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Caesarstone Reports Second Quarter 2020 Financial Results

·13-min read

- Revenue of $99.0 Million, With Encouraging Demand Improvement in All Regions During June -

- Net Loss of $5.9 Million, or ($0.17) Per Share -

- Adjusted Net Loss of $3.5 Million, or ($0.10) Per Share -

- Adjusted EBITDA of $6.5 Million -

- Strong Liquidity Position With $130.1 Million in Cash and Marketable Securities -

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, 2020.

Yuval Dagim, Chief Executive Officer, commented, "Our proactive actions taken in March allowed us to effectively right size our resources and mitigate the impact of the unprecedented environment brought on by the COVID-19 pandemic. At the same time, we continue to focus on factors that are in our control, such as executing our Global Growth Acceleration Plan and making strategic investments to strengthen our position as a leading premium countertop Company. With our strong cash position, we will continue to execute this strategy to improve our business over the long-term, most particularly in areas of product innovation, production processes, technology, and go-to-market capabilities. Looking ahead, we are fortunate to have a talented workforce, leading products and solid financial resources to deliver on our focused approach to value creation in the quarters and years ahead."

Ophir Yakovian, Chief Financial Officer, added, "Second quarter sales in all of our four global regions were better than initially expected at the onset of the pandemic. We experienced the majority of adverse impacts in our Americas region during April and May. Since that time, we have been encouraged to see sequential improvement in June as more customers opened for business and demand began to return. As we look to the balance of 2020, we recognize that there is potential for additional limitations through national and local government orders aimed to safeguard the public from the pandemic. That said, we will continue to focus on managing cash, controlling costs and adjusting our production as needed to appropriately manage our inventory in this volatile environment. We remain committed to our strategy and continue allocating resources to enhance our position as a global, premium countertop expert with a leading and valued customer-focused brand."

Second Quarter 2020 Results

Revenue in the second quarter of 2020 was $99.0 million compared to $141.1 million in the prior year quarter. On a constant currency basis, second quarter revenue was lower by 28.3% year-over-year, driven by extended shelter-in-place guidelines, particularly during the first two months of the quarter with the biggest impact in the Americas region.

Gross margin in the second quarter was 20.4% compared to 28.2% in the prior year quarter. Adjusted gross margin in the second quarter was 20.5% compared to 27.3% in the prior year quarter. The lower adjusted gross margin primarily reflects lower sales volume and less favorable regional and product mix as well as currency exchange headwinds, partially offset by lower raw material prices.

Operating loss in the second quarter was $2.9 million compared to operating income of $10.6 million in the prior year quarter. The year-over-year difference mainly reflects lower gross margin.

Adjusted EBITDA, which excludes expenses for share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $6.5 million in the second quarter, representing a margin of 6.6%. This compares to adjusted EBITDA of $19.2 million, representing a margin of 13.6%, in the prior year quarter.

Finance expense in the second quarter was $2.5 million compared to $1.8 million in the prior year quarter. The difference was primarily a result of the unfavorable impact of foreign currency exchange rates.

Net loss for the second quarter was $5.9 million compared to net income of $6.4 million in the prior year quarter. Loss per share for the second quarter was ($0.17) compared to diluted net income per share of $0.19 in the prior year quarter. Adjusted diluted net loss per share for the second quarter was ($0.10) on 34.5 million shares, compared to adjusted diluted net income per share of $0.23 on a similar share count in the prior year quarter.

Balance Sheet & Liquidity

The Company believes it has a strong financial position and the flexibility required to support its global operations during this volatile period. The Company's balance sheet as of June 30, 2020 remained strong, including cash, cash equivalents and short-term bank deposits and short and long term marketable securities of $130.1 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 2020, based on its reported net loss for the period.

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. Due to potential extended wait times to access the conference call via dial-in, the Company encourages use of the webcast. 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 13706779. The replay will be available beginning at 11:00 a.m. ET on Wednesday, August 5, 2020 and will last through 11:59 p.m. ET on Wednesday, August 12, 2020.

About Caesarstone

Caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered surfaces 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 countertops, vanities, wall cladding, floors, and other interior surfaces. Marked by their inherent longevity characteristics such as non-porousness, scratch and stain resistance, and durability, the company’s product umbrella offers a highly desirable alternative to other surfaces. Strong commitment to service has fostered growing customer loyalty in over 50 countries where the five distinct Caesarstone product collections are available: Classico, Supernatural, Metropolitan, Concetto 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 and its projected 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, the global economy and the Company’s business and results of operations; the ability of the company to realign aspects of its business based on the business optimization initiative, the strength of the home renovation and construction sectors; intense competitive pressures; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with exposure to silica dust; manufacturing of existing products and managing required changes in production and supply chain; economic conditions within any of our key existing markets changes in raw material prices; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; unpredictability of seasonal fluctuations in revenues; disturbances to the Company’s operations or the operations of its suppliers, distributors, customers or other third parties 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, 2020

December 31, 2019

(Unaudited)

(Audited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents and short-term bank deposits

$

117,064

$

139,372

Short-term available for sale marketable securities

2,025

-

Trade receivables, net

67,007

78,282

Other accounts receivable and prepaid expenses

27,987

34,066

Inventories

133,611

122,686

Total current assets

347,694

374,406

LONG-TERM ASSETS:

Severance pay fund

3,510

3,475

Other long-term receivables

3,577

3,176

Deferred tax assets, net

8,513

7,881

Long-term deposits and prepaid expenses

4,260

2,887

Operating lease right-of-use assets

73,544

72,047

Long-term available for sale marketable securities

10,978

-

Property, plant and equipment, net

201,980

204,776

Goodwill

34,804

35,218

Total long-term assets

341,166

329,460

Total assets

$

688,860

$

703,866

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Trade payables

37,274

53,072

Related party and other loan

2,076

2,212

Short term legal settlements and loss contingencies

23,377

28,300

Accrued expenses and other liabilities

44,414

42,782

Total current liabilities

107,141

126,366

LONG-TERM LIABILITIES:

Long-term loan and financing liability of land from a related party

7,044

7,915

Legal settlements and loss contingencies long-term

27,891

21,505

Long-term lease liabilities

65,264

64,638

Accrued severance pay

4,373

4,333

Long-term warranty provision

1,372

1,385

Total long-term liabilities

105,944

99,776

EQUITY:

Ordinary shares

371

371

Treasury shares - at cost

(39,430

)

(39,430

)

Additional paid-in capital

158,932

157,225

Capital fund related to non-controlling interest

(5,587

)

(5,587

)

Accumulated other comprehensive loss

(3,740

)

(3,288

)

Retained earnings

365,229

368,433

Total equity

475,775

477,724

Total liabilities and equity

$

688,860

$

703,866

Caesarstone Ltd. and its subsidiaries

Condensed consolidated statements of income (loss)

Three months ended
June 30,

Six months ended
June 30,

U.S. dollars in thousands (except per share data)

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Revenues

$

99,037

$

141,071

$

225,594

$

269,268

Cost of revenues

78,865

101,308

169,021

198,236

Gross profit

20,172

39,763

56,573

71,032

Operating expenses:

Research and development

763

1,280

1,543

2,222

Marketing and selling

11,435

15,579

30,064

32,653

General and administrative

9,241

10,572

21,108

21,605

Legal settlements and loss contingencies, net

1,637

1,729

4,475

3,305

Total operating expenses

23,076

29,160

57,190

59,785

Operating income (loss)

(2,904

)

10,603

(617

)

11,247

Finance expenses, net

2,507

1,825

1,638

2,147

Income (loss) before taxes

(5,411

)

8,778

(2,255

)

9,100

Taxes on income (loss)

471

2,364

949

3,091

Net income (loss)

$

(5,882

)

$

6,414

$

(3,204

)

$

6,009

Basic net income (loss) per ordinary share

$

(0.17

)

$

0.19

$

(0.09

)

$

0.17

Diluted net income (loss) per ordinary share

$

(0.17

)

$

0.19

$

(0.09

)

$

0.17

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

34,412,369

34,380,799

34,406,107

34,373,848

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

34,412,369

34,425,797

34,406,107

34,427,899

Caesarstone Ltd. and its subsidiaries

Selected Condensed consolidated statements of cash flows

Six months ended June 30,

U.S. dollars in thousands

2020

2019

(Unaudited)

Cash flows from operating activities:

Net income (loss)

$

(3,204

)

$

6,009

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

Depreciation and amortization

14,102

14,862

Share-based compensation expense

1,707

1,884

Accrued severance pay, net

7

(8

)

Changes in deferred tax, net

(640

)

(1,242

)

Capital loss

22

338

Legal settlements and loss contingencies, net

4,475

3,305

Decrease (increase) in trade receivables

9,942

(10,479

)

Decrease (increase) in other accounts receivable and prepaid expenses

3,172

(4,726

)

Decrease (increase) in inventories

(12,621

)

21,571

Decrease in trade payables

(16,117

)

(9,800

)

Decrease in warranty provision

(98

)

(82

)

Changes in right of use assets

(1,347

)

(74,159

)

Changes in lease liabilities

1,554

76,385

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

6

-

Changes in Accrued interest related to Marketable Securities

(8

)

-

Increase in accrued expenses and other liabilities including related party

4,173

2,088

Net cash provided by operating activities

5,125

25,946

Cash flows from investing activities:

Purchase of property, plant and equipment

(12,459

)

(11,955

)

Proceeds from sale of property, plant and equipment

6

54

Investment in marketable securities

(13,002

)

-

Increase in long term deposits

(711

)

(192

)

Net cash used in investing activities

(26,166

)

(12,093

)

Cash flows from financing activities:

Changes in short-term bank credit and loans, net

(459

)

(7,771

)

Repayment of a financing leaseback related to Bar-Lev transaction

(610

)

(588

)

Net cash used in financing activities

(1,069

)

(8,359

)

Effect of exchange rate differences on cash and cash equivalents

(198

)

304

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

(22,308

)

5,798

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

139,372

93,562

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

$

117,064

$

99,360

Non - cash investing:

Changes in trade payables balances related to purchase of fixed assets

(954

)

(2,500

)

Caesarstone Ltd. and its subsidiaries

Three months ended
June 30,

Six months ended
June 30,

U.S. dollars in thousands

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Reconciliation of Gross profit to Adjusted Gross profit:

Gross profit

$

20,172

$

39,763

$

56,573

$

71,032

Share-based compensation expense (a)

122

63

253

139

Non-recurring import related income

-

(2,611

)

-

(1,501

)

Other non-recurring items (b)

-

1,367

$

-

1,367

Adjusted Gross profit (Non-GAAP)

$

20,294

$

38,582

$

56,826

$

71,037

(a)

Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

(b)

Relates mainly to one time amortization of machinery equipment with no future alternative use.

Caesarstone Ltd. and its subsidiaries

Three months ended
June 30,

Six months ended
June 30,

U.S. dollars in thousands

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Reconciliation of Net Income (loss) to Adjusted EBITDA:

Net income (loss)

$

(5,882

)

$

6,414

$

(3,204

)

$

6,009

Finance expenses, net

2,507

1,825

1,638

2,147

Taxes on income

471

2,364

949

3,091

Depreciation and amortization

6,987

8,099

14,102

14,862

Legal settlements and loss contingencies, net (a)

1,637

1,729

4,475

3,305

Share-based compensation expense (b)

801

832

1,707

1,884

Non-recurring import related expense (income)

-

(2,611

)

-

(1,501

)

Other non-recurring items (c)

-

504

-

993

Adjusted EBITDA (Non-GAAP)

$

6,521

$

19,156

$

19,667

$

30,790

(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)

Three and six months ended June 30, 2019 relates to non-recurring expenses related to North American region establishment and one time charge related to reduction in headcount.

Caesarstone Ltd. and its subsidiaries

Three months ended
June 30,

Six months ended
June 30,

U.S. dollars in thousands (except per share data)

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Reconciliation of net income (loss) to adjusted net income:

Net income (loss)

$

(5,882

)

$

6,414

$

(3,204

)

$

6,009

Legal settlements and loss contingencies, net (a)

1,637

1,729

4,475

3,305

Share-based compensation expense (b)

801

832

1,707

1,884

Non cash revaluation of lease liabilities (c)

1,256

799

(215

)

2,226

Non-recurring import related income (d)

-

(2,611

)

-

(1,501

)

Other non-recurring items (e)

-

1,704

-

2,193

Total adjustments

3,694

2,453

5,967

8,107

Less tax on non-tax adjustments (f)

1,310

871

2,116

2,875

Total adjustments after tax

2,384

1,582

3,851

5,232

Adjusted net income (loss) (Non-GAAP)

$

(3,498

)

$

7,996

$

647

$

11,241

Adjusted diluted EPS (g)

$

(0.10

)

$

0.23

$

0.02

$

0.33

(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)

Three and six months ended June 30, 2019 relates mainly to non-recurring import related expenses and relocation expenses of Caesarstone USA headquarters, the Company's subsidiary.

(e)

Three and six months ended June 30, 2019 relates to non-recurring expenses related to North American region establishment and one time charge related to reduction in headcount.

(f)

Tax adjustments for the three and six months ended June 30, 2020, based on the effective tax rates of the comparative periods.

(g)

In calculating adjusted diluted (Non-GAAP) EPS for the six month ended June 30, 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

2020

2019

2020

2019

(Unaudited)

(Unaudited)

USA

$

41,726

$

64,590

$

101,781

$

121,007

Canada

14,435

23,342

32,993

43,520

Latin America

132

1,351

638

1,947

America's

56,293

89,283

135,412

166,474

Australia

23,534

28,292

45,888

53,506

Asia

1,732

3,311

4,563

7,907

APAC

25,266

31,603

50,451

61,413

EMEA

8,031

11,419

19,371

21,874

Israel

9,447

8,766

20,360

19,507

Total Revenues

$

99,037

$

141,071

$

225,594

$

269,268

Caesarstone Ltd. and its subsidiaries

Geographic breakdown of revenues by region - Supplemental data

Three months ended

U.S. dollars in thousands

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

3/30/2019

12/31/2018

9/30/2018

6/30/2018

(Unaudited)

USA

$ 41,726

$ 60,055

$ 64,659

$ 64,805

$ 64,590

$ 56,417

$ 60,200

$ 61,933

$ 60,358

Canada

14,435

18,558

20,575

21,881

23,341

20,178

23,834

25,140

27,349

Latin America

132

506

735

1,434

1,351

596

1,212

1,635

1,738

America's

56,293

79,119

85,969

88,120

89,282

77,191

85,246

88,708

89,445

Australia

23,534

22,354

26,000

28,642

28,294

25,214

33,484

33,968

34,731

Asia

1,732

2,831

3,932

3,675

3,311

4,596

4,929

4,189

4,221

APAC

25,266

25,185

29,932

32,317

31,605

29,810

38,413

38,157

38,952

EMEA

8,031

11,340

9,464

11,719

11,418

10,455

9,954

11,115

11,721

Israel

9,447

10,913

8,502

10,683

8,766

10,741

9,268

9,709

9,125

Total Revenues

$ 99,037

$ 126,557

$ 133,867

$ 142,839

$ 141,071

$ 128,197

$ 142,881

$ 147,689

$ 149,243

Year-over-year % change

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

(Unaudited)

USA

-35.4%

6.4%

7.4%

4.6%

7.0%

Canada

-38.2%

-8.0%

-13.7%

-13.0%

-14.7%

Latin America

-90.2%

-15.1%

-39.4%

-12.3%

-22.3%

Americas

-36.9%

2.5%

0.8%

-0.7%

-0.2%

Australia

-16.8%

-11.3%

-22.3%

-15.7%

-18.5%

Asia

-47.7%

-38.4%

-20.2%

-12.3%

-21.5%

APAC

-20.1%

-15.5%

-22.1%

-15.3%

-18.9%

EMEA

-29.7%

8.5%

-4.9%

5.4%

-2.6%

Israel

7.8%

1.6%

-8.3%

10.0%

-3.9%

Total Revenues

-29.8%

-1.3%

-6.3%

-3.3%

-5.5%

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

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

(Unaudited)

USA

-35.4%

6.4%

7.4%

4.6%

7.0%

Canada

-36.0%

-7.1%

-13.6%

-12.1%

-11.6%

Latin America

-90.2%

-15.2%

-39.4%

-12.3%

-22.3%

Americas

-36.4%

2.7%

0.9%

-0.4%

0.7%

Australia

-11.5%

-3.3%

-18.2%

-10.0%

-12.0%

Asia

-45.9%

-37.1%

-14.7%

-8.8%

-18.6%

APAC

-15.1%

-8.5%

-17.8%

-9.9%

-12.7%

EMEA

-26.9%

11.4%

-4.4%

10.9%

2.8%

Israel

4.5%

-1.5%

-14.0%

7.8%

-3.5%

Total Revenues

-28.3%

0.5%

-5.5%

-1.5%

-2.9%

(*) Change in revenues at constant currency is calculated so that revenues can be viewed without the impact of fluctuations s 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200805005080/en/

Contacts

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