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Caesarstone Reports Second Quarter 2021 Financial Results

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, 2021.

“I am very pleased with our ability to deliver record sales during the second quarter driven by strong performance across our business, as well as the positive contributions from our recent accretive acquisitions of Omicron and Lioli” commented Yuval Dagim, Caesarstone’s Chief Executive Officer. “This achievement is attributable to the focused execution of our Global Growth Acceleration Plan as we continue to leverage our world-class brand and innovative go-to-market initiatives to enhance customer experience and engagement. To that point, our new CS Connect platform represents a technological leap for our business, transforming the way we communicate with our customers and consumers, and we are highly encouraged by the initial feedback we have received. Looking to the second half of 2021, we have a strong balance sheet in place with ample capital to build on our success as we further execute our growth strategy to transform Caesarstone into a leading premium, multi-material countertop company.”

(*) Cash position is defined as cash and cash equivalents and short-term bank deposits and long and short-term investment in marketable securities less debt from financial institutions.

Second Quarter 2021 Results

Revenue in the second quarter of 2021 grew 65.1% to a record of $163.5 million compared to $99.0 million in the prior year quarter. On a constant currency basis, second quarter revenue was higher by 55.5% year-over-year. Sales growth was primarily driven by improved demand across the majority of our global footprint, as economies around the world continue to recover from the pandemic, in addition to the contribution of our recent acquisitions.

Gross margin in the second quarter improved to 28.0% compared to 20.4% in the prior year quarter. Adjusted gross margin in the second quarter was 28.1% compared to 20.5% in the prior year quarter. The year-over-year improvement in gross margin mainly reflects better regional and product mix, more favorable currency exchange rates, enhanced productivity in our factories, and growing demand since the beginning of the pandemic which were partly offset by lower sales prices and higher raw material and shipping inflation.

Operating expenses in the second quarter were $40.6 million, or 24.8% of revenue, compared to $23.1 million, or 23.3% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies, operating expenses were 22.3% of revenue, compared to 21.6% in the prior year quarter, mainly due to higher marketing and selling expenses related to initiatives under the Company’s Global Growth Acceleration Plan.

Operating income grew to $5.2 million compared to operating loss of $2.9 million in the prior year quarter. The year-over-year growth mainly reflects higher gross profit.

Adjusted EBITDA, which excludes expenses for non-cash share-based compensation, legal settlements and loss contingencies and for non-recurring items, more than doubled year-over-year to $18.8 million in the second quarter, representing a margin of 11.5%. This compares to adjusted EBITDA of $6.5 million, representing a margin of 6.6%, in the prior year quarter. The year-over-year margin improvement primarily reflects the higher gross margin.

Finance expense in the second quarter was $3.1 million compared to finance expense of $2.5 million in the prior year quarter. The difference was primarily a result of higher credit cards fees due to higher volume as well as interest related to bank loan.

Net Income attributable to controlling interest for the second quarter was $1.7 million compared to net loss of $5.9 million in the prior year quarter. Net income per share for the second quarter was $0.05 compared to net loss per share of $0.17 in the prior year quarter. Adjusted diluted net income per share for the second quarter was $0.21 on 34.6 million shares, compared to adjusted diluted net loss per share of $0.10 in the prior year quarter on 34.5 million shares.

Balance Sheet & Liquidity

As of June 30, 2021, the Company’s balance sheet remained strong, including cash, cash equivalents and short-term bank deposits and short and long-term marketable securities of $121.1 million and total debt to financial institutions of $13.3 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. Pursuant to the Company’s dividend policy, the Company does not intend to pay a dividend for the second quarter of 2021, based on its reported net income attributable to controlling interest for the period.

Outlook

The Company reiterates its expectation for 2021 revenue and Adjusted EBITDA to be higher year-over-year. The Company anticipates revenue to grow faster than EBITDA in 2021 mainly due to higher raw material and shipping costs, coupled with a return to more normalized levels of sales and marketing expenses and other investments to support growth initiatives. The Company’s outlook includes the investment costs associated with its Global Growth Acceleration Plan. The Company’s outlook also assumes that pandemic related business restrictions will continue to fade as the year progresses.

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 1-877-407-4018 (domestic) 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 (domestic) or +1-412-317-6671 (international) and enter pass code 13721368. The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 4, 2021 and will last through 11:59 p.m. ET on Wednesday, August 11, 2021.

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" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements 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, expectations of the results of the Company’s business optimization initiative , integration of the company’s acquisitions and its projected outlook and results of operations. 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, economic conditions in our key markets, raw material shortages and prices, , fluctuations in home renovation and construction sectors; the company’s ability to compete with lower-priced products and other intense competitive pressures; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with exposure to silica dust; ability to efficiently manufacture products and managing required changes in production and supply chain in light of our recent acquisitions; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; unpredictability of seasonal fluctuations in revenues 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, 2021

December 31, 2020

(Unaudited)

(Audited)

ASSETS
 
CURRENT ASSETS:
 
Cash and cash equivalents and short-term bank deposits

$

101,288

$

114,248

Short-term available for sale marketable securities

13,246

8,112

Trade receivables, net

86,970

84,822

Other accounts receivable and prepaid expenses

39,609

26,481

Inventories

167,495

152,073

 
Total current assets

408,608

385,736

 
LONG-TERM ASSETS:
 
Severance pay fund

3,932

4,007

Long-term deposits

3,763

3,837

Deferred tax assets, net

9,034

8,359

Other long-term receivables

404

1,675

Operating lease right-of-use assets

119,829

123,928

Long-term available for sale marketable securities

6,596

10,926

Property, plant and equipment, net

218,562

222,883

Goodwill and intangible assets, net

57,743

59,570

 
Total long-term assets

419,863

435,185

 
Total assets

$

828,471

$

820,921

 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit

$

13,314

$

13,122

Trade payables

73,844

55,063

Related parties and other loans

2,229

2,221

Short term legal settlements and loss contingencies

23,361

31,039

Accrued expenses and other liabilities

58,670

55,570

 
Total current liabilities

171,418

157,015

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

6,597

20,706

Legal settlements and loss contingencies long-term

25,770

21,910

Deferred tax liabilities, net

6,025

6,943

Long-term lease liabilities

107,978

112,719

Accrued severance pay

5,296

5,303

Long-term warranty provision

1,283

1,274

 
Total long-term liabilities

152,949

168,855

 
REDEEMABLE NON-CONTROLLING INTEREST

7,111

7,701

 
EQUITY:
 
Ordinary shares

371

371

Treasury shares - at cost

(39,430)

(39,430)

Additional paid-in capital

161,079

160,083

Capital fund related to non-controlling interest

(5,587)

(5,587)

Accumulated other comprehensive loss

1,306

1,083

Retained earnings

379,254

370,830

 
Total equity

496,993

487,350

 
Total liabilities and equity

$

828,471

$

820,921

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)

2021

2020

2021

2020

(Unaudited)

(Unaudited)

 
Revenues

$

163,462

$

99,037

$

309,494

$

225,594

Cost of revenues

117,678

78,865

220,408

169,021

 
Gross profit

45,784

20,172

89,086

56,573

 
Operating expenses:
Research and development

1,114

763

2,219

1,543

Marketing and selling

23,594

11,435

41,870

30,064

General and administrative

11,794

9,241

24,937

21,108

Legal settlements and loss contingencies, net

4,109

1,637

4,849

4,475

 
Total operating expenses

40,611

23,076

73,875

57,190

 
Operating income (loss)

5,173

(2,904)

15,211

(617)

Finance expenses (income), net

3,095

2,507

(2,238)

1,638

 
Income (loss) before taxes

2,078

(5,411)

17,449

(2,255)

Taxes on income

598

471

2,127

949

 
Net income (loss)

$

1,480

$

(5,882)

$

15,322

$

(3,204)

 
Net loss attributable to non-controlling interest

225

-

573

-

 
Net income (loss) attributable to controlling interest

$

1,705

$

(5,882)

$

15,895

$

(3,204)

Basic net income (loss) per ordinary share (*)

$

0.05

$

(0.17)

$

0.45

$

(0.09)

Diluted net income (loss) per ordinary share (*)

$

0.05

$

(0.17)

$

0.45

$

(0.09)

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

34,451,071

34,412,369

34,449,483

34,406,107

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

34,539,958

34,412,369

34,525,127

34,406,107

 
(*) The numerator for the calculation of net income per share for the three and six months ended June 30, 2021 has been decreased by approximately $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

2021

2020

(Unaudited)

Cash flows from operating activities:
 
Net income (loss)

$

15,322

$

(3,204)

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

17,689

14,102

Share-based compensation expense

996

1,707

Accrued severance pay, net

72

7

Changes in deferred tax, net

(1,856)

(640)

Capital (gain) loss

(4)

22

Legal settlemnets and loss contingencies, net

4,849

4,475

Decrease (increase) in trade receivables

(2,307)

9,942

Decrease (increase) in other accounts receivable and prepaid expenses

(8,985)

3,172

Increase in inventories

(15,383)

(12,621)

Increase (decrease) in trade payables

19,049

(16,117)

Increase (decrease) in warranty provision

16

(98)

Changes in right of use assets

3,987

(1,347)

Changes in lease liabilities

(4,277)

1,554

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

204

6

Changes in Accrued interest related to Marketable Securities

27

(8)

Increase (decrease) in accrued expenses and other liabilities including related parties

(6,311)

4,173

 
Net cash provided by operating activities

23,088

5,125

 
 
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

(12,472)

(12,459)

Proceeds from sale of property, plant and equipment

5

6

Investment in marketable securities, net

(1,042)

(13,002)

Decrease (increase) in long term deposits

40

(711)

 
Net cash used in investing activities

(17,215)

(26,166)

 
 
Cash flows from financing activities:
 
Dividend paid

(7,234)

-

Changes in short-term bank credits and long-term loans

(10,983)

(459)

Repayment of a financing leaseback related to Bar-Lev transaction

(650)

(610)

 
Net cash used in financing activities

(18,867)

(1,069)

 
 
Effect of exchange rate differences on cash and cash equivalents

34

(198)

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

(12,960)

(22,308)

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

114,248

139,372

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

$

101,288

$

117,064

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

(316)

(954)

Caesarstone Ltd. and its subsidiaries

 

Three months ended June 30,

Six months ended June 30,

U.S. dollars in thousands

2021

2020

2021

2020

(Unaudited)

(Unaudited)

Reconciliation of Gross profit to Adjusted Gross profit:
Gross profit

$

45,784

$

20,172

$

89,086

$

56,573

Share-based compensation expense (a)

37

122

142

253

Amortization of assets related to acquisitions

160

-

694

-

Adjusted Gross profit (Non-GAAP)

$

45,981

$

20,294

$

89,922

$

56,826

 

(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

2021

2020

2021

2020

(Unaudited)

(Unaudited)

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

$

1,480

$

(5,882)

$

15,322

$

(3,204)

Finance expenses (income), net

3,095

2,507

(2,238)

1,638

Taxes on income

598

471

2,127

949

Depreciation and amortization related to acquisitions

8,781

6,987

17,689

14,102

Legal settlements and loss contingencies, net (a)

4,109

1,637

4,849

4,475

Contingent consideration adjustment related to acquisition

284

-

284

-

Share-based compensation expense (b)

429

801

996

1,707

 
Adjusted EBITDA (Non-GAAP)

$

18,776

$

6,521

$

39,029

$

19,667

 
 

(a)

Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other adjustments to on-going legal claims, including related legal fees.

(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)

2021

2020

2021

2020

(Unaudited)

(Unaudited)

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

$

1,705

$

(5,882)

$

15,895

$

(3,204)

Legal settlements and loss contingencies, net (a)

4,109

1,637

4,849

4,475

Contingent consideration adjustment related to acquisition

284

-

284

-

Amortization of assets related to acquisitions, net of tax

561

-

1,387

-

Share-based compensation expense (b)

429

801

996

1,707

Non cash revaluation of lease liabilities (c)

889

1,256

(973)

(215)

Total adjustments

6,272

3,694

6,543

5,967

Less tax on non-tax adjustments (d)

770

1,310

797

2,116

Total adjustments after tax

5,502

2,384

5,746

3,851

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

$

7,207

$

(3,498)

$

21,641

$

647

Adjusted diluted EPS (e)

$

0.21

$

(0.10)

$

0.63

$

0.02

 
 

(a)

Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other adjustments to on-going legal claims, including related legal fees.

(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, 2021 and 2020, based on the effective tax rates.

(e)

In calculating adjusted diluted (Non-GAAP) EPS for the three and six months ended June 30, 2021 and 2020, 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,

U.S. dollars in thousands

2021

2020

2021

2020

(Unaudited)

(Unaudited)

 
USA

$

77,844

$

41,726

$

148,675

$

101,781

Canada

21,946

14,435

39,725

32,993

Latin America

741

132

1,599

638

America's

100,531

56,293

189,999

135,412

 
Australia

31,597

23,534

58,769

45,888

Asia

7,370

1,732

15,147

4,563

APAC

38,967

25,266

73,916

50,451

 
EMEA

15,852

8,031

28,570

19,371

 
Israel

8,112

9,447

17,009

20,360

 
Total Revenues

$

163,462

$

99,037

$

309,494

$

225,594

Caesarstone Ltd. and its subsidiaries

Geographic breakdown of revenues by region - Supplemental data

 

Three months ended

U.S. dollars in thousands

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

(Unaudited)

 
USA

$

77,844

$

70,831

$

53,618

$

52,097

$

41,726

$

60,055

$

64,659

$

64,805

$

64,590

Canada

21,946

17,779

20,325

19,174

14,435

18,558

20,575

21,881

23,341

Latin America

741

858

1,387

124

132

506

735

1,434

1,351

America's

100,531

89,468

75,330

71,395

56,293

79,119

85,969

88,120

89,282

 
Australia

31,597

27,172

29,953

27,746

23,534

22,354

26,000

28,642

28,294

Asia

7,370

7,777

7,122

2,881

1,732

2,831

3,932

3,675

3,311

APAC

38,967

34,949

37,075

30,627

25,266

25,185

29,932

32,317

31,605

 
EMEA

15,852

12,718

14,408

11,422

8,031

11,340

9,464

11,719

11,418

 
Israel

8,112

8,897

10,083

10,478

9,447

10,913

8,502

10,683

8,766

 
Total Revenues

$

163,462

$

146,032

$

136,896

$

123,922

$

99,037

$

126,557

$

133,867

$

142,839

$

141,071

 
 

Year-over-year % change

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

(Unaudited)

 
USA

86.6%

17.9%

-17.1%

-19.6%

-35.4%

Canada

52.0%

-4.2%

-1.2%

-12.4%

-38.2%

Latin America

461.4%

69.6%

88.8%

-91.4%

-90.2%

America's

78.6%

13.1%

-12.4%

-19.0%

-36.9%

 
Australia

34.3%

21.6%

15.2%

-3.1%

-16.8%

Asia

325.5%

174.7%

81.1%

-21.6%

-47.7%

APAC

54.2%

38.8%

23.9%

-5.2%

-20.1%

 
EMEA

97.4%

12.2%

52.2%

-2.5%

-29.7%

 
Israel

-14.1%

-18.5%

18.6%

-1.9%

7.8%

 
Total Revenues

65.1%

15.4%

2.3%

-13.2%

-29.8%

 
 

Year-over-year % change in constant currency (*)

6/30/2021

3/31/2021

12/31/2020

9/30/2020

6/30/2020

(Unaudited)

 
USA

86.6%

17.9%

-17.1%

-19.6%

-35.4%

Canada

35.1%

-9.6%

-2.4%

-11.7%

-36.0%

Latin America

460.5%

69.8%

88.7%

-91.3%

-90.2%

America's

74.2%

11.8%

-12.7%

-18.8%

-36.4%

 
Australia

14.6%

2.8%

7.9%

-7.1%

-11.5%

Asia

312.8%

169.5%

80.7%

-21.2%

-45.9%

APAC

35.1%

21.5%

17.5%

-8.7%

-15.1%

 
EMEA

77.6%

3.3%

45.8%

-5.9%

-26.9%

 
Israel

-20.5%

-24.6%

9.4%

-4.5%

4.5%

 
Total Revenues

55.5%

9.8%

-0.4%

-14.4%

-28.3%

 
 
(*) Change in revenues at constant currency is calculated so that revenues can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of business performance. Change in revenues adjusted for currency are calculated by translating current period activity in local currency using the comparable prior-year period’s currency conversion rate. Exchange rates used, are the representative exchange rate published by the Bank of Israel for the relevant periods.

Contacts:

Investor Relations:
ICR, Inc. - Rodny Nacier
CSTE@icrinc.com
+1 646 277-1237

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