EX-99.1 2 exhibit_99-1.htm EXHIBIT 99.1
Exhibit 99.1
Caesarstone Reports Second Quarter Results

·
Record Quarterly Revenue of $148.9 million, Up 4.6%; Grows 5.0% on a Constant Currency Basis
·
Quarterly Diluted EPS of $0.42; Adjusted Diluted EPS of $0.49
·
Maintains Full Year Guidance for Revenue, Narrows Expectation for 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 second quarter, ended June 30, 2017.

The Company grew revenue in the second quarter of 2017 by 4.6% to a new quarterly record of $148.9 million compared to $142.3 million in the same quarter of the prior year. On a constant currency basis, the Company grew second quarter revenue by 5.0%. Growth in revenue was driven primarily by the United States, up 8.2%, and by Canada, up 4.3% and 8.7% on a constant currency basis.

Raanan Zilberman, Chief Executive Officer, commented, "Our sales performance this quarter was in line with our expectations, but we need to continue to work hard in order to capture our full opportunity for profitability.  We are confident we can mitigate challenges and, based on our achievements in the first half, we remain comfortable with our goals for 2017.  Our business and brand are fundamentally strong around the world and our recent product launches continue to excite our markets.”

Gross margin in the second quarter was 34.9% compared to 42.1% in the same period in the prior year. The decrease was primarily due to a significant increase in polyester prices, lower manufacturing throughput related to a mix shift toward more sophisticated products, and an increased proportion, out of total production, from Richmond-Hill, which continues to require higher costs. Additionally, an increased component of fabrication and installation revenue and exchange rate fluctuations also pressured gross margin. These factors were partially offset by the positive impact of a mix-shift toward differentiated premium products.

Operating expenses in the second quarter were $32.6 million, or 21.9% of revenue. This compares to the prior year second quarter level of $28.7 million, or 20.2% of revenue. The increase in expenses was primarily due to planned investments in marketing and sales capabilities to support sales growth in the United States and to costs associated with the ramp-up of direct distribution operations in the United Kingdom.

Operating income in the second quarter was $19.3 million, an operating margin of 13.0%, compared to $31.3 million in the second quarter of 2016, an operating margin of 22.0%.

Adjusted EBITDA, which excludes share-based compensation and legal settlements and loss contingencies expenses, was $29.6 million in the second quarter of 2017, a margin of 19.9%. This compares to adjusted EBITDA of $39.8 million, a margin of 27.9% in the second quarter of the prior year.  This year-over-year margin comparison reflects the gross margin factors and the increased investment in marketing and sales, described above.

Finance expenses in the second quarter were $1.4 million, similar to the same period in the prior year.

The Company reported net income attributable to controlling interest for the second quarter of 2017 of $14.5 million compared to $25.4 million in the same quarter in the prior year. Diluted net income per share for the second quarter was $0.42 compared to $0.73 per diluted share in the prior year's second quarter. Adjusted net income per diluted share in the second quarter was $0.49 on 34.6 million shares compared to $0.73 in the prior year on 34.9 million shares.

The Company's balance sheet as of June 30, 2017 included cash, cash equivalents and short-term bank deposits of $129.4 million compared to $106.3 million at December 31, 2016.

Guidance

The Company today reiterated its full-year 2017 guidance for revenue of $580 million to $595 million.  The Company is also maintaining its guidance for adjusted EBITDA of $119 million to $126 million, noting that it currently expects it to be toward the low end of the range.

Conference Call Details

Raanan Zilberman, the Company's Chief Executive Officer, and Yair Averbuch, the Company's Chief Financial Officer, will host a conference call today, August 2, 2017, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2017, 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 Second Quarter Earnings Call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 13666349.  The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 2, 2017 and will last through 11:59 p.m. ET on Wednesday, August 9, 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 other claims; 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.

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
  
June 30, 2017
    
December 31, 2016
  
   
(Unaudited)
    
(Audited)
  
ASSETS
            
             
CURRENT ASSETS:
            
Cash and cash equivalents and short-term bank deposits
  
$
129,399
    
$
106,270
  
Trade receivables, net
    
73,833
      
63,072
  
Other accounts receivable and prepaid expenses
    
30,823
      
39,484
  
Inventories
    
119,389
      
101,474
  
                 
Total current assets
    
353,444
      
310,300
  
                 
LONG-TERM ASSETS:
                
Severance pay fund
    
3,743
      
3,403
  
Other receivables long-term
    
9,951
      
7,977
  
                 
Total long-term assets
    
13,694
      
11,380
  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    
219,854
      
222,818
  
                 
OTHER ASSETS
    
3,390
      
4,546
  
                 
GOODWILL
    
36,697
      
35,656
  
                 
Total assets
  
$
627,079
    
$
584,700
  
                 
LIABILITIES AND EQUITY
                
                 
CURRENT LIABILITIES:
                
                 
Short-term bank credit
  
$
9,920
    
$
8,540
  
Trade payables
    
64,963
      
48,633
  
Related party and other loan
    
3,493
      
3,099
  
Accrued expenses and other liabilities
    
35,938
      
33,065
  
                 
Total current liabilities
    
114,314
      
93,337
  
                 
LONG-TERM LIABILITIES:
                
                 
Long-term loan and financing leaseback from a related party
    
8,581
      
8,070
  
Legal settlements and loss contingencies long-term
    
13,106
      
12,527
  
Accrued severance pay
    
5,128
      
4,265
  
Long-term warranty provision
    
1,097
      
988
  
Deferred tax liabilities, net
    
3,116
      
14,921
  
                 
Total long-term liabilities
    
31,028
      
40,771
  
                 
REDEEMABLE NON-CONTROLLING INTEREST
    
14,460
      
12,939
  
                 
EQUITY:
                
Ordinary shares
    
371
      
371
  
Treasury shares - at cost
    
(39,430
)
    
(39,430
)
Additional paid-in capital
    
149,049
      
146,536
  
Accumulated other comprehensive income (loss)
    
825
      
(1,150
)
Retained earnings
    
356,462
      
331,326
  
                 
Total equity
    
467,277
      
437,653
  
                 
Total liabilities and equity
  
$
627,079
    
$
584,700
  
 
Caesarstone Ltd. and its subsidiaries       
Condensed consolidated statements of income    
 
   
Three months ended June 30,
    
Six months ended June 30,
  
U.S. dollars in thousands (except per share data)
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
                         
Revenues
  
$
148,914
    
$
142,348
    
$
285,325
    
$
259,262
  
Cost of revenues
    
96,993
      
82,374
      
184,163
      
156,670
  
                                 
Gross profit
    
51,921
      
59,974
      
101,162
      
102,592
  
                                 
Operating expenses:
                                
Research and development
    
866
      
825
      
1,814
      
1,649
  
Marketing and selling
    
19,615
      
16,834
      
40,774
      
33,808
  
General and administrative
    
10,706
      
10,029
      
22,032
      
19,881
  
Legal settlements and loss contingencies, net
    
1,420
      
1,000
      
2,091
      
1,733
  
                                 
Total operating expenses
    
32,607
      
28,688
      
66,711
      
57,071
  
                                 
Operating income
    
19,314
      
31,286
      
34,451
      
45,521
  
Finance expenses, net
    
1,391
      
1,442
      
2,915
      
1,198
  
                                 
Income before taxes on income
    
17,923
      
29,844
      
31,536
      
44,323
  
Taxes on income
    
3,051
      
3,560
      
5,399
      
5,930
  
                                 
Net income
  
$
14,872
    
$
26,284
    
$
26,137
    
$
38,393
  
                                 
Net income attributable to non-controlling interest
    
(324
)
    
(875
)
    
(493
)
    
(1,209
)
Net income attributable to controlling interest
  
$
14,548
    
$
25,409
    
$
25,644
    
$
37,184
  
Basic net income per ordinary share (*)
  
$
0.42
    
$
0.73
    
$
0.73
    
$
1.06
  
Diluted net income per ordinary share (*)
  
$
0.42
    
$
0.73
    
$
0.73
    
$
1.06
  
Weighted average number of ordinary shares used in computing basic income per ordinary share
    
34,337,060
      
34,811,600
      
34,329,403
      
35,012,141
  
Weighted average number of ordinary shares used in computing diluted income per ordinary share
    
34,412,160
      
34,901,415
      
34,390,118
      
35,120,375
  
 
(*) The numerator for the calculation of net income per share for the three and six months ended June 30, 2017 has been reduced by approximately $0.2 and $0.5 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 (Unaudited)
 
   
Six months ended June 30,
  
U.S. dollars in thousands
  
2017
    
2016
  
             
Cash flows from operating activities:
            
             
Net income
  
$
26,137
    
$
38,393
  
Adjustments required to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
    
14,941
      
13,969
  
Share-based compensation expense
    
2,521
      
1,547
  
Accrued severance pay, net
    
509
      
(77
)
Changes in deferred tax, net
    
(1,134
)
    
(6,927
)
Capital loss
    
-
      
8
  
Legal settlemnets and loss contingencies, net
    
2,091
      
1,733
  
Increase in trade receivables
    
(9,106
)
    
(12,404
)
Decrease (increase) in other accounts receivable and prepaid expenses
    
(4,229
)
    
943
  
Increase in inventories
    
(16,331
)
    
(6,052
)
Increase (decrese) in trade payables
    
14,982
      
(960
)
Increase (decrease) in warranty provision
    
102
      
(93
)
Increase in accrued expenses and other liabilities including related party
    
3,175
      
2,552
  
                 
Net cash provided by operating activities
    
33,658
      
32,632
  
                 
Cash flows from investing activities:
                
                 
Purchase of property, plant and equipment
    
(11,352
)
    
(10,812
)
Proceeds from sale of property, plant and equipment
    
-
      
21
  
Increase in long term deposits
    
(1
)
    
19
  
                 
Net cash used in investing activities (*)
    
(11,353
)
    
(10,772
)
                 
Cash flows from financing activities:
                
                 
Changes in short-term bank credit and loans, net
    
1,059
      
2,395
  
Repayment of a financing leaseback related to Bar-Lev transaction
    
(579
)
    
(548
)
Purchase of treasury shares at cost
    
-
      
(29,768
)
                 
Net cash provided by (used in) financing activities
    
480
      
(27,921
)
                 
Effect of exchange rate differences on cash and cash equivalents
    
344
      
(1,062
)
                 
Increase in cash and cash equivalents and short-term bank deposits
    
23,129
      
(7,123
)
Cash and cash equivalents and short-term bank deposits at beginning of the period
    
106,270
      
62,807
  
                 
Cash and cash equivalents and short-term bank deposits at end of the period
  
$
129,399
    
$
55,684
  
                 
Non - cash investing:
                
Changes in trade payables balances related to purchase of fixed assets
    
(743
)
    
(437
)
 
(*) 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 June 30,
    
Six months ended June 30,
  
U.S. dollars in thousands
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited)
  
Reconciliation of Net Income to Adjusted EBITDA:
                        
Net income
  
$
14,872
    
$
26,284
    
$
26,137
    
$
38,393
  
Finance expenses, net
    
1,391
      
1,442
      
2,915
      
1,198
  
Taxes on income
    
3,051
      
3,560
      
5,399
      
5,930
  
Depreciation and amortization
    
7,512
      
7,064
      
14,941
      
13,969
  
Legal settlements and loss contingencies, net (a)
    
1,420
      
1,000
      
2,091
      
1,733
  
Share-based compensation expense (b)
    
1,367
      
417
      
2,521
      
1,547
  
Provision for employees fringe benefits (c)
    
-
      
-
      
(114
)
    
-
  
Adjusted EBITDA (Non-GAAP)
  
$
29,613
    
$
39,767
    
$
53,890
    
$
62,770
  
 
(a)
Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims.
(b)
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.
(c)
Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israeli Tax Authority and with the National Insurance Intitute of Israel.
 
Caesarstone Ltd. and its subsidiaries
 
   
Three months ended June 30,
    
Six months ended June 30,
  
U.S. dollars in thousands (except per share data)
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited)
  
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
                        
Net income attributable to controlling interest
  
$
14,548
    
$
25,409
    
$
25,644
    
$
37,184
  
Legal settlements and loss contingencies, net (a)
    
1,420
      
1,000
      
2,091
      
1,733
  
Share-based compensation expense (b)
    
1,367
      
417
      
2,521
      
1,546
  
Provision for employees fringe benefits (c)
    
-
      
-
      
(114
)
    
-
  
Tax adjustment (d)
    
-
      
(1,158
)
    
-
      
(1,158
)
Total adjustments
    
2,787
      
259
      
4,498
      
2,121
  
Less tax on non-tax adjustments (e)
    
475
      
220
      
770
      
524
  
Total adjustments after tax
    
2,312
      
39
      
3,728
      
1,597
  
                                 
Adjusted net income attributable to controlling interest (Non-GAAP)
  
$
16,860
    
$
25,448
    
$
29,372
    
$
38,781
  
Adjusted diluted EPS (f)
  
$
0.49
    
$
0.73
    
$
0.85
    
$
1.10
  

(a)
Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims.
(b)
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.
(c)
Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israeli Tax Authority and with the National Insurance Intitute of Israel.
(d)
Tax adjustment as a result of tax settlement with the Israeli tax authorities.
(e)
Tax adjustments for the three and six months ended June 30, 2017 and 2016 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 June 30,
    
Six months ended June 30,
  
U.S. dollars in thousands
  
2017
    
2016
    
2017
    
2016
  
                         
USA
  
$
64,828
    
$
59,942
    
$
122,852
    
$
109,254
  
Australia (incl. New Zealand)
    
34,265
      
33,485
      
63,786
      
59,211
  
Canada
    
25,289
      
24,251
      
47,593
      
41,901
  
Israel
    
10,845
      
11,130
      
22,545
      
21,413
  
Europe
    
6,967
      
6,860
      
13,344
      
13,422
  
Rest of World
    
6,720
      
6,680
      
15,205
      
14,061
  
   
$
148,914
    
$
142,348
    
$
285,325
    
$
259,262