EX-99.1 2 exhibit_99-1.htm EXHIBIT 99.1

Exhibit 99.1
 
Caesarstone Reports Third Quarter Results

·
Record Quarterly Revenue of $154.7 million, up 7.2%; Grows 4.6% on a Constant Currency basis
·
Quarterly diluted EPS of $0.19; Adjusted Diluted EPS of $0.37
·
Updates guidance for Revenue to $580-$590 million and Adjusted EBITDA to $100-$105 million

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, 2017.

Revenue in the third quarter of 2017 increased by 7.2% to a record level of $154.7 million as compared to $144.3 million in the same quarter of the prior year. On a constant currency basis, third quarter revenue growth was 4.6%. Growth in revenue was driven primarily by continued strong performances in the United States and Canada, which grew 6.0% and 14.2%, respectively, as well as from Europe, which grew 28.2%.

Raanan Zilberman, Chief Executive Officer, commented, “We are somewhat pleased with our top line results for the third quarter. However, challenges in manufacturing have yielded margins below our expectations.  We believe we have already identified the main challenges and that they are addressable. We have commenced implementing countermeasures and we expect margin improvement over time. While focusing short term on increasing the throughput of our production, we will continue and leverage on our key strong assets: our differentiated and creative product, the brand that is the top of mind in the industry and our strong channels to the market.”

Gross margin in the third quarter was 32.1% compared to 40.5% in the same period in the prior year. The decrease in margin was primarily attributable to a higher portion of total production coming from Richmond-Hill plant, which continues to require higher costs, lower throughput in Israel, increased polyester prices and the impact of Hurricane "Irma" and "Harvey" on sales and production in the United States.

Operating expenses in the third quarter were $38.7 million, or 25.0% of revenues, as compared to $30.3 million, or 21.0% of revenues, in the same quarter last year. The Company noted that legal settlements and loss contingency expenses were $5.7 million in third quarter of 2017 compared with $1.0 million in the same quarter last year. This quarter’s expenses include a one-time reserve adjustment of $4.3 million related to recent developments in outstanding product liability claims.
 
Excluding these costs, operating expenses were $33.0 million, or 21.3% of revenues, as compared to $29.3 million, or 20.3% of revenues, in the same quarter last year. Such increase in expenses was primarily due to planned investments in marketing and sales capabilities to support growth in the United States and the newly established direct distribution in the United Kingdom.

Operating income in the third quarter was $11.0 million, a margin of 7.1%, compared to $28.2 million, an operating margin of 19.5%, in the third quarter of 2016.

Adjusted EBITDA, which excludes share-based compensation expenses, legal settlements and loss contingencies expenses and non-recurring items, was $25.6 million in the third quarter of 2017, a margin of 16.5%. This compares to adjusted EBITDA of $37.5 million in the prior year’s third quarter, a margin of 26.0%.  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 third quarter were $1.6 million compared to $1.1 million during the same period in the prior year. The increase was mainly related to exchange rate fluctuations.

The Company reported net income attributable to controlling interest for the third quarter of 2017 of $6.9 million compared to $22.3 million in the same quarter in the prior year. Diluted net income per share for the third quarter was $0.19 compared to $0.65 per diluted share in the prior year's third quarter. Adjusted diluted net income per share for the third quarter was $0.37 compared to last year’s third quarter level of $0.70, both on 34.5 million shares.

The Company's balance sheet as of September 30, 2017 remained strong with cash, cash equivalents and short-term bank deposits of $136.5 million, sequential net cash growth of $10.0 million compared to June 30, 2017.
 

 
Guidance

The Company today narrowed its full-year 2017 guidance for revenue to a range of $580 to $590 million and reduced its guidance for adjusted EBITDA to a range of $100 to $105 million.

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 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 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 13672095.  The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 1, 2017 and will last through 11:59 p.m. ET on Wednesday, November 8, 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 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
  
September 30, 2017
    
December 31, 2016
  
   
(Unaudited)
    
(Audited)
  
ASSETS
            
             
CURRENT ASSETS:
            
Cash and cash equivalents and short-term bank deposits
  
$
136,470
    
$
106,270
  
Trade receivables, net
    
74,792
      
63,072
  
Other accounts receivable and prepaid expenses
    
29,178
      
39,484
  
Inventories
    
121,797
      
101,474
  
                 
Total current assets
    
362,237
      
310,300
  
                 
LONG-TERM ASSETS:
                
Severance pay fund
    
3,748
      
3,403
  
Other receivables long-term
    
14,189
      
7,977
  
                 
Total long-term assets
    
17,937
      
11,380
  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    
217,853
      
222,818
  
                 
OTHER ASSETS
    
2,815
      
4,546
  
                 
GOODWILL
    
37,065
      
35,656
  
                 
Total assets
  
$
637,907
    
$
584,700
  
                 
LIABILITIES AND EQUITY
                
                 
CURRENT LIABILITIES:
                
                 
Short-term bank credit
  
$
6,998
    
$
8,540
  
Trade payables
    
58,804
      
48,633
  
Related party and other loan
    
3,430
      
3,099
  
Accrued expenses and other liabilities
    
40,058
      
33,065
  
                 
Total current liabilities
    
109,290
      
93,337
  
                 
LONG-TERM LIABILITIES:
                
                 
Long-term loan and financing leaseback from a related party
    
8,345
      
8,070
  
Legal settlements and loss contingencies long-term
    
20,589
      
12,527
  
Accrued severance pay
    
5,228
      
4,265
  
Long-term warranty provision
    
1,131
      
988
  
Deferred tax liabilities, net
    
1,713
      
14,921
  
                 
Total long-term liabilities
    
37,006
      
40,771
  
                 
REDEEMABLE NON-CONTROLLING INTEREST
    
16,051
      
12,939
  
                 
EQUITY:
                
Ordinary shares
    
371
      
371
  
Treasury shares - at cost
    
(39,430
)
    
(39,430
)
Additional paid-in capital
    
150,453
      
146,536
  
Accumulated other comprehensive income (loss)
    
1,255
      
(1,150
)
Retained earnings
    
362,911
      
331,326
  
                 
Total equity
    
475,560
      
437,653
  
                 
Total liabilities and equity
  
$
637,907
    
$
584,700
  
 
 
 
 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)
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited) 
  
                         
Revenues
  
$
154,682
    
$
144,306
    
$
440,007
    
$
403,568
  
Cost of revenues
    
104,964
      
85,845
      
289,127
      
242,514
  
                                 
Gross profit
    
49,718
      
58,461
      
150,880
      
161,054
  
                                 
Operating expenses:
                                
Research and development
    
1,099
      
929
      
2,913
      
2,578
  
Marketing and selling
    
20,600
      
17,967
      
61,374
      
51,775
  
General and administrative
    
11,288
      
10,370
      
33,320
      
30,251
  
Legal settlements and loss contingencies, net
    
5,727
      
1,020
      
7,818
      
2,753
  
                                 
Total operating expenses
    
38,714
      
30,286
      
105,425
      
87,357
  
                                 
Operating income
    
11,004
      
28,175
      
45,455
      
73,697
  
Finance expenses, net
    
1,594
      
1,120
      
4,509
      
2,318
  
                                 
Income before taxes on income
    
9,410
      
27,055
      
40,946
      
71,379
  
Taxes on income
    
1,968
      
4,282
      
7,367
      
10,213
  
                                 
Net income
  
$
7,442
    
$
22,773
    
$
33,579
    
$
61,166
  
                                 
Net income attributable to non-controlling interest
    
(499
)
    
(430
)
    
(992
)
    
(1,639
)
Net income attributable to controlling interest
  
$
6,943
    
$
22,343
    
$
32,587
    
$
59,527
  
Basic net income per ordinary share (*)
  
$
0.19
    
$
0.65
    
$
0.92
    
$
1.71
  
Diluted net income per ordinary share (*)
  
$
0.19
    
$
0.65
    
$
0.92
    
$
1.70
  
Weighted average number of ordinary shares used in computing basic income per ordinary share
    
34,338,953
      
34,412,294
      
34,332,715
      
34,867,064
  
Weighted average number of ordinary shares used in computing diluted income per ordinary share
    
34,397,880
      
34,450,561
      
34,398,587
      
34,927,479
  
 
(*) The numerator for the calculation of net income per share for the three and nine months ended September 30, 2017 has been reduced by approximately $0.5 and $1.0 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
 
   
Nine months ended September 30,
  
U.S. dollars in thousands
  
2017
    
2016
  
   
(Unaudited) 
  
Cash flows from operating activities:
            
             
Net income
  
$
33,579
    
$
61,166
  
Adjustments required to reconcile net income to net cash provided by operating activities:
          
Depreciation and amortization
    
22,417
      
21,043
  
Share-based compensation expense
    
3,889
      
2,533
  
Accrued severance pay, net
    
600
      
(74
)
Changes in deferred tax, net
    
(3,535
)
    
(5,975
)
Capital loss (income)
    
(7
)
    
27
  
Legal settlemnets and loss contingencies, net
    
7,818
      
2,753
  
Compensation paid by a shareholder
    
-
      
266
  
Increase in trade receivables
    
(8,938
)
    
(13,595
)
Increase in other accounts receivable and prepaid expenses
    
(3,433
)
    
(1,027
)
Increase in inventories
    
(16,483
)
    
(3,715
)
Increase (decrese) in trade payables
    
6,594
      
(413
)
Increase in warranty provision
    
197
      
30
  
Increase in accrued expenses and other liabilities including related party
    
6,085
      
2,613
  
                 
Net cash provided by operating activities
    
48,783
      
65,632
  
                 
Cash flows from investing activities:
                
                 
Purchase of property, plant and equipment
    
(15,775
)
    
(16,961
)
Proceeds from sale of property, plant and equipment
    
10
      
21
  
Decrease (increase) in long term deposits
    
(99
)
    
27
  
                 
Net cash used in investing activities (*)
    
(15,864
)
    
(16,913
)
                 
Cash flows from financing activities:
                
                 
Dividend paid by subsidiary to non-controlling interest
    
-
      
(243
)
Changes in short-term bank credit and loans, net
    
(2,325
)
    
5,121
  
Repayment of a financing leaseback related to Bar-Lev transaction
    
(873
)
    
(826
)
Purchase of treasury shares at cost
    
-
      
(39,430
)
                 
Net cash provided by (used in) financing activities
    
(3,198
)
    
(35,378
)
                 
Effect of exchange rate differences on cash and cash equivalents
    
479
      
(1,606
)
                 
Increase in cash and cash equivalents and short-term bank deposits
    
30,200
      
11,735
  
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
  
$
136,470
    
$
74,542
  
                 
Non - cash investing:
                
Changes in trade payables balances related to purchase of fixed assets
    
(395
)
    
(1,126
)
 
(*) 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
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited)
  
Reconciliation of Net Income to Adjusted EBITDA:
                        
Net income
  
$
7,442
    
$
22,773
    
$
33,579
    
$
61,166
  
Finance expenses, net
    
1,594
      
1,120
      
4,509
      
2,318
  
Taxes on income
    
1,968
      
4,282
      
7,367
      
10,213
  
Depreciation and amortization
    
7,476
      
7,074
      
22,417
      
21,043
  
Legal settlements and loss contingencies, net (a)
    
5,727
      
1,020
      
7,818
      
2,753
  
Compensation paid by a shareholder (b)
    
-
      
266
      
-
      
266
  
Share-based compensation expense (c)
    
1,368
      
986
      
3,889
      
2,533
  
Provision for employees fringe benefits (d)
    
-
      
-
      
(114
)
    
-
  
Adjusted EBITDA (Non-GAAP)
  
$
25,575
    
$
37,521
    
$
79,465
    
$
100,292
  
 
(a)
Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims. Commencing in Q3, 2017, loss contingencies were adjusted to reflect also future subrogation claims from the National Insurance Intitute of Israel.
           
(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 and directors of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.
       
(d)
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 September 30,
    
Nine months ended September 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
  
$
6,943
    
$
22,343
    
$
32,587
    
$
59,527
  
Legal settlements and loss contingencies, net (a)
    
5,727
      
1,020
      
7,818
      
2,753
  
Compensation paid by a shareholder (b)
    
-
      
266
      
-
      
266
  
Share-based compensation expense (c)
    
1,368
      
986
      
3,889
      
2,533
  
Provision for employees fringe benefits (d)
    
-
      
-
      
(114
)
    
-
  
Tax adjustment (e)
    
-
      
-
      
-
      
(1,158
)
Total adjustments
    
7,095
      
2,272
      
11,593
      
4,394
  
Less tax on non-tax adjustments (f)
    
1,316
      
360
      
2,086
      
884
  
Total adjustments after tax
    
5,779
      
1,912
      
9,507
      
3,509
  
                                 
Adjusted net income attributable to controlling interest (Non-GAAP)
  
$
12,722
    
$
24,255
    
$
42,094
    
$
63,036
  
Adjusted diluted EPS (g)
  
$
0.37
    
$
0.70
    
$
1.22
    
$
1.80
  
 
(a)
Consists of legal settlements expenses and loss contingencies, net, related to silicosis claims. Commencing in Q3, 2017, loss contingencies were adjusted to reflect also future subrogation claims from the National Insurance Intitute of Israel.
         
(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 and directors of the Company. In addition, includes expenses for phantom awards granted and the related payroll expenses as a result of exercises.
       
(d)
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.
                   
(e)
Tax adjustment as a result of tax settlement with the Israeli tax authorities.
 
(f)
Tax adjustments for the three and nine months ended September 30, 2017 and 2016 were based on the effective tax rates for these periods, respectively. 
                   
(g)
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
 
   
Three months ended September 30,
    
Nine months ended September 30,
  
U.S. dollars in thousands
  
2017
    
2016
    
2017
    
2016
  
   
(Unaudited)
  
                         
USA
  
$
61,877
    
$
58,379
    
$
184,729
    
$
167,634
  
Australia (incl. New Zealand)
    
37,109
      
35,637
      
100,896
      
94,848
  
Canada
    
25,566
      
22,379
      
73,160
      
64,280
  
Israel
    
12,012
      
11,316
      
34,556
      
32,729
  
Europe
    
8,955
      
6,985
      
22,298
      
20,407
  
Rest of World
    
9,163
      
9,610
      
24,368
      
23,670
  
   
$
154,682
    
$
144,306
    
$
440,007
    
$
403,568