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.
| Caesarstone Ltd. and its subsidiaries | |||||||||||
| Condensed consolidated balance sheets | |||||||||||
| As of | |||||||||||
|
U.S. dollars in thousands |
June 30, |
December 31, |
|||||||||
| (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 |
Six months ended |
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| 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 |
34,337,060 | 34,811,600 | 34,329,403 | 35,012,141 | |||||||||||||||
|
Weighted average number of ordinary shares used in |
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 settlements 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 (decrease) 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 |
Six months ended |
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| 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 Institute of Israel. |
|
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| Caesarstone Ltd. and its subsidiaries | ||||||||||||||||||
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Three months ended |
Six months ended |
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| U.S. dollars in thousands (except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| (Unaudited) | ||||||||||||||||||
|
Reconciliation of net income attributable to controlling |
||||||||||||||||||
| 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 Institute 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. |
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| Caesarstone Ltd. and its subsidiaries | |||||||||||||||
| Geographic breakdown of revenues by region (Unaudited) | |||||||||||||||
|
Three months ended |
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| 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 | ||||||||
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