CSTE Caesarstone Ltd

Caesarstone Reports Second Quarter 2024 Financial Results

- Revenue of $119.4 Million -

 

- Additional Quarter of Positive Cash Flow From Operations of $10.0 Million -

 

- Strong Balance Sheet with Net Cash Position of $97.7 Million -

 

- Reaffirms Full Year Outlook to Deliver Positive Operating Cash Flow and Moderates Adjusted EBITDA Expectations -

 

MP MENASHE, Israel – August 7, 2024 - 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, 2024.

Yos Shiran, Caesarstone’s Chief Executive Officer commented, “Our improved gross margin in the second quarter compared to last year demonstrates the positive impact of our strategic restructuring actions. Our efforts to optimize our production footprint and strengthen relationships with our manufacturing partners are yielding tangible benefits. We continue to make progress on our strategic transformation, focusing on cost efficiencies, strengthening our sales and marketing efforts, and investing in R&D and innovation. Additionally, during July we increased our stake in Lioli Ceramica to 81%, which underscores our commitment to enhancing our porcelain business. Furthermore, our agreement to sell the undeveloped land parcel at our Richmond Hill Facility reflects our diligent efforts to monetize this asset. As we navigate through the remainder of 2024, we remain focused on improving the trajectory of our profitability while positioning Caesarstone for long-term growth."

Second Quarter 2024 Results

Revenue in the second quarter of 2024 was $119.4 million, compared to $143.7 million in the prior year quarter. On a constant currency basis, second quarter revenue was down 16.3% year-over-year due to lower volumes. Volumes were primarily impacted by global economic headwinds, particularly in renovation and remodeling channels, across the Company’s main regions resulting in lower demand accompanied by greater competitive pressures.

Operating expenses in the second quarter of 2024 were $36.6 million, or 30.6% of revenue, compared to $58.8 million, or 40.9% of revenue in the prior year quarter. The lower percentage is primarily attributable to the reduction in impairment and restructuring related expenses recorded during the second quarter 2023 in connection with the Sdot-Yam Facility closure. Excluding legal settlements and loss contingencies and restructuring expenses, operating expenses were 28.2% of revenue, compared to 24.3% in the prior year quarter.

Operating loss in the second quarter of 2024 was $9.3 million compared to $46.9 million in the prior year quarter, with the improvement primarily reflecting higher gross margin and the impairment charges recorded in the second quarter of 2023.

Adjusted EBITDA in the second quarter of 2024, which excludes expenses for non-cash share-based compensation, legal settlements and loss contingencies, and other non-recurring items, was a loss of $0.1 million, compared to a loss of $13.4 million in the prior year quarter.

Finance income in the second quarter of 2024 was $1.8 million compared to $1.2 million in the prior year quarter. The difference primarily reflects foreign currency exchange rate fluctuations and higher income on bank deposits.

Net loss attributable to controlling interest for the second quarter of 2024 was $9.2 million compared to net loss of $52.5 million in the prior year quarter. Net loss per share for the second quarter was $0.27 compared to net loss per share of $1.52 in the prior year quarter. Adjusted diluted net loss per share for the second quarter was $0.14 on 35.0 million shares, compared to adjusted diluted net loss per share of $0.69 in the prior year quarter on 34.6 million shares.

Balance Sheet & Liquidity

During the second quarter of 2024, the Company generated positive cash flow from operations of $10.0 million mainly driven by inventory reductions, compared to operating cash flow of $17.2 million in the second quarter of 2023. As of June 30, 2024, the Company’s balance sheet included cash, cash equivalents and short-term bank deposits of $103.6 million and total debt to financial institutions of $5.9 million. The Company’s net cash position as of June 30, 2024, was $97.7 million compared to $83.5 million as of December 31, 2023.

On June 26, 2024, Caesarstone entered into an agreement for the sale of 69 acres of undeveloped land associated with its Richmond Hill Facility located in Bryan County for approximately $10.0 million. The transaction is expected to close in the third quarter of 2024 and is subject to due diligence. The Company continues to look for avenues to monetize the remainder of the property, consisting of 51 acres of developed land and associated structures.

Outlook

The Company reaffirms its expectation to deliver positive operating cash flow for the full year 2024, primarily weighted towards the first half of the year. The Company now expects full year adjusted EBITDA to be a loss in the mid-single-digit million-dollar range, mainly due to increased shipping and material costs in the second half of 2024. The Company also reiterates its expectation to realize restructuring-related cost savings of approximately $20.0 million in full year 2024 and $30.0 million thereafter compared to full year 2023.

Webcast and Conference Call Details

The Company will host a webcast and conference call today, August 7, 2024, at 8:30 a.m. ET to discuss the results, followed by a question and answer session for the investment community. The live webcast can be accessed through the Investor Relations section of the Company’s website at ir.caesarstone.com. For those unable to access the webcast, the conference call will be accessible domestically or internationally, by dialing 1-833-816-1463 and 1-412-542-4167, respectively. The toll-free Israeli number is 1 80 921 3284. Upon dialing in, please request to join the Caesarstone Second Quarter 2024 Earnings Conference Call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 10190386. The replay will be available beginning at 12:30 p.m. ET on Wednesday, August 7, 2024 and will last through 11:59 p.m. ET on Wednesday, August 14, 2024.

About Caesarstone

Caesarstone is a global leader of premium surfaces, specializing in countertops that create dynamic spaces of inspiration in the heart of the home. Established in 1987, its multi-material portfolio of over 100 colors combines the company’s innovative technology with its powerful design passion. Spearheading high-quality, sustainable surfaces, Caesarstone delivers functional resilience with timeless beauty, for a vast range of applications, including kitchen countertops, bathroom vanities, and more, for indoor and outdoor spaces.

Since it pioneered quartz countertops over thirty years ago, the brand has expanded into porcelain and natural stone and is on the ground in more than 50 countries worldwide while enhancing customer experience through the expansion of groundbreaking digital platforms & services. More information on Caesarstone: caesarstoneus.com, Facebook, LinkedIn  and Instagram

The Company has filed its annual report on Form 20-F for the year ended December 31, 2023 with the U.S. securities and exchange commission (“SEC”) and can be accessed on its website.

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" within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “goals," “intend,” “seek,” “anticipate,” “believe,” “could,” “continue,” “expect,” “estimate,” “may,” “plan,” “outlook,” “future” and “project” and other similar expressions that predict, project or indicate future events or trends or that are not statements of historical matters. Such forward-looking statements include statements regarding the Company’s goals and plans, intentions, expectations, assumptions, goals and beliefs regarding the Company’s business. Actual results may differ materially from those projections and estimates due to various risks and uncertainties, both known or unknown. These factors include, but are not limited to: the effects of global and regional economy and geo-politics on the Company’s business and operations including the length, duration and impact of the war in Israel, the Houthi’s disruption to the movement of goods in the Red Sea and trade disruptions such as Turkey’s decision not to trade with Israel; the outcome of silicosis and other bodily injury claims, and the availability relevant insurance; regulatory changes and requirements relating to the manufacturing and fabrication of our products; the outcome of our restructuring efforts, of the closure of the Sdot Yam and Richmond Hill Facilities, the estimated closure costs and the estimated potential savings relating to said closures, the ability to sell or sublease all or part of these facilities; our ability to effectively collaborate with production business partners; our R&D and product introduction efforts, managing constraints in the global supply chain and effectively procuring raw materials and goods as well as fluctuations in their price; our ability to protect our brand, technology and intellectual property, as well as our freedom to operate; competitive pressures; disruptions to our information technology systems, fluctuations in currency exchange rates against the U.S. dollar; our ability to successfully integrate our acquisitions; our ability to meet ESG goals and targets; and other risks and uncertainties discussed under the sections "Risk Factors" and “Special Note Regarding Forward-Looking Statements and Risk Factor Summary” in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2024, and in other documents filed by Caesarstone with the SEC, which are available free of charge at www.sec.gov. 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.

Investor Relations:

ICR, Inc. - Rodny Nacier

+1 (646) 200-8870

		As of
U.S. dollars in thousands		June 30, 2024				December 31, 2023
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits		$	103,572			$	91,123
Trade receivables, net			62,671				66,888
Other accounts receivable and prepaid expenses (*)			70,123				25,489
Inventories			108,787				136,446
Total current assets			345,153				319,946
LONG-TERM ASSETS:
Severance pay fund			1,553				1,994
Deferred tax assets, net			3,394				3,061
Long-term deposits and prepaid expenses			4,982				4,961
Operating lease right-of-use assets			113,216				120,156
Property, plant and equipment, net (*)			77,931				123,480
Intangible assets, net			4,853				6,257
Total long-term assets			205,929				259,909
Total assets		$	551,082			$	579,855
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit		$	5,000			$	5,118
Trade payables			37,016				42,848
Related parties			205				257
Short term legal settlements and loss contingencies			19,659				16,106
Accrued expenses and other liabilities			57,291				56,894
Total current liabilities			119,171				121,223
LONG-TERM LIABILITIES:
Long-term bank and other loans			1,308				2,549
Legal settlements and loss contingencies long-term and other liabilities			11,025				11,814
Deferred tax liabilities, net			2,870				3,006
Long-term lease liabilities			105,195				114,146
Accrued severance pay			2,944				3,065
Long-term warranty provision			1,118				1,204
Total long-term liabilities			124,460				135,784
REDEEMABLE NON-CONTROLLING INTEREST			7,804				7,789
EQUITY:
Ordinary shares			371				371
Treasury shares - at cost			(39,430	)			(39,430	)
Additional paid-in capital			165,541				164,456
Capital fund related to non-controlling interest			(5,587	)			(5,587	)
Accumulated other comprehensive income (loss), net			(10,633	)			(8,402	)
Retained earnings			189,385				203,651
Total equity			299,647				315,059
Total liabilities and equity		$	551,082			$	579,855

(*) In Q2'24 we reclassified $ 41.3M from fixed assets to held for sale assets in accordance with ASC360.

		Three months ended June 30,								Six months ended June 30,
U.S. dollars in thousands (except per share data)		2024				2023				2024				2023
		(Unaudited)								(Unaudited)
Revenues		$	119,432			$	143,679			$	237,724			$	294,312
Cost of revenues			92,098				131,811				181,403				252,842
Gross profit			27,334				11,868				56,321				41,470
Operating expenses:
Research and development			1,100				1,549				2,312				2,595
Sales and Marketing			22,554				20,235				44,922				42,060
General and administrative			10,012				13,199				20,317				27,178
Restructuring and Impairment expenses related to long lived assets (*)			90				23,573				90				23,573
Legal settlements and loss contingencies, net			2,831				243				3,536				(1,087	)
Total operating expenses			36,587				58,799				71,177				94,319
Operating loss			(9,253	)			(46,931	)			(14,856	)			(52,849	)
Finance income, net			(1,848	)			(1,188	)			(2,554	)			(3,524	)
Loss before taxes			(7,405	)			(45,743	)			(12,302	)			(49,325	)
Tax expenses, net			1,965				6,980				1,991				7,249
Net loss		$	(9,370	)		$	(52,723	)		$	(14,293	)		$	(56,574	)
Net loss (income) attributable to non-controlling interest			191				253				27				326
Net loss attributable to controlling interest		$	(9,179	)		$	(52,470	)		$	(14,266	)		$	(56,248	)
Basic net loss per ordinary share		$	(0.27	)		$	(1.52	)		$	(0.41	)		$	(1.64	)
Diluted net loss per ordinary share		$	(0.27	)		$	(1.52	)		$	(0.41	)		$	(1.64	)
Weighted average number of ordinary shares used in computing basic loss per ordinary share			34,536,399				34,514,431				34,535,293				34,511,873
Weighted average number of ordinary shares used in computing diluted loss per ordinary share			34,536,399				34,514,431				34,535,293				34,511,873

(*) Including long-lived assets impairment and restructuring expenses related to plants closure.

		Six months ended June 30,
U.S. dollars in thousands		2024				2023
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Net loss		$	(14,293	)		$	(56,574	)
Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			8,638				15,239
Share-based compensation expense			1,085				495
Accrued severance pay, net			321				(118	)
Changes in deferred tax, net			(215	)			2,617
Capital loss			535				83
Legal settlemnets and loss contingencies, net			3,536				(1,087	)
Decrease in trade receivables			3,365				4,546
Decrease (increase) in other accounts receivable and prepaid expenses			(995	)			4,939
Decrease in inventories			26,650				65,439
Decrease in trade payables			(6,468	)			(26,062	)
Decrease in warranty provision			(138	)			(91	)
Changes in right of use assets			6,468				3,849
Changes in lease liabilities			(9,206	)			(6,676	)
Contingent consideration related to acquisitions
Amortization of premium and accretion of discount on marketable securities, net			-				-
Changes in Accrued interest related to Marketable Securities			-				-
Decrease in accrued expenses and other liabilities including related parties			(673	)			(5,023	)
Restructuring expenses and Impairment related to long lived assets			90				23,573
Net cash provided by operating activities			18,700				25,149
Cash flows from investing activities:
Purchase of property, plant and equipment			(4,378	)			(4,460	)
Proceeds from sale of property, plant and equipment			42				10
Maturity of marketable securities			-				4,800
Increase in long term deposits			(75	)			(29	)
Net used in investing activities			(4,411	)			321
Cash flows from financing activities:
Changes in short-term bank credits and long-term loans, including related parties			(1,363	)			(22,776	)
Net cash used in financing activities			(1,363	)			(22,776	)
Effect of exchange rate differences on cash and cash equivalents			(477	)			219
Increase (decrease) in cash and cash equivalents and short-term bank deposits			12,449				2,913
Cash and cash equivalents and short-term bank deposits at beginning of the period			91,123				52,081
Cash and cash equivalents and short-term bank deposits at end of the period		$	103,572			$	54,994
Non - cash investing:
Changes in trade payables balances related to purchase of fixed assets			(369	)			18

		Three months ended June 30,								Six months ended June 30,
U.S. dollars in thousands		2024				2023				2024				2023
		(Unaudited)								(Unaudited)
Reconciliation of Gross profit to Adjusted Gross profit:
Gross profit		$	27,334			$	11,868			$	56,321			$	41,470
Share-based compensation expense (a)			24				69				36				137
Amortization of assets related to acquisitions			71				72				142				144
Residual operating expenses related to closed plants after closing			612				1,784				612				1,784
Other non recuring items			345				-				193				-
Adjusted Gross profit (Non-GAAP)		$	28,386			$	13,793			$	57,304			$	43,535

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