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Caesarstone Reports Second Quarter 2013 Results

  Caesarstone Reports Second Quarter 2013 Results

  *Second Quarter Revenue Up 17.9% to a Record of $89.0 million
  *Net Income Attributable to Controlling Interest Up 68.7% to $19.7 million
  *EPS of $0.56; Adjusted EPS of $0.53

Business Wire

MP MENASHE, Israel -- August 7, 2013

Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality
engineered quartz surfaces, today reported financial results for its second
quarter ended June 30, 2013.

Revenues in the second quarter of 2013 increased by 17.9% to a record $89.0
million compared to $75.4 million in the same quarter of the prior year.
Growth in revenues was primarily driven by continued increases in sales in the
United States and Canada, up 33.6% and 35.3%, respectively, compared to the
same period in the prior year. On a constant currency basis, second quarter
revenue growth was 17.7% compared to the same period last year.

Yosef Shiran, Chief Executive Officer, commented, "We are pleased to report
another record quarter for sales and profitability, particularly in our
fast-growing North American markets where quartz is increasingly embraced.
This includes our Super-Natural design which has demonstrated rapid, global
success. We continue to look forward to completing capacity expansion projects
both in Israel and the United States to reinforce our growth capability,
maintain our leadership position and create growth and value for both our
customers and our shareholders."

Gross margin in the second quarter was 49.8% and included a $3.5 million
one-time positive impact associated with a change in estimate for the value of
inventory following the implementation of the Company’s new ERP system in
April of 2013. Excluding this benefit, adjusted gross margin in the second
quarter was 45.9%, an improvement of 290 basis points compared to 43.0% in the
same period in the prior year. This year-over-year improvement resulted from
benefits of scale, higher margins associated with new products and favorable
changes in the regional mix of revenues.

Operating expenses in the second quarter were $22.1 million, including $1.4
million of non-recurring expense associated with the Company’s recent
secondary offering. Excluding this cost, adjusted operating expenses were
$20.6 million, or 23.2% of revenues. This compares to the prior year's second
quarter level of $19.6 million, or 25.9% of revenues, which is adjusted to
exclude a $1.0 million credit associated with the reversal of a litigation
reserve.

Operating income in the second quarter was $22.2 million on a GAAP basis
compared to GAAP operating income of $13.9 million in the second quarter of
2012.

Adjusted EBITDA, which excludes share-based compensation, the excess cost of
acquired inventory and other non-recurring costs mentioned above, increased by
36.9% to $24.6 million in the second quarter, a margin of 27.7%. This compares
to adjusted EBITDA of $18.0 million, a margin of 23.8% in the second quarter
of the prior year.

Finance income in the second quarter was $0.4 million, the same as in the
prior year’s second quarter.

The Company reported GAAP net income attributable to controlling interest for
the second quarter of 2013 of $19.7 million compared to $11.7 million in the
same quarter in the prior year. Diluted earnings per share for the second
quarter were $0.56 on 35.1 million shares compared to $0.34 per diluted
ordinary share on 34.4 million shares in the prior year's second quarter.

Adjusted net income attributable to controlling interest for the second
quarter was $18.6 million, an increase of 55.2%, compared to $12.0 million in
the same quarter in the prior year. Adjusted earnings per diluted share for
this year's second quarter were $0.53 compared to $0.35 per diluted share in
the prior year period.

The Company's balance sheet as of June 30, 2013 remained solid with cash and
bank deposits of $79.6 million. Net cash grew by $11.3 million from December
31, 2012 and was $61.1 million as of June 30, 2013. The Company continues to
believe its cash position and expected cash flows will be sufficient to fund
its need for capital expenditures and working capital for the foreseeable
future.

The Company noted that it had revised the capital expenditure forecast for its
planned US production facility to $100 million from $75 million to reflect
capability enhancements and greater efficiency.

Guidance

The Company today issued updated guidance to reflect its strong financial
performance in the first half. The Company is reiterating its prior guidance
for 2013 revenue in the range of $330 million to $340 million and is
increasing its guidance for 2013 adjusted EBITDA to a new range of $82 million
to $85 million.

The Company noted that the increase from its prior adjusted EBITDA expectation
of $76 million to $80 million and its revenue reiteration assume a negative
currency impact due to the continuation of current exchange rates in the
second half of the year. The company commented that sequential growth is
limited by capacity until year-end.

Conference Call Details

Yosef Shiran, the Company's Chief Executive Officer, and Yair Averbuch, the
Company's Chief Financial Officer, will host a conference call today, August
7, 2013, at 8:30 a.m. ET to discuss the results of the second quarter ended
June 30, 2013, 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 1-888-430-8694 or +1-719-325-2315
(international). Israeli participants can dial in at 1-80-924-5906. The pass
code is 9272857.

To listen to a telephonic replay of the conference call, dial toll-free
1-877-870-5176 or +1-858-384-5517 (international) and enter pass code 9272857.
The replay will be available beginning at 11:30 a.m. ET on August 7, 2013 and
will last through 11:59 PM ET August 21, 2013.

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,
Supremo, Motivo and Concetto — are available in over 40 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. 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; unpredictability of seasonal
fluctuations in revenues; the outcome of silicosis claims and the claim by our
former quartz processor; fluctuations in currency exchange rates; delays in
manufacturing if our suppliers are unable to supply raw materials; cost
overruns or changes implemented in the course of constructing our new
production facility; and other factors discussed under the heading "Risk
Factors" in the final prospectus for our initial public offering 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 Sdot-Yam Ltd. and its subsidiaries
Consolidated balance sheets
                                                                  
                                                  As of
                                                  June 30,        December 31,
U.S. dollars in thousands                         2013            2012
                                                                  
ASSETS
                                                                  
CURRENT ASSETS:
Cash and cash equivalents                         $ 30,858        $   29,033
Short-term bank deposits                            48,700            43,700
Trade receivables                                   51,289            44,066
Other accounts receivable and prepaid               22,999            16,238
expenses
Inventories                                        53,300           50,550
                                                                  
Total current assets                               207,146          183,587
                                                                  
LONG-TERM ASSETS:
Severance pay fund                                  3,649             3,424
Long-term deposits and prepayments                 1,517            1,198
                                                                  
Total long-term assets                             5,166            4,622
                                                                  
PROPERTY, PLANT AND EQUIPMENT, NET                 85,942           72,987
                                                                  
OTHER ASSETS                                       15,052           16,898
                                                                  
GOODWILL                                           40,410           42,955
                                                                  
Total assets                                      $ 353,716       $   321,049
                                                                  
LIABILITIES AND EQUITY
                                                                  
CURRENT LIABILITIES:
                                                                  
Short-term bank credit                            $ 6,249         $   5,248
Current maturities of long-term loans               75                5,500
Trade payables                                      42,429            36,925
Account payables to related parties                 2,623             2,888
Accrued expenses and other liabilities             18,155           15,314
                                                                  
Total current liabilities                          69,531           65,875
                                                                  
LONG-TERM LIABILITIES:
                                                                  
Long-term loan and a financing leaseback            12,184            12,188
from related party
Accrued severance pay                               4,287             3,989
Long-term warranty provision                        1,641             1,599
Deferred tax liabilities, net                      5,813            6,375
                                                                  
Total long-term liabilities                        23,925           24,151
                                                                  
REDEEMABLE NON-CONTROLLING INTEREST                7,370            7,106
                                                                  
COMMITMENTS AND CONTINGENT LIABILITIES
                                                                  
EQUITY:
Share capital -
Ordinary shares                                     363               360
Additional paid-in capital                          137,744           135,437
Accumulated other comprehensive income              4,944             8,517
Retained earnings                                  109,839          79,603
                                                                  
Total equity                                       252,890          223,917
                                                                  
Total liabilities and equity                      $ 353,716       $   321,049
                                                                  

                                                       
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Consolidated statements of income
                                                             
                      Three months ended June 30,               Six months ended June 30,
U.S. dollars in
thousands              2013            2012               2013            2012       
(except per
share data)
                                                                                     
                                                                                     
Revenues              $ 88,977             $ 75,440             $ 165,421            $ 142,786
Cost of                44,657             42,976             86,884             82,171     
revenues
                                                                                     
Gross profit           44,320             32,464             78,537             60,615     
                                                                                     
Operating
expenses:
Research and
development,            553                  572                  1,026                1,309
net
Marketing and           12,996               11,688               25,470               23,582
selling
General and            8,529              6,298              16,728             14,657     
administrative
                                                                                     
Total operating        22,078             18,558             43,224             39,548     
expenses
                                                                                     
Operating               22,242               13,906               35,313               21,067
income
Finance
expenses               (404       )        (443       )        (215       )        1,012      
(income), net
                                                                                     
Income before           22,646               14,349               35,528               20,055
taxes on income
Taxes on income        2,481              2,577              4,653              3,332      
                                                                                     
Net income             20,165             11,772             30,875             16,723     
                                                                                     
Net income
attributable to        (447       )        (82        )        (639       )        (211       )
non-controlling
interest
Net income
attributable to       $ 19,718            $ 11,690            $ 30,236            $ 16,512     
controlling
interest
Diluted net
income per            $ 0.56              $ 0.34              $ 0.86              $ 0.53       
share of
ordinary shares
Weighted
average number
of ordinary
shares used in         34,600,249         34,365,250         34,596,889         30,918,151 
computing basic
income per
share
Weighted
average number
of ordinary
shares used in         35,139,901         34,376,537         35,061,710         30,928,511 
computing
diluted income
per share
                                                                                     

                                             
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Consolidated statements of cash flows
                                                               
                                                 Six months ended June 30,
U.S. dollars in thousands                         2013            2012    
                                                                   
Cash flows from operating activities:
                                                                   
Net income                                       $ 30,875          $ 16,723
Adjustments required to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization                      7,297             7,327
Share-based compensation expense                   1,500             2,039
Decrease in share-based payment                    -                 (1,402  )
Accrued severance pay, net                         75                42
Changes in deferred tax, net                       240               (911    )
Capital gains                                      (16     )         -
Foreign currency translation gains                 (132    )         293
Increase in trade receivables                      (7,223  )         (9,818  )
Increase in other accounts receivable and          (7,563  )         (3,197  )
prepaid expenses
Increase in inventories                            (2,750  )         (1,958  )
Decrease in trade payables                         (2,705  )         (128    )
Increase in warranty provision                     76                34
Increase (decrease) in accrued expenses
and other liabilities including related            3,877             (7,002  )
parties
                                                                  
Net cash provided by operating activities         23,551          2,042   
                                                                   
                                                                   
Cash flows from investing activities:
                                                                   
Investment in short-term deposits                  (5,000  )         -
Purchase of property, plant and equipment          (10,275 )         (5,863  )
Acquisition of U.S. Quartz Products, Inc.          -                 (6,500  )
Acquisition of the business of Prema Asia          -                 (150    )
Marketing PTE Ltd.
Decrease (increase) in long term deposits          (319    )         49
                                                                  
                                                  (15,594 )        (12,464 )
Net cash used in investing activities
                                                                   
Cash flows from financing activities:
                                                                   
Dividend paid                                      -                 (27,182 )
Receipt from issuance of ordinary shares,          -                 75,469
net
Repayment of long-term loans                       (5,297  )         (6,802  )
Short-term bank credit and loans, net              1,001             (720    )
Repayment of a financing leaseback related         (566    )         -
to Bar-Lev transaction
                                                                  
Net cash provided by (used in) financing          (4,862  )        40,765  
activities
                                                                   
                                                                   
Effect of exchange rate differences on             (1,270  )         (2,701  )
cash and cash equivalents
                                                                  
Increase in cash and cash equivalents             1,825           27,642  
Cash and cash equivalents at beginning of          29,033            11,950
year
                                                                   
Cash and cash equivalents at end of year          30,858          39,592  
                                                                   
                                                                   
non - cash investing and financing
activities:
Purchase of fixed assets with credit from          8,246             1,731
suppliers
                                                                   

                               
Caesarstone Sdot-Yam Ltd. and its subsidiaries
                                                                 
                     Three months ended June 30,       Six months ended June 30,
U.S. dollars          2013           2012           2013           2012   
in thousands
                                                                        
Reconciliation
of Net Income
to Adjusted
EBITDA:
Net income           $ 20,165         $ 11,772         $ 30,875         $ 16,723
Finance
expenses               (404   )         (443   )         (215   )         1,012
(income), net
Taxes on               2,481            2,577            4,653            3,332
income
Depreciation
and                    3,684            3,738            7,297            7,327
amortization
Excess cost of
acquired               72               200              142              669
inventory (a)
Share-based
compensation           611              1,144            1,500            1,387
expense (b)
Inventory -
change of              (3,458 )         -                (3,458 )         -
estimate (c)
Follow-on              1,470            -                1,470            -
expenses (d)
IPO bonus (e)          -                -                -                1,970
Caesarstone
USA contingent         -                -                -                255
consideration
adjustment (f)
Litigation            -              (1,001 )        -              (1,001 )
credit (g)
Adjusted             $ 24,621        $ 17,987        $ 42,264        $ 31,674 
EBITDA
                                                                        

      Consists of charges to cost of goods sold for the difference between the
      higher carrying cost of the inventory of two of the company's
      subsidiaries, Caesarstone USA's inventory at the time of its acquisition
(a)  and Caesarstone Australia Pty Limited's inventory that was purchased
      from its distributor, and the standard cost of the Company's inventory,
      which adversely impacts the company's gross margins until such inventory
      is sold. The majority of the inventory purchased from the Australian
      distributor was sold in 2012.
      
      In 2012, share-based compensation consists primarily of expenses related
      to the stock options granted to employees of the Company, as well as
(b)   changes in the value of share-based rights granted to the Company's
      Chief Executive Officer in January 2009. In 2013, share-based
      compensation consists of expenses related to the stock options granted
      to employees of the Company.
      
(c)   Relates to a change in estimate for the value of inventory following the
      implementation of the Company’s new ERP system in April 2013.
      
      Consists of direct expenses related to a follow on-offering that closed
(d)   in April 2013, including a bonus declared by Tene to certain employees
      of the Company that under US GAAP the Company is required to expense
      against paid-in capital.
      
      Consists of the payment of $1.72 million to certain employees of the
(e)   Company and $0.25 million to the Company's Chairman for their
      contribution to the completion of the Company's initial public offering,
      or IPO.
      
      Relates to the change in fair value of the contingent consideration that
(f)   was part of the consideration transferred in connection with the
      acquisition of Caesarstone USA.
      
      Since mid-2010, the Company has been engaged in litigation with the
      former CEO of Caesarstone Australia ("CSA"), which included, among other
      things, his claim seeking an order requiring the Company to purchase his
      shares in CSA in accordance with his agreement with the Company and CSA
      or at a fair and reasonable price. In May 2012, the Company entered into
      a settlement agreement with the former CEO of CSA pursuant to which he
(g)   transferred the ownership in any shares in CSA he received in connection
      with his employment with CSA. The Company made no payment in
      consideration for such transfer or any other payment in favor of the
      former CEO. As a result of this settlement, the Company has reversed the
      liability connected to this litigation and the adjustment is presented
      net of the related litigation expenses incurred for the settlement
      process.
      

                 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
                                                              
                     Three months ended June 30,       Six months ended June 30,
U.S. dollars          2013           2012           2013           2012   
in thousands
                                                                        
Reconciliation
of net income
attributable
to controlling
interest to
adjusted net
income
attributable
to controlling
interest:
Net income
attributable         $ 19,718         $ 11,690         $ 30,236         $ 16,512
to controlling
interest
Excess cost of
acquired               72               200              142              669
inventory (a)
Share-based
compensation           611              1,144            1,500            1,387
expense (b)
IPO bonus (c)          -                -                -                1,970
Caesarstone
USA contingent         -                -                -                255
consideration
adjustment (d)
Inventory -
change of              (3,458 )         -                (3,458 )         -
estimate (e)
Follow-on              1,470            -                1,470            -
expenses (f)
Litigation            -              (1,001 )        -              (1,001 )
credit (g)
Total
adjustments            (1,305 )         343              (346   )         3,280
before tax
Less tax on
above                 (207   )        37             (45    )        357    
adjustments
(h)
Total
adjustments            (1,098 )         305              (301   )         2,923
after tax
                                                                        
Adjusted net
income
attributable         $ 18,620        $ 11,996        $ 29,935        $ 19,435 
to controlling
interest
Adjusted              0.53           0.35           0.85           0.63   
diluted EPS

      Consists of charges to cost of goods sold for the difference between the
      higher carrying cost of the inventory of two of the company's
      subsidiaries, Caesarstone USA's inventory at the time of its acquisition
(a)  and Caesarstone Australia Pty Limited's inventory that was purchased
      from its distributor, and the standard cost of the Company's inventory,
      which adversely impacts the company's gross margins until such inventory
      is sold. The majority of the inventory purchased from the Australian
      distributor was sold in 2012.
      
      In 2012, share-based compensation consists primarily of expenses related
      to the stock options granted to employees of the Company, as well as
(b)   changes in the value of share-based rights granted to the Company's
      Chief Executive Officer in January 2009. In 2013, share-based
      compensation consists of expenses related to the stock options granted
      to employees of the Company.
      
      Consists of the payment of $1.72 million to certain employees of the
(c)   Company and $0.25 million to the Company's Chairman for their
      contribution to the completion of the Company's IPO.
      
      Relates to the change in fair value of the contingent consideration that
(d)   was part of the consideration transferred in connection with the
      acquisition of Caesarstone USA.
      
(e)   Relates to a change in estimate for the value of inventory following the
      implementation of the Company’s new ERP system in April 2013.
      
      Consists of direct expenses related to a follow on-offering that closed
(f)   in April 2013, including a bonus declared by Tene to certain employees
      of the Company that under US GAAP the Company is required to expense
      against paid-in capital.
      
      Since mid-2010, the Company has been engaged in litigation with the
      former CEO of Caesarstone Australia ("CSA"), which included, among other
      things, his claim seeking an order requiring the Company to purchase his
      shares in CSA in accordance with his agreement with the Company and CSA
      or at a fair and reasonable price. In May 2012, the Company entered into
      a settlement agreement with the former CEO of CSA pursuant to which he
(g)   transferred the ownership in any shares in CSA he received in connection
      with his employment with CSA. The Company made no payment in
      consideration for such transfer or any other payment in favor of the
      former CEO. As a result of this settlement, the Company has reversed the
      liability connected to this litigation and the adjustment is presented
      net of the related litigation expenses incurred for the settlement
      process.
      
      The tax adjustments for the three and six months ended June 30, 2012
(h)   were based on the effective tax rate for 2011. The tax adjustments for
      the three and six months ended June 30, 2013, were based on the
      effective tax rate for the six months ended June 30, 2013.
      

                                                           
Caesarstone Sdot-Yam Ltd. and its subsidiaries
Geographic breakdown of revenues by region
               
                   Three months ended June 30,       Six months ended June 30,
U.S. dollars       2013               2012           2013            2012
in thousands
                                                                     
                                                                     
USA                   30,890            23,119         54,596          41,893
Australia             23,612            21,670         42,995          40,701
Canada                13,129            9,707          23,844          18,504
Israel                9,978             8,735          20,531          18,000
Europe                4,497             5,445          10,389          11,170
Rest of              6,871            6,764         13,066         12,518
World
                   $  88,977          $ 75,440       $ 165,421       $ 142,786
                                                                     

Contact:

Investor Relations
ICR, Inc.
James Palczynski, +1-203-682-8229
Senior Managing Director