Caesarstone Reports Third Quarter 2021 Financial Results

– Record Third Quarter Revenue of $163.3 Million, Up 31.8% Over Prior Year Quarter –

– Net Income of $5.9 Million, or $0.17 Per Share –

– Adjusted Net Income of $6.8 Million, or $0.20 Per Share –

– Adjusted EBITDA of $17.7 Million –

– Strong Cash Position^(*) of $91.5 Million at Quarter End –

– Declares Dividend of $0.10 per share –

- Published Inaugural Global ESG Report in October –

– Reiterates Outlook for 2021 Revenue and Adjusted EBITDA Growth –

MP MENASHE, Israel – November 3, 2021 - Caesarstone Ltd. (NASDAQ: CSTE), a leading developer and manufacturer of high-quality engineered surfaces, today reported financial results for its third quarter ended September 30, 2021.

Yuval Dagim, Caesarstone’s Chief Executive Officer commented, “I am encouraged to report third quarter results that were in-line with our expectations as we further executed towards the goals set out in our Global Growth Acceleration Plan. To that extent, we were very pleased to rollout our innovative digital CS Connect platform nationally across the U.S., which has received positive feedback and represents a critical milestone in our efforts to transform the way we communicate with our customers and consumers. Additionally, the integrations of our Omicron and Lioli acquisitions continue to drive positive momentum in our results, helping us to achieve record third quarter revenue of $163.3 million. We were also excited to publish our inaugural ESG report in October, which provides Caesarstone with a prudent framework to help create a more sustainable future for all. Overall, we are happy with the progress in our business as we continue to address the cost environment with additional announced price increases and execute on our previously communicated initiatives to drive long-term value for all of our stakeholders.”

(*) Cash position is defined as cash and cash equivalents and short-term bank deposits and long and short-term investment in marketable securities less debt from financial institutions.

Third Quarter 2021 Results

Revenue in the third quarter of 2021 grew 31.8% to a third quarter record of $163.3 million compared to $123.9 million in the prior year quarter. On a constant currency basis, third quarter revenue was higher by 29.2% year-over-year. Sales growth was primarily driven by improved demand across the majority of our global footprint in addition to the contribution of our recent acquisitions.

Gross margin in the third quarter declined to 26.2% compared to 31.4% in the prior year quarter. Adjusted gross margin in the third quarter was 26.3% compared to 31.4% in the prior year quarter. The year-over-year difference in gross margin mainly reflects higher raw material prices, particularly polyester, and shipping price increases which were partially offset by favorable product mix, selling price increases and more favorable exchange rates.

Operating expenses in the third quarter were $33.9 million, or 20.7% of revenue, compared to $23.8 million, or 19.2% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies, operating expenses were 21.0% of revenue, compared to 18.8% in the prior year quarter, mainly due to a return to normalized levels of marketing and selling expenses and investments related to initiatives under the Company’s Global Growth Acceleration Plan.

Operating income was $8.9 million compared to operating income of $15.0 million in the prior year quarter. The year-over-year decline mainly reflects higher operating expenses.

Adjusted EBITDA, which excludes expenses for non-cash share-based compensation, legal settlements and loss contingencies and for non-recurring items, was $17.7 million in the third quarter, representing a margin of 10.8%. This compares to adjusted EBITDA of $23.7 million, representing a margin of 19.1%, in the prior year quarter. The year-over-year margin decline primarily reflects the lower operating income.

Finance expense in the third quarter was $2.4 million compared to finance income of $0.1 million in the prior year quarter. The increase was mainly related to exchange rate fluctuations, higher credit card fees due to higher volume as well as interest related to bank loan.

Net Income attributable to controlling interest for the third quarter was $5.9 million compared to net income of $12.8 million in the prior year quarter. Net income per share for the third quarter was $0.17 compared to net income per share of $0.37 in the prior year quarter. Adjusted diluted net income per share for the third quarter was $0.20 on 34.6 million shares, compared to adjusted diluted net income per share of $0.41 in the prior year quarter on 34.5 million shares.

Balance Sheet & Liquidity

As of September 30, 2021, the Company’s balance sheet remained strong, including cash, cash equivalents and short-term bank deposits and short and long-term marketable securities of $104.7 million and total debt to financial institutions of $13.2 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. In accordance with the Company’s dividend policy, the board of directors declared a cash dividend of $0.10 per share for the third quarter and the nine months ended September 30, 2021. The dividend will be paid on November 30, 2021 to shareholders of record as of November 17, 2021. The dividend payment is subject to withholding tax of 20%.

Outlook

Based on year-to-date progress, the Company reiterates its expectation for 2021 revenue and Adjusted EBITDA to be higher year-over-year. The Company anticipates revenue to grow faster than EBITDA in 2021 mainly due to higher raw material and shipping costs, coupled with a return to more normalized levels of sales and marketing expenses and other investments to support growth initiatives. The Company’s outlook includes the investment costs associated with its Global Growth Acceleration Plan.

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. 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 Third 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 13724274. The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 3, 2021 and will last through 11:59 p.m. ET on Wednesday, November 10, 2021.

About Caesarstone

Caesarstone is a concept and lifestyle-driven company with a customer-centered approach to designing, developing, and producing high-end engineered stone countertops, 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 diverse countertop applications, marked by inherent longevity. Strong commitment to service has fostered growing customer loyalty in over 50 countries where the Caesarstone product collections are available: Classico, Supernatural, Metropolitan 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" 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 sustainability goals and plans, intentions, expectations, assumptions, goals and beliefs regarding the Company’s business and sustainability vision. These forward-looking statements also may 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, and expectations of the results of the Company’s business optimization initiatives. 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; raw material shortages and prices and effects of challenges in global shipping; the ability of the company to realign aspects of its business based on the business optimization initiatives, the strength of the home renovation and construction sectors; intense competitive pressures; the extent of the Company’s ability to meet its ESG goals and targets, including the extent of the Company’s ability to maintain a healthy and safe environment for the Company’s employees; management of GHG and silica emissions; the degree of the Company’s ability to develop, produce and deliver high quality and safe products; the Company’s ability to effectively manage changes in its production and supply chain; the extent of the Company’s ability to build-out and expand into certain markets; the Company’s ability to effective manage its relationship with suppliers; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to hazards associated with exposure to silica dust; efficiently manufacturing our products and managing 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; the 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, 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 22, 2021, 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.

Contacts:

Investor Relations:

ICR, Inc. - Rodny Nacier

+1 (646) 200-8870

Caesarstone Ltd. and its subsidiaries Condensed consolidated balance sheets
		As of
U.S. dollars in thousands		September 30, 2021				December 31, 2020
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits		$	85,050			$	114,248
Short-term available for sale marketable securities			12,811				8,112
Trade receivables, net			84,639				84,822
Other accounts receivable and prepaid expenses			39,325				26,481
Inventories			175,400				152,073
Total current assets			397,225				385,736
LONG-TERM ASSETS:
Severance pay fund			4,060				4,007
Long-term deposits			3,852				3,837
Deferred tax assets, net			8,428				8,359
Other long-term receivables			428				1,675
Operating lease right-of-use assets			141,935				123,928
Long-term available for sale marketable securities			6,811				10,926
Property, plant and equipment, net			223,286				222,883
Goodwill and intangible assets, net			56,420				59,570
Total long-term assets			445,220				435,185
Total assets		$	842,445			$	820,921
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit		$	13,197			$	13,122
Trade payables			68,360				55,063
Related parties and other loans			2,255				2,221
Short term legal settlements and loss contingencies			21,003				31,039
Accrued expenses and other liabilities			57,939				55,570
Total current liabilities			162,754				157,015
LONG-TERM LIABILITIES:
Long-term bank and other loans and financing liability of land from a related party			6,341				20,706
Legal settlements and loss contingencies long-term			23,122				21,910
Deferred tax liabilities, net			5,752				6,943
Long-term lease liabilities			129,788				112,719
Accrued severance pay			5,418				5,303
Long-term warranty provision			1,266				1,274
Total long-term liabilities			171,687				168,855
REDEEMABLE NON-CONTROLLING INTEREST			7,106				7,701
EQUITY:
Ordinary shares			371				371
Treasury shares - at cost			(39,430	)			(39,430	)
Additional paid-in capital			161,471				160,083
Capital fund related to non-controlling interest			(5,587	)			(5,587	)
Accumulated other comprehensive loss			(1,046	)			1,083
Retained earnings			385,119				370,830
Total equity			500,898				487,350
Total liabilities and equity		$	842,445			$	820,921

Caesarstone Ltd. and its subsidiaries  Condensed consolidated statements of income

		Three months ended Septemebr 30,								Nine months ended September 30,
U.S. dollars in thousands (except per share data)		2021				2020				2021				2020
		(Unaudited)								(Unaudited)
Revenues		$	163,341			$	123,922			$	472,835			$	349,516
Cost of revenues			120,607				85,068				341,015				254,089
Gross profit			42,734				38,854				131,820				95,427
Operating expenses:
Research and development			820				930				3,039				2,473
Marketing and selling			21,261				14,231				63,131				44,295
General and administrative			12,162				8,194				37,099				29,302
Legal settlements and loss contingencies, net			(385	)			452				4,464				4,927
Total operating expenses			33,858				23,807				107,733				80,997
Operating income			8,876				15,047				24,087				14,430
Finance expenses (income), net			2,403				(52	)			165				1,586
Income before taxes			6,473				15,099				23,922				12,844
Taxes on income			603				2,292				2,730				3,241
Net income		$	5,870			$	12,807			$	21,192			$	9,603
Net loss attributable to non-controlling interest			78				-				651				-
Net income attributable to controlling interest		$	5,948			$	12,807			$	21,843			$	9,603
Basic net income per ordinary share (*)		$	0.17			$	0.37			$	0.62			$	0.28
Diluted net income per ordinary share (*)		$	0.17			$	0.37			$	0.62			$	0.28
Weighted average number of ordinary shares used in computing basic income per ordinary share			34,463,460				34,422,128				34,472,016				34,411,480
Weighted average number of ordinary shares used in computing diluted income per ordinary share			34,529,130				34,453,647				34,558,509				34,455,129

(*) The numerator for the calculation of net income per share for the three and nine months ended September 30, 2021 has been decreased by approximately $0.1 and $0.3 million, respectively, to reflect the adjustment to redemption value associated with the redeemable non-controlling interest.

Caesarstone Ltd. and its subsidiaries Selected Condensed consolidated statements of cash flows

		Nine months ended September 30,
U.S. dollars in thousands		2021				2020
		(Unaudited)
Cash flows from operating activities:
Net income		$	21,192			$	9,603
Adjustments required to reconcile net income(loss) to net cash provided by operating activities:
Depreciation and amortization			26,491				21,160
Share-based compensation expense			1,387				2,335
Accrued severance pay, net			70				16
Changes in deferred tax, net			(1,587	)			(46	)
Capital (gain) loss			(3	)			342
Legal settlemnets and loss contingencies, net			4,464				4,927
Decrease (increase) in trade receivables			(1,139	)			9,155
Decrease (increase) in other accounts receivable and prepaid expenses			(12,349	)			3,740
Increase in inventories			(24,880	)			(4,375	)
Increase (decrease) in trade payables			13,843				(15,263	)
Increase (decrease) in warranty provision			8				(342	)
Changes in right of use assets			(18,863	)			(5,245	)
Changes in lease liabilities			19,128				5,761
Amortization of premium and accretion of discount on marketable securities, net			304				69
Changes in Accrued interest related to Marketable Securities			25				(87	)
Increase (decrease) in accrued expenses and other liabilities including related parties			(6,646	)			1,535
Net cash provided by operating activities			21,445				33,285
Cash flows from investing activities:
Repayment of assumed shareholders loan related to acquisition			(1,966	)			-
Repayment of contingent consideration related to acquisition			(1,780	)
Purchase of property, plant and equipment			(26,024	)			(15,544	)
Proceeds from sale of property, plant and equipment			7				7
Investment in marketable securities, net			(927	)			(19,728	)
Increase in long term deposits			(150	)			(407	)
Net cash used in investing activities			(30,840	)			(35,672	)
Cash flows from financing activities:
Dividend paid			(7,234	)			-
Changes in short-term bank credits and long-term loans			(11,096	)			(459	)
Repayment of a financing leaseback related to Bar-Lev transaction			(981	)			(924	)
Net cash used in financing activities			(19,311	)			(1,383	)
Effect of exchange rate differences on cash and cash equivalents			(492	)			373
Decrease in cash and cash equivalents and short-term bank deposits			(29,198	)			(3,397	)
Cash and cash equivalents and short-term bank deposits at beginning of the period			114,248				139,372
Cash and cash equivalents and short-term bank deposits at end of the period		$	85,050			$	135,975
Non - cash investing:
Changes in trade payables balances related to purchase of fixed assets			(737	)			(438	)

     

Caesarstone Ltd. and its subsidiaries

		Three months ended Septemebr 30,								Nine months ended September 30,
U.S. dollars in thousands (except per share data)		2021				2020				2021				2020
		(Unaudited)								(Unaudited)
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest		$	5,948			$	12,807			$	21,843			$	9,603
Legal settlements and loss contingencies, net (a)			(385	)			452				4,464				4,927
Contingent consideration adjustment related to acquisition			-				-				284				-
Amortization of assets related to acquisitions, net of tax			502				-				1,889				-
M&A related expenses			-				477				-				477
Share-based compensation expense (b)			391				628				1,387				2,335
Non cash revaluation of lease liabilities (c)			430				227				(543	)			12
Total adjustments			938				1,784				7,481				7,751
Less tax on non-tax adjustments (d)			56				481				854				2,090
Total adjustments after tax			882				1,303				6,628				5,661
Adjusted net income attributable to controlling interest (Non-GAAP)		$	6,830			$	14,110			$	28,471			$	15,264
Adjusted diluted EPS (e)		$	0.20			$	0.41			$	0.82			$	0.44

(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 diffrences deriving from revaluation of lease contracts in accoradance with FASB ASC 842.
(d)	Tax adjustments for the nine months ended Septemebr 30, 2021 and 2020, based on the effective tax rates.
(e)	In calculating adjusted diluted (Non-GAAP) EPS for the three and nine months ended September 30, 2021 and 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 - Supplemental data

		Three months ended
U.S. dollars in thousands		9/30/2021				6/30/2021				3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020				12/31/2019				9/30/2019				6/30/2019
		(Unaudited)
USA		$	79,065			$	77,844			$	70,831			$	53,618			$	52,097			$	41,726			$	60,055			$	64,659			$	64,805			$	64,590
Canada			22,479				21,946				17,779				20,325				19,174				14,435				18,558				20,575				21,881				23,341
Latin America			1,485				741				858				1,387				124				132				506				735				1,434				1,351
America's			103,029				100,531				89,468				75,330				71,395				56,293				79,119				85,969				88,120				89,282
Australia			29,215				31,597				27,172				29,953				27,746				23,534				22,354				26,000				28,642				28,294
Asia			7,232				7,370				7,777				7,122				2,881				1,732				2,831				3,932				3,675				3,311
APAC			36,447				38,967				34,949				37,075				30,627				25,266				25,185				29,932				32,317				31,605
EMEA			14,106				15,852				12,718				14,408				11,422				8,031				11,340				9,464				11,719				11,418
Israel			9,759				8,112				8,897				10,083				10,478				9,447				10,913				8,502				10,683				8,766
Total Revenues		$	163,341			$	163,462			$	146,032			$	136,896			$	123,922			$	99,037			$	126,557			$	133,867			$	142,839			$	141,071

		YoY % change
		9/30/2021				6/30/2021				3/31/2021				12/31/2020				9/30/2020				6/30/2020
		(Unaudited)
USA			51.8	%			86.6	%			17.9	%			(17.1	)%			(19.6	)%			(35.4	)%
Canada			17.2	%			52.0	%			(4.2	)%			(1.2	)%			(12.4	)%			(38.2	)%
Latin America			1097.6	%			461.4	%			69.6	%			88.8	%			(91.4	)%			(90.2	)%
America's			44.3	%			78.6	%			13.1	%			(12.4	)%			(19.0	)%			(36.9	)%
Australia			5.3	%			34.3	%			21.6	%			15.2	%			(3.1	)%			(16.8	)%
Asia			151.0	%			325.5	%			174.7	%			81.1	%			(21.6	)%			(47.7	)%
APAC			19.0	%			54.2	%			38.8	%			23.9	%			(5.2	)%			(20.1	)%
EMEA			23.5	%			97.4	%			12.2	%			52.2	%			(2.5	)%			(29.7	)%
Israel			(6.9	)%			(14.1	)%			(18.5	)%			18.6	%			(1.9	)%			7.8	%
Total Revenues			31.8	%			65.1	%			15.4	%			2.3	%			(13.2	)%			(29.8	)%

(*) 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.