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

MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (NAS: 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 expenses

22,999

16,238

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 from related party

12,184

12,188

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 (except per share data)

2013

2012

2013

2012

Revenues

$

88,977

$

75,440

$

165,421

$

142,786

Cost of revenues

44,657

42,976

86,884

82,171

Gross profit

44,320

32,464

78,537

60,615

Operating expenses:

Research and development, net

553

572

1,026

1,309

Marketing and selling

12,996

11,688

25,470

23,582

General and administrative

8,529

6,298

16,728

14,657

Total operating expenses

22,078

18,558

43,224

39,548

Operating income

22,242

13,906

35,313

21,067

Finance expenses (income), net

(404

)

(443

)

(215

)

1,012

Income before taxes on income

22,646

14,349

35,528

20,055

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 non-controlling interest

(447

)

(82

)

(639

)

(211

)

Net income attributable to controlling interest

$

19,718

$

11,690

$

30,236

$

16,512

Diluted net income per share of ordinary shares

$

0.56

$

0.34

$

0.86

$

0.53

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

34,600,249

34,365,250

34,596,889

30,918,151

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

35,139,901

34,376,537

35,061,710

30,928,511

Caesarstone Sdot-Yam Ltd. and its subsidiaries

Consolidated statements of cash flows

Six months ended June 30,

U.S. dollars in thousands

2013

2012