Caesarstone Reports First Quarter 2012 Results

Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its first quarter, ended March 31, 2012. Pro forma results discussed below attempt to present results as if the acquisition of Caesarstone USA had been completed on January 1, 2011 to allow for comparability.

Revenues in the first quarter of fiscal 2012 increased by 28.5% to $67.3 million compared to $52.4 million in the same quarter in the prior year. This was driven predominantly by the contribution of its former distributor, Caesarstone USA, acquired in May 2011. Pro forma revenues for the quarter increased 11.7% compared to the prior year’s first quarter, with rapid growth in the United States and Canada, up 22% and 69% respectively on that basis. This growth and growth in other regions was partially offset by a 10% decline in Israel against an unusually strong quarter last year. A table detailing regional revenue performance is included below.

Yosef Shiran, Chief Executive Officer, commented, “We are very pleased to report a strong first quarter and expect continued solid performance as the year progresses. Our strategy to shift to a direct distribution model in the United States, Canada and other regions around the world has accelerated our growth, enhanced our diversification, and increased the range and size of our opportunities. We are making investments, particularly in the United States, to rapidly build our brand and business and we remain very focused on continuing to execute well. We expect to drive value to our shareholders by leveraging these investments over time as we extend our global reputation for innovation, quality and service.”

Gross margin in the first quarter increased to 41.8% compared to 38.2% in the prior year, driven primarily by the transition to direct distribution, which generally carries higher gross margins. To a lesser extent, the Company also achieved economies of scale over its fixed manufacturing expenses with increased production volume. The Company noted that adjusting for the impact of $0.8 million of IPO bonus payments and a $0.5 million charge for the excess cost of acquired inventory, this year’s first quarter gross margin was 43.7%. Pro forma adjusted gross margin in the first quarter of last year was 42.6%.

Operating expenses in the first quarter increased to $21.0 million, or 31.2% of revenues, compared to $12.0 million, or 21.7% of revenues in the first quarter of 2011. Adjusting for the impact of $1.1 million of IPO bonus payments and $0.3 million of purchase price adjustment for Caesarstone USA, operating expenses in this year’s first quarter were $19.7 million, or 29.2% of revenues. The increase in adjusted expenses as a percent of sales versus prior year primarily reflects the shift to direct distribution in the United States and the Company’s investment in developing that market. Pro forma adjusted operating expenses in the prior year’s first quarter were $18.0 million, or 29.8% of sales.

Adjusted EBITDA, which eliminates each of the above-mentioned non-recurring items as well as share-based compensation, was $13.7 million, a margin of 20.3%, in the first quarter. This compares to adjusted EBITDA of $11.5 million, a margin of 22.0%, for the same quarter in the prior year. Pro forma adjusted EBITDA in the prior year’s first quarter was $12.3 million, a margin of 20.5%.

Foreign exchange fluctuation caused finance expenses in the first quarter to increase to $1.4 million versus the year-ago quarter’s level of $0.4 million. Taxes in the first quarter of 2012 increased to $0.8 million versus a credit of $0.2 million in the same quarter of last year, which included a one-time tax credit adjustment of $1.8 million related to a new tax benefit regulation in Israel.

The Company’s reported GAAP net income for the first quarter of $4.8 million, or $0.18 per diluted share as compared to net income in the same quarter of the prior year of $8.0 million, or $0.29 per diluted share. The Company’s share count in this year’s first quarter was a weighted average of 27.5 million shares, reflecting the timing of its offering on March 21, 2012.

Adjusted net income for the quarter ended March 31, 2012 was $7.4 million, or $0.27 per diluted share as compared to adjusted net income for the quarter ended March 31, 2011 of $8.5 million, or $0.31 per diluted share. This reduction is entirely attributable to the $2.1 million of increased finance and tax expenses.

The Company noted that its balance sheet as of March 31, 2012 was strong and reflected the receipt of proceeds from its initial public offering, completed on March 21, 2012.

Guidance

The Company also today issued its initial 2012 full Year Guidance for Sales and Adjusted EBITDA. The Company expects to report sales in the range of $292 million to $302 million and to report Adjusted EBITDA in the range of $67 million to $70 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, Tuesday May 8th, 2012, at 8:00 a.m. ET to discuss the results of the first quarter ended March 31, 2012, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at www.viavid.com in the events section. To access in the call, dial toll-free 1-888-430-8685 or +1-719-457-2620 (international). The pass code is 9384742.

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 9384742. The replay will be available beginning at 11:00 a.m. ET on Tuesday, May 8, 2012 and will last through 11:59 PM ET May 22, 2012.

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 types of 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 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. 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 manufacturer 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.
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries Consolidated balance sheets
         
As of
U.S. dollars in thousands

December 31, 2011

March 31, 2012
 

ASSETS
 
CURRENT ASSETS:
Cash and cash equivalents $

11,950

 
$

74,502

 
Trade receivables 36,798 42,130
Other accounts receivable and prepaid expenses 13,474 26,399
Inventories   48,085     53,900  
 
Total current assets   110,307     196,931  
 
LONG-TERM INVESTMENTS:
Severance pay fund 2,942 3,067
Long-term deposits 343 318
 
Total long-term investments   3,285     3,385  
 
PROPERTY, PLANT AND EQUIPMENT, NET   69,657     72,548  
 
OTHER ASSETS   20,626     19,778  
 
GOODWILL   42,442     43,027  
 
Total assets $ 246,317   $ 335,669  
 
LIABILITIES AND EQUITY
 
CURRENT LIABILITIES:
 
Short-term bank credit $ 3,866 $ 3,860
Current maturities of long-term loans 12,541 12,037
Trade payables 30,838 35,390
Account payables to related parties 5,437 34,850
Accrued expenses and other liabilities   29,033     30,819  
 
Total current liabilities   81,715     116,956  
 
LONG-TERM LIABILITIES:
 
Long-term loans 5,405 2,767
Long-term loan from related party 1,820 1,879
Capital leases 71 39
Accrued severance pay 3,584 3,755
Long-term warranty provision 1,439 1,492
Deferred tax liabilities, net 8,248 7,517
Share-based payment in subsidiary   1,379     -  
 
Total long-term liabilities   21,946     17,449  
 
REDEEMABLE NON-CONTROLLING INTEREST   6,205     6,486  
 
COMMITMENTS AND CONTINGENT LIABILITIES
 
EQUITY:
Share capital -
Ordinary shares 192 360
Cumulative preferred shares 86 -
Additional paid-in capital 55,338 132,730
Accumulated other comprehensive income 6,306 7,555
Foreign currency translation adjustments – Company 7,376 9,340
Retained earnings   67,153     44,793  
 
Total equity   136,451     194,778  
 
Total liabilities and equity $ 246,317   $ 335,669  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries Consolidated statements of income
         

Three months ended March 31,
U.S. dollars in thousands   2011     2012  
 
 
Revenues $ 52,394 $ 67,346
Cost of revenues   32,358     39,195  
 
Gross profit   20,036     28,151  
 
Operating expenses:
Research and development, net 637 737
Marketing and selling 5,480 11,894
General and administrative   5,837     8,359  
 
Total operating expenses   11,954     20,990  
 
Operating income 8,082 7,161
Finance expenses, net   263     1,455  
 
Income before taxes on income 7,819 5,706
Taxes on income   (168 )   755  
 
Income after taxes on income 7,987 4,951
Equity in losses of affiliate, net   (83 )   -  
 
Net income   7,904     4,951  
 
Net loss (income) attributable to non-controlling interest 62 (129 )
Net income attributable to controlling interest 7,966 4,822
Dividends attributable to preferred shareholders   2,303     -  
Net income attributable to the Company's ordinary shareholders $ 5,663   $ 4,822  
Diluted net income per share of ordinary shares $ 0.29   $ 0.18  
Weighted average number of ordinary shares used in computing basic income per share   19,565,000     27,471,052  
Weighted average number of ordinary shares used in computing diluted income per share   19,565,000     27,480,484  
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries Consolidated statements of cash flows
         

Three months ended March 31,
U.S. dollars in thousands   2011     2012  
 

Cash flows from operating activities:
 
Net income $ 7,904 $ 4,951
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,857 3,589
Equity-based compensation expense - 908
Accrued severance pay, net (33 ) 28
Changes in deferred tax, net (1,770 ) (651 )
Equity in loss of affiliate, net 83 -
Capital losses 35 -
Foreign exchange remeasurement gains (418 ) (167 )
Increase in trade receivables including receivable from related party (3,947 ) (4,520 )
Increase in other accounts receivable and prepaid expenses (562 ) (3,147 )
Increase in inventories (3,927 ) (5,090 )
Increase in trade payables 669 2,418
Increase in warranty provision 20 25
Increase (decrease) in accrued expenses and other liabilities including related parties (515 ) 3,529
   
Net cash provided by operating activities   396     1,873  
 

Cash flows from investing activities:
 
Acquisition of the business of Prema Asia Marketing PTE Ltd. - (150 )
Purchase of property, plant and equipment (1,246 ) (624 )
Decrease (increase) in long-term deposits (12 ) 19
   
Net cash used in investing activities   (1,258 )   (755 )
 

Cash flows from financing activities:
 
Dividend paid (3,313 ) -
Receipt from issue of shares - 68,498
Repayment of long-term loans (3,387 ) (3,465 )
Short-term bank credit and loans, net (8,335 ) (100 )
Expenses related to IPO - (1,582 )
   
Net cash provided by (used in) financing activities   (15,035 )   63,351  
 
Effect of exchange rate differences on cash and cash equivalents 2,875 (1,917 )
   
Increase (decrease) in cash and cash equivalents   (13,022 )   62,552  
Cash and cash equivalents at beginning of year 43,737 11,950
 
Cash and cash equivalents at end of year   30,715     74,502  
 
 

non - cash investing and financing activities:
Declared dividend - 27,182
Purchase of fixed assets with credit from suppliers 1,558 2,986
Receipt from issue of shares - (10,275 )
IPO deferred expenses - 1,722
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
           

Three months ended March 31,
U.S. dollars in thousands       2011     2012  
 
Reconciliation of Net Income to Adjusted EBITDA:
Net income $ 7,904 $

4,951

 
Finance expenses, net 263 1,455
Taxes on income (168 ) 755
Depreciation and amortization 2,857 3,589
Equity in losses of affiliate, net (a) 83 -
Excess cost of acquired inventory (b) - 469
Share-based compensation expense (c) 571 243
IPO bonus (d) - 1,970
USQ purchase price adjustment (e)   -     255  
Adjusted EBITDA $ 11,510   $ 13,687  
 
 
 
(a) Consists of the Company's portion of the results of operations of Caesarstone USA prior to its acquisition by the Company in May 2011.
(b)

Consists of the difference between the standard cost of the Company's inventory and the higher carrying cost in two of the Company's subsidiaries:Caesarstone USA’s inventory at the time of its acquisition and Caesarstone Australia's inventory that was bought from its distributer.These differences adversely impact our gross margins until such inventory is sold. The majority of the acquired inventory in Caesarstone USA was sold in 2011, while the acquired inventory in Caesarstone Australia is expected to be sold by the end of 2012.
(c)

In 2011, share-based compensation consists primarily of changes in the value of share-based rights granted in January 2009 to the Company's Chief Executive Officer.In 2012, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as changes in the value of share-based rights granted in January 2009 to the Company's Chief Executive Officer.
(d) Consists of the payment of $1.7 million to certain of the Company's employees and $0.25 million to the Company's Chairman for their contributionto the completion of the Company's IPO.
(e)

In May 2011, the Company acquired the remaining 75% equity interest in its U.S distributer, Caesarstone USA, in which it acquired a 25% interest in January 2007. The acquisition price was $26.5 million and the majority of the amount was paid in 2011, while the balance of the purchase price was payable following the closing of the Company's IPO.
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries
             

Three months ended March 31,
U.S. dollars in thousands       2011       2012  
 
Reconciliation of Net Income Attributable to Controlling Interest to Adjusted Net Income:
Net income attributable to controlling interest

$

7,966

 

$

4,822

 
Excess cost of acquired inventory (a) - 469
Share-based compensation expense (b) 571 243
IPO bonus (c) - 1,970
USQ Purchase Price adjustment (d)   -     255  
Total adjustments before tax 571 2,937
Less tax on above adjustments (e)   62     321  
Total adjustments after tax 509 2,616
 
Adjusted net income attributable to controlling interest 8,475 7,438
Dividends attributable to preferred shareholders   2,435     -  
Net income attributable to the Company's ordinary shareholders $ 6,040   $ 7,438  
Adjusted diluted EPS   0.31     0.27  
 
 
(a) Consists of the difference between the standard cost of the Company's inventory and the higher carrying cost in two of the Company's subsidiaries:Caesarstone USA’s inventory at the time of its acquisition and Caesarstone Australia's inventory that was bought from its distributer.

These differences adversely impact our gross margins until such inventory is sold. The majority of the acquired inventory in Caesarstone USA was sold in 2011, while the acquired inventory in Caesarstone Australia is expected to be sold by the end of 2012.
(b)

In 2011, share-based compensation consists primarily of changes in the value of share-based rights granted in January 2009 to the Company's Chief Executive Officer.

In 2012, share-based compensation consists primarily of expenses related to the stock options granted to employees of the Company, as well as changes in the value of share-based rights granted in January 2009 to the Company's Chief Executive Officer.
(c)

Consists of the payment of $1.7 million to certain of the Company's employees and $0.25 million to the Company's Chairman for their contribution to the completion of the Company's IPO.
(d)

In May 2011, the Company acquired the remaining 75% equity interest in its U.S distributer, Caesarstone USA, in which it acquired a 25% interest in January 2007. The acquisition price was $26.5 million and the majority of the amount was paid in 2011, while the balance of the purchase price was payable following the closing of the Company's IPO.
(e)

Tax adjustments reflect the increase in taxes on income that would have been reflected in our consolidated income statements for the applicable period if the adjustments set forth in the table were not applied in computing net income. The tax effect is based on effective tax rate for 2011.
 
 
Caesarstone Sdot-Yam Ltd. and its subsidiaries Geographic breakdown of revenues by region
           

Three months ended March 31,
U.S. dollars in thousands       2011     2012  
 
 
Australia

18,757

 

19,031

 
USA 7,472 18,774
Israel 10,314 9,265
Canada 5,196 8,797
Europe 5,697 5,725
Rest of World   4,958     5,754  
$ 52,394   $ 67,346  

Copyright Business Wire 2010

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