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Caesarstone Reports Second Quarter 2022 Financial Results

August, 03, 2022

– Record Second Quarter Revenue up 10.3% to $180.3 Million; up 13.7% on a Constant Currency Basis –

– Net Income attributable to Controlling Interest of $11.1 Million, or $0.32 Per Share –

– Adjusted EPS of $0.20 –

– Adjusted EBITDA of $17.1 Million –

– In July 2022, Acquired a Leading Distributor in Sweden, Establishing First Direct Go-To-Market Presence in E.U. –

– Declares Dividend of $0.25 per share –

– Reiterates Full Year 2022 Outlook –

Caesarstone Ltd. (NASDAQ: CSTE), a leading developer and manufacturer of high-quality engineered surfaces, today reported financial results for its second quarter ended June 30, 2022.

Yuval Dagim, Caesarstone’s Chief Executive Officer commented, “We were happy to produce second quarter results that were in-line with our expectations as we demonstrated further progress against our multi-pronged growth strategy. We achieved our 6th consecutive quarter of double-digit year-over-year revenue growth, including nearly 20% growth in the U.S. while also implementing successful pricing actions that helped us continue to mitigate increasing costs of raw materials and shipping and improve our margins on a sequential basis. Our best-in-class product offerings, successful integration of our acquired businesses, and targeted efforts to enhance customer experience through the expansion of our digital platforms are all driving fundamental improvements across our business. Moving into the second half of 2022, we are introducing new product families across our regions and will evaluate additional pricing actions as needed. In line with our strategic plan, we are also enhancing our go-to-market strategy in Europe through the acquisition of a leading distributor in Sweden with annual revenues of ~$4 million, which we acquired in July 2022. With an estimated 60% to 70% of our business in our key markets tied to the historically resilient repair and remodel end market, I am confident that we have the right plan in place to deliver on our strategic objectives while navigating through a complex global environment. In doing so, we will continue to leverage our world-class brand, innovative go-to-market initiatives, and multi-material product offerings to drive additional value for our shareholders.”

Second Quarter 2022 Results

Revenue in the second quarter of 2022 grew 10.3% to a second quarter record of $180.3 million compared to $163.5 million in the prior year quarter. On a constant currency basis, second quarter revenue was higher by 13.7% year-over-year. Revenue growth was primarily driven by higher pricing across the majority of our global footprint particularly in North America.

Gross margin in the second quarter of 2022 was 26.4% compared to 28.0% in the prior year quarter. Adjusted gross margin in the second quarter was 26.4% compared to 28.1% in the prior year quarter. The year-over-year reduction in gross margin mainly reflects higher shipping and raw material price increases and unfavorable foreign exchange rate fluctuations, which were partially offset by favorable product mix and selling price increases.

Operating expenses in the second quarter of 2022 were $41.2 million, or 22.8% of revenue, compared to $40.6 million, or 24.8% of revenue in the prior year quarter mainly due to lower expense for legal settlements. Excluding legal settlements and loss contingencies, adjusted operating expenses were 22.1% of revenue, compared to 22.3% in the prior year quarter, mainly due to higher revenues.

Operating income in the second quarter of 2022 was $6.4 million compared to $5.2 million in the prior year quarter. The year-over-year increase mainly reflects higher gross profit and lower legal settlements and loss contingencies.

Adjusted EBITDA in the second quarter of 2022, which excludes expenses for non-cash share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $17.1 million, representing a margin of 9.5%. This compared to adjusted EBITDA of $18.8 million, representing a margin of 11.5%, in the prior year quarter. The year-over-year decrease primarily reflects the lower gross margin.

Finance income in the second quarter of 2022 was $6.4 million compared to finance expense of $3.1 million in the prior year quarter. The difference was primarily a result of favorable foreign currency exchange rate fluctuations.

Net income attributable to controlling interest for the second quarter of 2022 was $11.1 million compared to $1.7 million in the prior year quarter. Net income per share for the second quarter was $0.32 compared to net income per share of $0.05 in the prior year quarter. Adjusted diluted net income per share for the second quarter was $0.20 on 34.6 million shares, compared to adjusted diluted net income per share of $0.21 in the prior year quarter on 34.5 million shares.

Balance Sheet & Liquidity

As of June 30, 2022, the Company’s balance sheet remained strong, including cash, cash equivalents and short-term bank deposits and short and long-term marketable securities of $62.2 million and total debt to financial institutions of $18.0 million.

Dividend

The Company’s dividend policy provides for a quarterly cash dividend of up to 50% of reported net income on a year-to-date basis, less any amount already paid as dividend for the respective period (the “calculated dividend”), subject in each case to approval by the Company’s board of directors. No dividend is paid if it would be less than $0.10 per share. In accordance with the Company’s dividend policy, the board of directors declared a cash dividend of $0.25 per share for the three months ended June 30, 2022. The dividend will be paid on September 7, 2022 to shareholders of record as of August 17, 2022. The dividend payment is subject to withholding tax of ~20.5%.

Outlook

The Company reiterates its expectation for 2022 revenue to be in the range of $710 million to $725 million, implying approximately 11% growth over 2021 at the midpoint, driven by volume and price improvements in its markets. Additionally, the Company reaffirms its expectation for Adjusted EBITDA as a percentage of sales to be similar compared to 2021, primarily attributable to higher sales and selling prices that are anticipated to offset increased costs in connection with raw material inputs, particularly polyester, and shipping.

Webcast and Conference Call Details

The Company will host a live webcast and conference call today at 8:30 a.m. ET to discuss the results, followed by a question and answer session for the investment community. The live webcast of the call can be accessed at ir.caesarstone.com. For those unable to access the webcast, the conference call will be accessible by dialing 1-877-451-6152 (domestic) or 1-201-389-0879, (international). The toll-free Israeli number is 1 80 940 6247. Upon dialing in, please request to join the Caesarstone Second Quarter Earnings Call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 (domestic) or +1-412-317-6671 (international) and enter pass code 13730170. The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 3, 2022 and will last through 11:59 p.m. ET on Wednesday, August 10, 2022.

About Caesarstone

Caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered stone countertops, used in residential and commercial buildings. Our products offer superior aesthetic appeal and perfected functionality through a distinct variety of colors, styles, textures, and finishes used in diverse countertop applications, marked by inherent longevity. Strong commitment to service has fostered growing customer loyalty in over 50 countries where the Caesarstone product collections are available: Classico, Supernatural, Metropolitan and Outdoor. For more information please visit our website: www.caesarstone.com.

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. Reconciliations of GAAP gross profit to adjusted gross profit, GAAP net income (loss) to adjusted net income (loss) and net income (loss) to adjusted EBITDA are provided in the schedules to this release. To calculate revenues growth rates that exclude the impact of changes in foreign currency exchange rates, the Company converts actual reported results from local currency to U.S. dollars using constant foreign currency exchange rates in the current and comparable period. 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" within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “goals," “intend,” “seek,” “anticipate,” “believe,” “could,” “continue,” “expect,” “estimate,” “may,” “plan,” “outlook,” “future” and “project” and other similar expressions that predict, project or indicate future events or trends or that are not statements of historical matters. Such forward looking statements include statements regarding the Company’s sustainability goals and plans, intentions, expectations, assumptions, goals and beliefs regarding the Company’s business and sustainability vision. These forward-looking statements also may relate to the Company's plans, objectives and expectations for future operations, including estimations relating to the impact of the COVID-19 pandemic and mitigation measures in connection thereto, and expectations of the results of the Company’s business optimization initiatives. 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, both known or unknown. These factors include, but are not limited to: the impact of the COVID-19 pandemic on end-consumers, the effects of global economy and geo-politics on the Company’s business and operations; managing constraints in the global supply chain, raw material shortages, increased prices and effects of challenges in global shipping and transportation; Company’s ability to pass all or some of these increases to its customers; the strength of the home renovation and construction sectors; intense competitive pressures; disruptions to our information technology systems globally, including by deliberate cyber-attacks; the degree of the Company’s ability to develop, produce and deliver high quality and safe products; fluctuations in currency exchange rates against the U.S. Dollar; Company’s ability to raise funds to finance our current and future capital needs; Company’s ability to build-out and expand into certain markets and successfully integrate our acquisitions; the Company’s ability to effective manage its relationship with key suppliers; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with our operations and products; efficiently manufacturing our products and managing changes in production and supply chain; economic conditions within any of our key existing markets; the success of our expansion efforts in the United States; the extent of the Company’s ability to meet its ESG goals and targets, management of GHG and other emissions; the impacts of conditions in Israel, such as negative economic, labor or geopolitical events; the unpredictability of seasonal fluctuations in revenues; disturbances to the Company’s operations or the operations of its suppliers, distributors, customers or other third parties and other factors, risks and uncertainties discussed under the sections "Risk Factors" and “Special Note Regarding Forward-Looking Statements and Risk Factor Summary” in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022, and in other documents filed by Caesarstone with the SEC, which are available free of charge at www.sec.gov. 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 June 30, 2022 December 31, 2021
(Unaudited) (Audited)
ASSETS
 
CURRENT ASSETS:
 
Cash and cash equivalents and short-term bank deposits

$

53,483

 

$

74,315

 

Short-term available for sale marketable securities

 

6,405

 

 

11,228

 

Trade receivables, net

 

94,788

 

 

82,815

 

Other accounts receivable and prepaid expenses

 

38,187

 

 

35,443

 

Inventories

 

252,112

 

 

204,725

 

 
Total current assets

 

444,975

 

 

408,526

 

 
LONG-TERM ASSETS:
 
Severance pay fund

 

3,415

 

 

4,090

 

Other long-term receivables

 

3,500

 

 

3,832

 

Deferred tax assets, net

 

11,649

 

 

10,880

 

Long-term deposits and prepaid expenses

 

399

 

 

449

 

Operating lease right-of-use assets

 

143,287

 

 

154,652

 

Long-term available for sale marketable securities

 

2,327

 

 

8,647

 

Property, plant and equipment, net

 

210,344

 

 

221,150

 

Goodwill and intangible assets, net

 

52,907

 

 

55,427

 

 
Total long-term assets

 

427,828

 

 

459,127

 

 
Total assets

$

872,803

 

$

867,653

 

 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit

$

12,291

 

$

12,523

 

Trade payables

 

96,304

 

 

81,369

 

Related parties and other loans

 

1,608

 

 

2,276

 

Short term legal settlements and loss contingencies

 

16,690

 

 

22,592

 

Accrued expenses and other liabilities

 

63,753

 

 

64,534

 

 
Total current liabilities

 

190,646

 

 

183,294

 

 
LONG-TERM LIABILITIES:
 
Long-term bank and other loans and financing liability of land from a related party

 

10,409

 

 

6,240

 

Legal settlements and loss contingencies long-term

 

21,819

 

 

20,859

 

Deferred tax liabilities, net

 

4,417

 

 

4,992

 

Long-term lease liabilities

 

124,282

 

 

143,324

 

Accrued severance pay

 

4,744

 

 

5,500

 

Long-term warranty provision

 

1,285

 

 

1,280

 

 
Total long-term liabilities

 

166,956

 

 

182,195

 

 
REDEEMABLE NON-CONTROLLING INTEREST

 

7,983

 

 

7,869

 

 
EQUITY:
 
Ordinary shares

 

371

 

 

371

 

Treasury shares - at cost

 

(39,430

)

 

(39,430

)

Additional paid-in capital

 

162,797

 

 

161,929

 

Capital fund related to non-controlling interest

 

(5,587

)

 

(5,587

)

Accumulated other comprehensive income (loss), net

 

(5,903

)

 

(704

)

Retained earnings

 

394,970

 

 

377,716

 

 
Total equity

 

507,218

 

 

494,295

 

 
Total liabilities and equity

$

872,803

 

$

867,653

 

Caesarstone Ltd. and its subsidiaries
Condensed consolidated statements of income
 

Three months ended

 

Six months ended

June 30,

 

June 30,

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

2022

2021

2022

2021

(Unaudited) (Unaudited)
 
Revenues

$

180,272

 

$

163,462

$

350,710

 

$

309,494

 

Cost of revenues

 

132,747

 

 

117,678

 

260,013

 

 

220,408

 

 
Gross profit

 

47,525

 

 

45,784

 

90,697

 

 

89,086

 

 
Operating expenses:
Research and development

 

1,190

 

 

1,114

 

2,094

 

 

2,219

 

Sales and Marketing

 

24,884

 

 

23,594

 

48,259

 

 

41,870

 

General and administrative

 

13,761

 

 

11,794

 

26,548

 

 

24,937

 

Legal settlements and loss contingencies, net

 

1,334

 

 

4,109

 

458

 

 

4,849

 

 
Total operating expenses

 

41,169

 

 

40,611

 

77,359

 

 

73,875

 

 
Operating income

 

6,356

 

 

5,173

 

13,338

 

 

15,211

 

Finance income, net

 

(6,445

)

 

3,095

 

(7,793

)

 

(2,238

)

 
Income before taxes

 

12,801

 

 

2,078

 

21,131

 

 

17,449

 

Taxes on income

 

1,571

 

 

598

 

3,245

 

 

2,127

 

 
Net income

$

11,230

 

$

1,480

$

17,886

 

$

15,322

 

 
Net loss (income) attributable to non-controlling interest

 

(83

)

 

225

 

(511

)

 

573

 

 
Net income attributable to controlling interest

$

11,147

 

$

1,705

$

17,375

 

$

15,895

 

Basic net income per ordinary share (*)

$

0.32

 

$

0.05

$

0.50

 

$

0.45

 

Diluted net income per ordinary share (*)

$

0.32

 

$

0.05

$

0.50

 

$

0.45

 

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

 

34,479,635

 

 

34,451,071

 

34,479,978

 

 

34,449,483

 

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

 

34,524,257

 

 

34,539,958

 

34,527,107

 

 

34,525,127

 

(*) The numerator for the calculation of net income per share for the three and six months ended June 30, 2022 and 2021, has been decreased by approximately $0.1 and $0.1 million, and $0.1 and $0.2 million respectively, to reflect the adjustment to redemption value associated with the redeemable non-controlling interest.

Caesarstone Ltd. and its subsidiaries
Selected Condensed consolidated statements of cash flows
 
Six months ended June
30,
U.S. dollars in thousands

2022

2021

(Unaudited)
Cash flows from operating activities:
 
Net income

$

17,886

 

$

15,322

 

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

 

18,023

 

 

17,689

 

Share-based compensation expense

 

868

 

 

996

 

Accrued severance pay, net

 

(72

)

 

72

 

Changes in deferred tax, net

 

(1,219

)

 

(1,856

)

Capital (gain) loss

 

(2

)

 

(4

)

Legal settlements and loss contingencies, net

 

458

 

 

4,849

 

Increase in trade receivables

 

(13,923

)

 

(2,307

)

Increase in other accounts receivable and prepaid expenses

 

(2,363

)

 

(8,985

)

Increase in inventories

 

(50,543

)

 

(15,383

)

Increase in trade payables

 

13,987

 

 

19,049

 

Increase (decrease) in warranty provision

 

(35

)

 

16

 

Changes in right of use assets

 

10,088

 

 

3,987

 

Changes in lease liabilities

 

(18,807

)

 

(4,277

)

Amortization of premium and accretion of discount on marketable securities, net

 

146

 

 

204

 

Changes in Accrued interest related to Marketable Securities

 

64

 

 

27

 

Decrease in accrued expenses and other liabilities including related parties

 

(2,307

)

 

(6,311

)

 
Net cash provided by (used in) operating activities

 

(27,751

)

 

23,088

 

 
 
Cash flows from investing activities:
 
Repayment of assumed shareholders loan related to acquisition

 

-

 

 

(1,966

)

Repayment of contingent consideration related to acquisition

 

-

 

 

(1,780

)

Purchase of property, plant and equipment

 

(8,611

)

 

(12,472

)

Proceeds from sale of property, plant and equipment

 

7

 

 

5

 

Maturity of (investment in) marketable securities

 

10,801

 

 

(1,042

)

Decrease in long term deposits

 

134

 

 

40

 

 
Net cash provided by (used in) investing activities

 

2,331

 

 

(17,215

)

 
 
Cash flows from financing activities:
 
Dividend paid

 

-

 

 

(7,234

)

Changes in short-term bank credits and long-term loans, including related parties

 

5,752

 

 

(10,983

)

Repayment of a financing leaseback related to Bar-Lev transaction

 

(648

)

 

(650

)

 
Net cash provided by (used in) financing activities

 

5,104

 

 

(18,867

)

 
 
Effect of exchange rate differences on cash and cash equivalents

 

(516

)

 

34

 

 
Decrease in cash and cash equivalents and short-term bank deposits

 

(20,832

)

 

(12,960

)

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

 

74,315

 

 

114,248

 

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

$

53,483

 

$

101,288

 

 
Non - cash investing:
Changes in trade payables balances related to purchase of fixed assets

 

(867

)

 

(316

)

Caesarstone Ltd. and its subsidiaries
 
Three months ended
June 30,
Six months ended
June 30,
U.S. dollars in thousands

2022

2021

2022

2021

(Unaudited) (Unaudited)
Reconciliation of Gross profit to Adjusted Gross profit:
Gross profit

$

47,525

$

45,784

$

90,697

$

89,086

Share-based compensation expense (a)

 

59

 

37

 

149

 

142

Amortization of assets related to acquisitions

 

76

 

160

 

154

 

694

Adjusted Gross profit (Non-GAAP)

$

47,660

$

45,981

$

91,001

$

89,922

(a) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

Caesarstone Ltd. and its subsidiaries

 
Three months ended
June 30,
Six months ended
June 30,
U.S. dollars in thousands

2022

2021

2022

2021

(Unaudited) (Unaudited)
Reconciliation of Net Income to Adjusted EBITDA:
Net income

$

11,230

 

$

1,480

$

17,886

 

$

15,322

 

Finance income, net

 

(6,445

)

 

3,095

 

(7,793

)

 

(2,238

)

Taxes on income

 

1,571

 

 

598

 

3,245

 

 

2,127

 

Depreciation and amortization

 

8,823

 

 

8,781

 

18,023

 

 

17,689

 

Legal settlements and loss contingencies, net (a)

 

1,334

 

 

4,109

 

458

 

 

4,849

 

Contingent consideration adjustment related to acquisition

 

-

 

 

284

 

-

 

 

284

 

Acquisition and integration related expenses

 

80

 

 

-

 

80

 

 

-

 

Share-based compensation expense (b)

 

480

 

 

429

 

868

 

 

996

 

 
Adjusted EBITDA (Non-GAAP)

$

17,073

 

$

18,776

$

32,767

 

$

39,029

 

(a) Consists primarily of legal settlements expenses and loss contingencies, net, related to product liability claims.

(b) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

Caesarstone Ltd. and its subsidiaries

 
Three months ended
June 30,
Six months ended
June 30,
U.S. dollars in thousands (except per share data)

2022

2021

2022

2021

(Unaudited) (Unaudited)
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest

$

11,147

 

$

1,705

$

17,375

 

$

15,895

 

Legal settlements and loss contingencies, net (a)

 

1,334

 

 

4,109

 

458

 

 

4,849

 

Contingent consideration adjustment related to acquisition

 

-

 

 

284

 

-

 

 

284

 

Amortization of assets related to acquisitions, net of tax

 

498

 

 

561

 

1,000

 

 

1,387

 

Share-based compensation expense (b)

 

480

 

 

429

 

868

 

 

996

 

Acquisition and integration related expenses

 

80

 

 

-

 

80

 

 

-

 

Non cash revaluation of lease liabilities (c)

 

(7,478

)

 

889

 

(9,407

)

 

(973

)

Total adjustments

 

(5,086

)

 

6,272

 

(7,001

)

 

6,543

 

Less tax on non-tax adjustments (d)

 

(690

)

 

770

 

(1,075

)

 

797

 

Total adjustments after tax

 

(4,396

)

 

5,502

 

(5,926

)

 

5,746

 

 
Adjusted net income attributable to controlling interest (Non-GAAP)

$

6,751

 

$

7,207

$

11,449

 

$

21,641

 

Adjusted diluted EPS (e)

$

0.20

 

$

0.21

$

0.33

 

$

0.63

 

(a)

Consists primarily of legal settlements expenses and loss contingencies, net, related to product liability claims.

(b)

Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

(c)

Exchange rate differences deriving from revaluation of lease contracts in accordance with FASB ASC 842.

(d)

Tax adjustments for the three and six months ended June 30, 2022 and 2021, based on the effective tax rates.

(e)

In calculating adjusted diluted (Non-GAAP) EPS for the three and six months ended June 30, 2022 and 2021, 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
 
Three months ended
June 30,
Six months ended
June 30,
Three months ended June 30, Six months ended June 30,
U.S. dollars in thousands

2022

2021

2022

2021

(Unaudited) (Unaudited) YoY % change YoY % change CCB YoY % change YoY % change CCB
 
USA

$

93,039

$

77,844

$

178,276

$

148,675

19.5

%

19.5

%

19.9

%

19.9

%

Canada

 

25,363

 

21,946

 

49,097

 

39,725

15.6

%

20.0

%

23.6

%

26.1

%

Latin America

 

1,272

 

741

 

2,047

 

1,599

71.7

%

71.8

%

28.0

%

28.0

%

America's

 

119,674

 

100,531

 

229,420

 

189,999

19.0

%

20.0

%

20.7

%

21.3

%

 
Australia

 

30,195

 

31,597

 

55,734

 

58,769

-4.4

%

3.1

%

-5.2

%

1.7

%

Asia

 

8,157

 

7,370

 

17,882

 

15,147

10.7

%

15.0

%

18.1

%

19.6

%

APAC

 

38,352

 

38,967

 

73,616

 

73,916

-1.6

%

5.4

%

-0.4

%

5.4

%

 
EMEA

 

15,827

 

15,852

 

31,050

 

28,570

-0.2

%

11.7

%

8.7

%

18.1

%

 
Israel

 

6,419

 

8,112

 

16,624

 

17,009

-20.9

%

-19.6

%

-2.3

%

1.1

%

 
Total Revenues

$

180,272

$

163,462

$

350,710

$

309,494

10.3

%

13.7

%

13.3

%

16.1

%

 

Investor Relations:
ICR, Inc. - Rodny Nacier
CSTE@icrinc.com
+1 (646) 200-8870

Source: Caesarstone Ltd.
Categories: Press Releases
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