EX-99.1 2 exhibit_99-1.htm EXHIBIT 99.1
 
Exhibit 99.1

Caesarstone Reports Fourth Quarter and Full Year 2016 Results

·
Q4 Revenue Up 6.0% to $135.0 million; up 4.8% on a Constant Currency Basis
·
Q4 Net Income Attributable to Controlling Interest of $15.1 million; Diluted EPS of $0.44; Adjusted diluted EPS of $0.53
·
FY16 Revenue Up 7.8% to $538.5 million; up 8.4% on a Constant Currency Basis
·
FY16 Net Income Attributable to Controlling Interest of $74.6 million; Diluted EPS of $2.15; Adjusted diluted EPS of $2.33
·
Enters into Lowe’s with “Transform™” Overlay Solution in the United States
·
Company Provides 2017 Annual Guidance for Revenues 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 fourth quarter and fiscal year ended December 31, 2016.

Revenue in the fourth quarter of 2016 increased by 6.0% to $135.0 million as compared to $127.4 million in the same quarter of the prior year. On a constant currency basis, fourth quarter revenue growth was 4.8%. Growth as reported was driven primarily by sustained strong performances in Canada and Australia, up 20.0% and 17.5%, respectively; a 2.8% decline in the U.S. was better than expected and contributed to the Company’s outperformance of recent financial guidance for the fourth quarter and full year.

Yonathan Melamed, Interim Chief Executive Officer, commented, “We are pleased to have momentum in our U.S business which has begun to benefit from investment in our sales and marketing capabilities.  Our brand continues to demonstrate global strength and we continue to innovate new products that position us as a clear market leader and establish further growth opportunities for the Company.”

The Company is pleased to announce two significant developments in line with its growth strategy and leadership position. The Company’s new collaboration with Lowe’s Home Improvement in the United States focuses on a new quartz countertop overlay solution called "Transform™ by Caesarstone." Transform is a 13-millimeter quartz overlay surface that can be installed in one day over an existing kitchen countertop. The Company views this solution as a breakthrough product for consumers interested in refinishing without a costly renovation. The Company expects sales of Transform to commence in the first quarter of 2017. The Company also began direct distribution in the U.K. in January 2017 to leverage the opportunity for its products in that market.

Gross margin in the fourth quarter was 38.1% compared to a margin of 37.9% in the same period of the prior year. Lower raw material costs and increased mix of higher margin products were partially offset by higher costs in Richmond-Hill and an increased portion of IKEA revenue, which generates lower margin due to its fabrication and installation component.

Operating expenses in the fourth quarter were $32.3 million, or 23.9% of revenues, as compared to $25.6 million, or 20.1% of revenues, in the same quarter last year. Excluding legal settlements and loss contingencies, operating expenses in the fourth quarter were $29.2 million, or 21.6% of revenues, compared with $25.6 million or 20.1% of revenues last year. This was primarily due to strategic investments in sales and marketing capabilities in the United States designed to drive revenue growth.

Operating income in the fourth quarter was $19.1 million compared to $22.6 million in the same quarter last year. Operating margin excluding legal settlements and loss contingencies was 16.5% this quarter compared to 17.7% in the same quarter last year.

Adjusted EBITDA, which excludes share-based compensation, legal settlements and loss contingencies and non-recurring items, was $30.0 million in the fourth quarter of 2016, a margin of 22.2%. This compares to adjusted EBITDA of $30.4 million in the prior year’s fourth quarter, a margin of 23.9%.

Finance expense in the fourth quarter was $1.0 million compared to $0.7 million during the same period in the prior year. The increase was primarily due to higher revolving credit usage and banking activity.

The Company’s net income attributable to controlling interest was $15.1 million for the fourth quarter of 2016 compared to $18.7 million in the same quarter last year. Adjusted diluted net income per share for the fourth quarter was $0.53 on 34.4 million shares compared to last year’s fourth quarter level of $0.55 on 35.5 million shares.

Full-Year Results

Revenues for the full year of 2016 grew by 7.8% to a new record of $538.5 million compared to $499.5 million in 2015. On a constant currency basis, growth was 8.4% year over year. Full-year revenue growth was led by Canada and Australia, which grew at rates of 21.2% and 18.7% as reported and 25.4% and 19.0% on a constant currency basis, respectively.

Gross margin was 39.5% compared to 40.1% in 2015. The gross margin decline year-over-year was driven primarily by higher costs in the Richmond Hill plant, partially offset by lower raw material costs, increased content of higher margin products and better efficiency in the plants in Israel.

Operating expenses in 2016 were 22.2% of revenue compared to 20.8% in the prior year, primarily reflecting an increased investment in sales and marketing capabilities, particularly in the United States.

Operating income margin in 2016 was 17.2% compared to 19.3% in 2015, also reflecting the lower gross margin and the increase in sales and marketing expenses described above.

Adjusted EBITDA in 2016 increased by 3.7% to a record of $130.3 million, a margin of 24.2%, compared to $125.7 million, a margin of 25.2%, in 2015.

Net income attributable to controlling interest was $74.6 million for the full year of 2016 compared to $77.8 million in 2015. Adjusted net income attributable to controlling interest was $81.2 million compared to $83.7 million in 2015. Adjusted diluted earnings per share were $2.33 on 34.8 million shares in 2016, compared to $2.36 on 35.5 million shares in the prior year.

The Company's balance sheet as of December 31, 2016 continued to strengthen with cash, cash equivalents and short-term bank deposits of $106.3 million, an increase of $38.2 million net of commercial loans relative to 2015 year-end. The Company’s cash, cash equivalents and short-term bank deposits grew despite its repurchase of 1.1 million ordinary shares for a total of $39.4 million during the year.
 
Guidance

The Company today issued guidance for the full-year of 2017.  It expects its 2017 revenue to be in the range of $580 million to $595 million, and adjusted EBITDA to be in the range of $119 million to $126 million.

Conference Call Details

Yonathan Melamed, the Company's Interim CEO, 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 Fourth 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 13653395. The replay will be available beginning at 11:30 a.m. ET on Wednesday, February 8, 2017 and will last through 11:59 p.m. ET on February 15, 2017.

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.

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

Caesarstone Ltd. and its subsidiaries
Condensed consolidated balance sheets
 
             
   
As of
  
U.S. dollars in thousands
  
December 31,
2016
    
December 31,
2015
  
   
(Unaudited)
    
(Audited)
  
    ASSETS
            
             
CURRENT ASSETS:
            
    Cash and cash equivalents and short-term bank deposits
  
$
106,270
    
$
62,807
  
    Trade receivables, net
    
63,072
      
59,185
  
    Other accounts receivable and prepaid expenses
    
39,484
      
32,230
  
    Inventories
    
101,474
      
95,479
  
                 
Total current assets
    
310,300
      
249,701
  
                 
LONG-TERM ASSETS:
                
    Severance pay fund
    
3,403
      
3,296
  
    Other receivables long-term
    
7,977
      
8,603
  
                 
Total long-term assets
    
11,380
      
11,899
  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    
222,818
      
225,438
  
                 
OTHER ASSETS
    
4,546
      
6,883
  
                 
GOODWILL
    
35,656
      
35,821
  
                 
Total assets
  
$
584,700
    
$
529,742
  
                 
    LIABILITIES AND EQUITY
                
                 
CURRENT LIABILITIES:
                
                 
Short-term bank credit
  
$
8,540
    
$
3,241
  
Trade payables
    
48,633
      
46,382
  
Related party and other loan
    
3,099
      
3,251
  
Accrued expenses and other liabilities
    
33,065
      
27,986
  
                 
Total current liabilities
    
93,337
      
80,860
  
                 
LONG-TERM LIABILITIES:
                
                 
Long-term loan and financing leaseback from a related party
    
8,070
      
8,472
  
Legal settlements and loss contingencies long-term
    
12,527
      
11,190
  
Accrued severance pay
    
4,265
      
4,309
  
Long-term warranty provision
    
988
      
934
  
Deferred tax liabilities, net
    
14,921
      
14,767
  
Share-based payment
    
-
      
148
  
                 
Total long-term liabilities
    
40,771
      
39,820
  
                 
REDEEMABLE NON-CONTROLLING INTEREST
    
10,691
      
8,841
  
                 
EQUITY:
                
Ordinary shares
    
360
      
370
  
Treasury shares - at cost
    
(39,419
)
    
-
  
Additional paid-in capital
    
146,536
      
142,765
  
Accumulated other comprehensive loss
    
(1,150
)
    
(1,892
)
Retained earnings
    
333,574
      
258,978
  
                 
Total equity
    
439,901
      
400,221
  
                 
Total liabilities and equity
  
$
584,700
    
$
529,742
  
 
Caesarstone 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)
  
2016
    
2015
    
2016
    
2015
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Audited)
  
                         
Revenues
  
$
134,975
    
$
127,361
    
$
538,543
    
$
499,515
  
Cost of revenues
    
83,543
      
79,143
      
326,057
      
299,290
  
                                 
Gross profit
    
51,432
      
48,218
      
212,486
      
200,225
  
                                 
Operating expenses:
                                
    Research and development
    
713
      
993
      
3,290
      
3,052
  
    Marketing and selling
    
18,568
      
15,047
      
70,343
      
59,521
  
    General and administrative
    
9,930
      
9,599
      
40,181
      
36,612
  
    Legal settlements and loss contingencies, net
    
3,115
      
(64
)
    
5,868
      
4,654
  
                                 
Total operating expenses
    
32,326
      
25,575
      
119,682
      
103,839
  
                                 
Operating income
    
19,106
      
22,643
      
92,804
      
96,386
  
Finance expenses, net
    
1,000
      
688
      
3,318
      
3,085
  
                                 
Income before taxes on income
    
18,106
      
21,955
      
89,486
      
93,301
  
Taxes on income
    
2,790
      
2,563
      
13,003
      
13,843
  
                                 
Net income
  
$
15,316
    
$
19,392
    
$
76,483
    
$
79,458
  
                                 
Net income attributable to non-controlling interest
    
(248
)
    
(682
)
    
(1,887
)
    
(1,692
)
Net income attributable to controlling interest
  
$
15,068
    
$
18,710
    
$
74,596
    
$
77,766
  
Basic net income per ordinary share
  
$
0.44
    
$
0.53
    
$
2.15
    
$
2.21
  
Diluted net income per ordinary share
  
$
0.44
    
$
0.53
    
$
2.15
    
$
2.19
  
Weighted average number of ordinary shares used in computing basic income per ordinary share
    
34,321,573
      
35,294,755
      
34,706,303
      
35,252,596
  
Weighted average number of ordinary shares used in computing diluted income per ordinary share
    
34,356,672
      
35,451,861
      
34,763,920
      
35,463,698
  
 
 
 
Caesarstone Ltd. and its subsidiaries
Selected Condensed consolidated statements of cash flows (Unaudited)
 
             
   
Twelve months ended December 31,
  
U.S. dollars in thousands
  
2016
    
2015
  
             
Cash flows from operating activities:
            
             
Net income
  
$
76,483
    
$
79,458
  
Adjustments required to reconcile net income to net cash provided by operating activities:
          
    Depreciation and amortization
    
28,254
      
22,334
  
    Share-based compensation expense
    
3,068
      
2,293
  
    Accrued severance pay, net
    
(150
)
    
540
  
    Changes in deferred tax, net
    
(6,860
)
    
7,051
  
    Capital loss
    
32
      
-
  
    Legal settlemnets and loss contingencies, net
    
5,868
      
4,654
  
    Compensation paid by a shareholder
    
266
      
-
  
    Increase in trade receivables
    
(4,184
)
    
(2,968
)
    Decrease (increase) in other accounts receivable and prepaid expenses
    
280
      
(3,069
)
    Increase in inventories
    
(5,376
)
    
(15,267
)
    Increase (decrease) in trade payables
    
1,424
      
(8,659
)
    Increase (decrease) in warranty provision
    
100
      
(447
)
    Increase (decrease) in accrued expenses and other liabilities including related party
    
2,314
      
(259
)
                 
Net cash provided by operating activities
    
101,519
      
85,661
  
                 
Cash flows from investing activities:
                
                 
Purchase of property, plant and equipment
    
(22,943
)
    
(76,495
)
Proceeds from sale of property, plant and equipment
    
22
      
-
  
Increase in long term deposits
    
(452
)
    
(1,228
)
                 
Net cash used in investing activities (*)
    
(23,373
)
    
(77,723
)
                 
Cash flows from financing activities:
                
                 
Dividend paid by subsidiary to non-controlling interest
    
(243
)
    
-
  
Changes in short-term bank credit and loans, net
    
5,157
      
3,241
  
Repayment of a financing leaseback related to Bar-Lev transaction
    
(1,100
)
    
(1,092
)
Purchase of treasury shares at cost
    
(39,430
)
    
-
  
                 
Net cash provided by (used in) financing activities
    
(35,616
)
    
2,149
  
                 
Effect of exchange rate differences on cash and cash equivalents
    
933
      
(1,607
)
                 
Increase in cash and cash equivalents and short-term bank deposits
    
43,463
      
8,480
  
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
  
$
106,270
    
$
62,807
  
                 
Non - cash investing:
                
Changes in trade payables balances related to purchase of fixed assets
    
(403
)
    
(4,389
)
 
(*) 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
December 31,
    
Twelve months ended
December 31,
  
U.S. dollars in thousands
  
2016
    
2015
    
2016
    
2015
  
   
(Unaudited)
  
Reconciliation of Net Income to Adjusted EBITDA:
                        
Net income
  
$
15,316
    
$
19,392
    
$
76,483
    
$
79,458
  
Finance expenses, net
    
1,000
      
688
      
3,318
      
3,085
  
Taxes on income
    
2,790
      
2,563
      
13,003
      
13,843
  
Depreciation and amortization
    
7,211
      
6,706
      
28,254
      
22,334
  
Legal settlements and loss contingencies, net (a)
    
3,115
      
(64
)
    
5,868
      
4,654
  
Compensation paid by a shareholder (b)
    
-
      
-
      
266
      
-
  
Share-based compensation expense (c)
    
535
      
1,147
      
3,068
      
2,293
  
Adjusted EBITDA (Non-GAAP)
  
$
29,967
    
$
30,432
    
$
130,260
    
$
125,667
  
 
(a)
Consists of legal settlements expenses and loss contingencies, net, related to 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
December 31,
    
Twelve months ended
December 31,
  
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
  
$
15,068
    
$
18,710
    
$
74,596
    
$
77,766
  
Legal settlements and loss contingencies, net (a)
    
3,115
      
(64
)
    
5,868
      
4,654
  
Compensation paid by a shareholder (b)
    
-
      
-
      
266
      
-
  
Share-based compensation expense (c)
    
535
      
1,147
      
3,068
      
2,293
  
Tax adjustment (d)
    
-
      
-
      
(1,158
)
    
-
  
Total adjustments
    
3,650
      
1,083
      
8,044
      
6,947
  
Less tax on non-tax adjustments (e)
    
572
      
104
      
1,456
      
1,031
  
Total adjustments after tax
    
3,078
      
979
      
6,588
      
5,916
  
                                 
Adjusted net income attributable to controlling interest (Non-GAAP)
  
$
18,146
    
$
19,689
    
$
81,184
    
$
83,682
  
Adjusted diluted EPS (f)
  
$
0.53
    
$
0.55
    
$
2.33
    
$
2.36
  
 
(a)
Consists of legal settlements expenses and loss contingencies, net, related to 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 twelve months ended December 31, 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
December 31,
    
Twelve months ended
December 31,
  
U.S. dollars in thousands
  
2016
    
2015
    
2016
    
2015
  
                         
USA
  
$
54,963
    
$
56,549
    
$
222,597
    
$
223,341
  
Australia (incl. New Zealand)
    
36,062
      
30,687
      
130,910
      
110,290
  
Canada
    
21,460
      
17,879
      
85,740
      
70,739
  
Israel
    
9,816
      
9,592
      
42,545
      
39,645
  
Europe
    
5,199
      
5,479
      
25,606
      
23,948
  
Rest of World
    
7,475
      
7,176
      
31,145
      
31,552
  
   
$
134,975
    
$
127,361
    
$
538,543
    
$
499,515