Caesarstone Reports Second Quarter 2015 Results
- Revenue Up 9.9% to a Record $127.5 million, up 20.2% on a Constant Currency Basis
- Net Income attributable to Controlling Interest Up 25.7% to $22.9 million
- Diluted EPS up 27.5% to $0.65, Adjusted Diluted EPS up 12.1% to $0.65
- Reiterates Full Year Adjusted EBITDA Guidance on Lower Revenue Expectations
MP MENASHE, Israel--(BUSINESS WIRE)-- Caesarstone Sdot-Yam Ltd. (NASDAQ:CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its second quarter ended June 30, 2015.
Revenue in the second quarter of 2015 increased to a record of $127.5 million, up 9.9% compared to $116.1 million in the same quarter of the prior year. On a constant currency basis, second quarter revenue growth was 20.2% compared to the same period last year. Growth in revenue was primarily driven by the United States, which increased by 19.2% to $57.1 million, and Canada, which increased by 24.4% to $19.1 million despite pressure from foreign exchange rate changes.
Yosef Shiran, Chief Executive Officer, commented, "We are pleased to report another quarter of solid financial results. Wecontinue to benefit from the strong Caesarstone brand supported by our powerful global marketing strategy, innovative and inspiring designs, and excellent quality. Each of our major markets is healthy, even with the headwinds from currency exchange rates, and continues to present significant opportunities. We look forward to capturing those opportunities to continue driving long-term growth and value for our shareholders."
Gross margin in the second quarter was 41.3% compared to 41.0% in the same period of the prior year. This was driven primarily by favorable product mix, lower cost of polyester and benefits of scale. These factors were partially offset by start-up costs related to the U.S. manufacturing facility and negative exchange rate fluctuations.
Operating expenses in the second quarter were $24.3 million, or 19.1% of revenue. This compares to the prior year second quarter level of $24.1 million, or 20.7% of revenue. This 160 basis point improvement reflects the scale-related benefit of increased revenues, as well as the non-recurrence of several discrete expense items incurred in the second quarter last year, primarily costs associated with the secondary offering in the prior year.
Operating income in the second quarter was up 20% to $28.3 million compared to $23.6 million in the second quarter of 2014.
Adjusted EBITDA, which excludes the impact of share-based compensation expenses, the excess cost of acquired inventory and other non-recurring items, increased by 10.4% to $33.5 million in the second quarter, a margin of 26.3%. This compares to adjusted EBITDA of $30.4 million, a margin of 26.2%, in the second quarter of the prior year.
Finance expenses in the second quarter were $0.4 million compared to finance expense of $1.4 million during the same period in the prior year. The decrease was primarily due to net gains related to the Company's currency hedging instruments in the second quarter of 2015 compare to a net loss on those instruments in the same quarter of 2014.
The Company reported net income attributable to controlling interest for the second quarter of 2015 of $22.9 million compared to $18.2 million in the same quarter in the prior year. Diluted net income per share for the second quarter was $0.65 on 35.5 million shares compared to $0.51 per diluted share on 35.4 million shares in the prior year's second quarter. On an adjusted basis, net income in the second quarter was $23.2 million, or $0.65 per diluted share compared to $20.7 million, or $0.58 per diluted share in the same quarter of the prior year.
The Company's balance sheet as of June 30, 2015 included cash, cash equivalents and short-term bank deposits of $37.7 million.
The Company's U.S. manufacturing facility in Richmond Hill, Georgia remains on track, with the first line in the U.S. now operational, and the second line in the U.S. expected to begin production in the fourth quarter of 2015.
Guidance Revised
The Company today reiterated its guidance for full-year adjusted EBITDA of $123 to $129 million and commented that it now expects to achieve that range with better than previously expected margins.
As a result of slightly lower-than-expected U.S. growth and the further negative impact of foreign exchange rates, the Company moderated its full-year revenue guidance to a new range of $495 million to $505 million as compared to its prior range of $515 million to $525 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, August 5, 2015, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2015, 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 1-888-427-9411 or +1-719-325-2215 (international). Israeli participants can dial in at 1-80-924-5906. The pass code is 5269198.
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 5269198. The replay will be available beginning at 11:30 a.m. ET on August 5, 2015 and will last through 11:59 PM ET August 19, 2015.
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 50 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 are provided in the schedules within this release. 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; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and the claim by our former quartz processor; unpredictability of seasonal fluctuations in revenues; delays in manufacturing if our
suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F 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.
Revenue in the second quarter of 2015 increased to a record of $127.5 million, up 9.9% compared to $116.1 million in the same quarter of the prior year. On a constant currency basis, second quarter revenue growth was 20.2% compared to the same period last year. Growth in revenue was primarily driven by the United States, which increased by 19.2% to $57.1 million, and Canada, which increased by 24.4% to $19.1 million despite pressure from foreign exchange rate changes.
Yosef Shiran, Chief Executive Officer, commented, "We are pleased to report another quarter of solid financial results. Wecontinue to benefit from the strong Caesarstone brand supported by our powerful global marketing strategy, innovative and inspiring designs, and excellent quality. Each of our major markets is healthy, even with the headwinds from currency exchange rates, and continues to present significant opportunities. We look forward to capturing those opportunities to continue driving long-term growth and value for our shareholders."
Gross margin in the second quarter was 41.3% compared to 41.0% in the same period of the prior year. This was driven primarily by favorable product mix, lower cost of polyester and benefits of scale. These factors were partially offset by start-up costs related to the U.S. manufacturing facility and negative exchange rate fluctuations.
Operating expenses in the second quarter were $24.3 million, or 19.1% of revenue. This compares to the prior year second quarter level of $24.1 million, or 20.7% of revenue. This 160 basis point improvement reflects the scale-related benefit of increased revenues, as well as the non-recurrence of several discrete expense items incurred in the second quarter last year, primarily costs associated with the secondary offering in the prior year.
Operating income in the second quarter was up 20% to $28.3 million compared to $23.6 million in the second quarter of 2014.
Adjusted EBITDA, which excludes the impact of share-based compensation expenses, the excess cost of acquired inventory and other non-recurring items, increased by 10.4% to $33.5 million in the second quarter, a margin of 26.3%. This compares to adjusted EBITDA of $30.4 million, a margin of 26.2%, in the second quarter of the prior year.
Finance expenses in the second quarter were $0.4 million compared to finance expense of $1.4 million during the same period in the prior year. The decrease was primarily due to net gains related to the Company's currency hedging instruments in the second quarter of 2015 compare to a net loss on those instruments in the same quarter of 2014.
The Company reported net income attributable to controlling interest for the second quarter of 2015 of $22.9 million compared to $18.2 million in the same quarter in the prior year. Diluted net income per share for the second quarter was $0.65 on 35.5 million shares compared to $0.51 per diluted share on 35.4 million shares in the prior year's second quarter. On an adjusted basis, net income in the second quarter was $23.2 million, or $0.65 per diluted share compared to $20.7 million, or $0.58 per diluted share in the same quarter of the prior year.
The Company's balance sheet as of June 30, 2015 included cash, cash equivalents and short-term bank deposits of $37.7 million.
The Company's U.S. manufacturing facility in Richmond Hill, Georgia remains on track, with the first line in the U.S. now operational, and the second line in the U.S. expected to begin production in the fourth quarter of 2015.
Guidance Revised
The Company today reiterated its guidance for full-year adjusted EBITDA of $123 to $129 million and commented that it now expects to achieve that range with better than previously expected margins.
As a result of slightly lower-than-expected U.S. growth and the further negative impact of foreign exchange rates, the Company moderated its full-year revenue guidance to a new range of $495 million to $505 million as compared to its prior range of $515 million to $525 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, August 5, 2015, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2015, 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 1-888-427-9411 or +1-719-325-2215 (international). Israeli participants can dial in at 1-80-924-5906. The pass code is 5269198.
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 5269198. The replay will be available beginning at 11:30 a.m. ET on August 5, 2015 and will last through 11:59 PM ET August 19, 2015.
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 50 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 are provided in the schedules within this release. 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; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and the claim by our former quartz processor; unpredictability of seasonal fluctuations in revenues; delays in manufacturing if our
suppliers are unable to supply raw materials; and other factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F 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.