Caesarstone Reports Fourth Quarter and Full Year 2012 Results

Caesarstone Reports Fourth Quarter and Full Year 2012 Results

• Q4 Revenue Up 13.6% to $76.2 million, Full Year Revenues up 14.2%

• Q4 Net Income Up 190% to $10.8 million, EPS of $0.31, Adjusted EPS of $0.32

• FY12 Net Income Up 36.4% to $39.6 million, EPS of $1.21, Adjusted EPS of $1.35

• Company Issues FY13 Guidance, Expects Continued Growth

MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its fourth quarter and full fiscal year ended December 31, 2012.

Revenues in the fourth quarter of 2012 increased by 13.6% to $76.2 million compared to $67.1 million in the same quarter of the prior year. Growth in revenues was driven by continued increases in sales in the United States and Canada, up 19.7% and 29.3% respectively, compared to the same period in the prior year, and by 16.6% growth in Australia. Revenue growth was partially offset by a decline in Europe and by a flat performance in Israel. On a constant currency basis, fourth quarter revenue growth was 12.9% compared to the same period last year.

Yosef Shiran, Chief Executive Officer, commented, "We are pleased to have finished the year with a strong fourth quarter. Our teams in each region executed well and we continue to position the business advantageously around the world. We believe we have the right global strategy in place to sustain our growth, build our operational capabilities, enhance our brand and drive value to consumers, customers and shareholders."

Gross margin in the fourth quarter was 41.8% compared to 39.0% in the same period in the prior year. The Company noted that last year's fourth quarter included a $1.8 million non-recurring write-off of inventory held by a third-party. The Company also noted that while changes in foreign exchange rates impacted revenue negatively, they also reduced cost of goods sold, offsetting some impact on gross profit.

Operating expenses in the fourth quarter were $19.7 million, or 25.8% of revenues. This compares to the prior year's fourth quarter level of $20.0 million, or 29.8% of revenues. The year-ago quarter contained a $1.1 million write-down for a loan to the above-mentioned third party. Sales and marketing expenses increased by 20.4% compared to the same quarter in the prior year primarily to facilitate growth in the United States and Canada.

Operating income in the fourth quarter increased by 97.8% to $12.2 million, 16.0% of revenues, compared to $6.2 million, 9.2% of revenues, in the same quarter in the prior year.

Adjusted EBITDA, which excludes share-based compensation, the excess cost of acquired inventory and other non-recurring costs, increased by 22.4% to $16.5 million in the fourth quarter, a margin of 21.6%. This compares to adjusted EBITDA of $13.4 million, a margin of 20.0% in the same quarter in the prior year.

Finance income in the fourth quarter was $0.2 million compared to finance expenses of $3.0 million during the same period in the prior year, which included significant losses on foreign exchange hedges.

The Company's reported GAAP net income attributable to controlling interest for the fourth quarter was $10.8 million compared to $3.7 million in the same quarter in the prior year. Diluted earnings per share for the fourth quarter were $0.31 on 34.6 million shares compared to $0.14 per diluted ordinary share on 19.6 million shares, which was prior to the Company's initial public offering and reflected dividends allocated to preferred shares.

Adjusted net income attributable to controlling interest for the fourth quarter was $11.2 million, an increase of 70.3%, compared to $6.6 million in the same quarter in the prior year. Adjusted earnings per diluted share for this year's fourth quarter were $0.32 compared to $0.24 per diluted ordinary share in the prior year period.

The Company's balance sheet as of December 31, 2012 was solid with a cash balance of $72.7 million compared to $12.0 million as of December 31, 2011. This increase reflects strong cash flow from operations over the course of the year, the net proceeds from the Company's IPO, and proceeds from the sale-leaseback transaction completed in the third quarter. The Company continues to believe its cash position and expected cash flows will be sufficient to fund its need for capital expenditure and working capital for the foreseeable future.

Full Year Results

For the full year ended December 31, 2012, revenues increased by 14.2% to $296.6 million compared to the prior year. Growth was the result of the successful execution of the Company's acquisition strategy in North America as well as organic growth in several other markets.

Full year gross margin improved to 43.0% of revenues, up from 40.2% for the full year of 2011. This improvement was primarily driven by economies of scale.

Full year operating expenses were 26.1% of revenues as compared to the prior year's level of 25.6% of revenues. Reductions in some categories of expense were offset by the impact of acquisitions and by investment in the Company's sales and marketing infrastructure in the United States in anticipation of future growth.

Operating income for the full year increased by 32.4% to $50.0 million from $37.7 million in the prior year. Operating margin increased to 16.8% of revenues from 14.5% in 2011.

Adjusted EBITDA for the full year was $69.4 million, an increase of 18.2% compared to the prior year level of $58.8 million. Adjusted EBITDA margin for 2012 improved to 23.4% of revenues from 22.6% in 2011.

Net income attributable to controlling interest for 2012 increased by 36.4% to $39.6 million compared to the prior year level of $29.1 million. Adjusted net income attributable to controlling interest for 2012 increased by 26.6% to $44.0 million compared to the prior year level of $34.8 million. Per diluted ordinary share, full year adjusted net income was $1.35 on 32.7 million weighted shares outstanding. This compares to adjusted earnings per ordinary share of $1.27 on shares outstanding of 19.6 million in 2011.

Capacity Expansion Plans

The Company remains on track to complete a 15% expansion of capacity in its existing facilities by October of 2013. It also continues to make progress on its larger project to build a new production facility in the United States, expected to be opened in the fourth quarter of 2014.

Guidance

The Company today issued initial guidance for the full year of 2013. At present, it expects its revenues to be in a range of $330 million to $340 million and adjusted EBITDA in the range of $76 million to $80 million.

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, February 6th, 2013, at 8:30 a.m. EST to discuss the results of the fourth quarter and full year ended December 31, 2012, 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 1-888-572-7025 or +1-719-325-2472 (international). Israeli participants can dial in at 1-80-924-5906. The pass code is 4602616.

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 4602616. The replay will be available beginning at 11:30 a.m. EST on February 6th, 2013 and will last through 11:59 PM EST February 20, 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.

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 to adjusted net income and adjusted EBITDA to net income is provided below. 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 production 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; and other factors discussed under the heading "Risk Factors" in the final prospectus for our initial public offering 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.