,944 )
Increase in other accounts receivable and prepaid expenses (1,027 ) (2,288 )
Increase in inventories (3,715 ) (14,078 )
Decrease in trade payables (413 ) (9,484 )
Increase (decrease) in warranty provision 30 (506 )
Increase in accrued expenses and other liabilities including related party 2,613 3,637
   
Net cash provided by operating activities   65,632     51,433  
 
 

Cash flows from investing activities:

 
Purchase of property, plant and equipment (16,961 ) (57,542 )
Proceeds from sale of property, plant and equipment 21 -
Decrease in long term deposits 27 131
   
Net cash used in investing activities (*)   (16,913 )   (57,411 )
 
 

Cash flows from financing activities:

 
Dividend paid by subsidiary to non-controlling interest (243 ) -
Changes in short-term bank credit and loans, net 5,121 6,770
Repayment of a financing leaseback related to Bar-Lev transaction (826 ) (819 )
Purchase of treasury shares at cost (39,430 ) -
   
Net cash provided by (used in) financing activities   (35,378 )   5,951  
 
 
Effect of exchange rate differences on cash and cash equivalents (1,606 ) (1,706 )
   
Increase in cash and cash equivalents and short-term bank deposits 11,735 (1,733 )

Cash and cash equivalents and short-term bank deposits at beginning of
the period

 

62,807

   

54,327

 
 

Cash and cash equivalents and short-term bank deposits at end of the
period

$ 74,542   $ 52,594  
 

Non - cash investing:

Changes in trade payables balances related to purchase of fixed assets (1,126 ) 2,115
 
(*) 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 Ltd. and its subsidiaries

 

Three months ended
September 30,

Nine months ended
September 30,

U.S. dollars in thousands 2016 2015 2016 2015

(Unaudited)

Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 22,773 $ 20,419 $ 61,166 $ 60,066
Finance expenses, net 1,120 106 2,318 2,397
Taxes on income 4,282 4,193 10,213 11,280
Depreciation and amortization 7,074 6,030 21,043 15,628
Legal settlements and loss contingencies, net (a) 1,020 4,719 2,753 4,719
Compensation paid by a shareholder (b) 266 - 266 -
Share-based compensation expense (c)   986   745   2,533   1,146
Adjusted EBITDA (Non-GAAP) $ 37,521 $ 36,212 $ 100,292 $ 95,236
 
(a)   Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.
(b) One time bonus paid by a shareholder to Company's employees.
(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.
 
               

Caesarstone Ltd. and its subsidiaries

 

Three months ended
September 30,

Nine months ended
September 30,

U.S. dollars in thousands (except per share data) 2016 2015 2016   2015

(Unaudited)

Reconciliation of net income attributable to controlling
interest to adjusted net income attributable to controlling
interest:

Net income attributable to controlling interest $ 22,343 $ 19,806 $ 59,527 $ 59,056
Legal settlements and loss contingencies, net (a) 1,020 4,719 2,753 4,719
Compensation paid by a shareholder (b) 266 - 266 -
Share-based compensation expense (c) 986 745 2,533 1,146
Tax adjustment (d)   -   -   (1,158 )   -
Total adjustments 2,272 5,464 4,394 5,865
Less tax on non-tax adjustments (e)   360   866   884     927
Total adjustments after tax   1,912   4,598   3,509     4,938
 
Adjusted net income attributable to controlling interest (Non-GAAP) $ 24,255 $ 24,404 $ 63,036   $ 63,994
Adjusted diluted EPS (f) $ 0.70 $ 0.69 $ 1.80   $ 1.80
 
(a)   Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.
(b) One time bonus paid by a shareholder to Company's employees.
(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) Tax adjustment as a result of tax settlement with the Israeli tax authorities.
(e)

Tax adjustments for the three and nine months ended September 30, 2016 and 2015 were based on the effective tax rates for these periods, respectively.

(f)

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 Ltd. and its subsidiaries
Geographic breakdown of revenues by region (Unaudited)
 

Three months ended
September 30,

Nine months ended
September 30,

U.S. dollars in thousands 2016 2015 2016 2015
 
 
USA $ 58,379 $ 61,685 $ 167,634 $ 166,792
Australia 35,637 29,258 94,848 79,603
Canada 22,379 19,804 64,280 52,860
Israel 11,316 10,632 32,729 30,054
Europe 6,985 7,067 20,407 18,469
Rest of World   9,610   8,371   23,670   24,376
$ 144,306 $ 136,816 $ 403,568 $ 372,154

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

Source: Caesarstone Ltd.

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