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Caesarstone(CSTE) - 2022 Q3 - Quarterly Report

Caesarstone Third Quarter 2022 Financial Results Management Commentary Record constant currency revenue growth was achieved, but strong U.S. dollar and softening markets led to cost and production adjustments - The company achieved its 7th consecutive quarter of double-digit revenue growth on a constant currency basis, driven by its strategy to become a leading premium, multi-material countertop company3 - Key challenges impacting performance include significant foreign exchange headwinds from a strong U.S. dollar and softening volumes due to a challenging macroeconomic environment, particularly in the U.S.4 - In response to market conditions, the company is implementing pricing actions to mitigate cost inflation and taking measures to align production and inventory levels to reduce costs34 Q3 2022 Financial Performance Caesarstone achieved record revenue of $180.7 million, up 10.6% (14.9% constant currency), but gross margin declined to 23.0% due to currency and higher costs, resulting in a net loss of $0.5 million Key Financial Results Q3 2022 vs Q3 2021 Key Financial Metrics | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $180.7M | $163.3M | +10.6% | | Revenue (Constant Currency) | - | - | +14.9% | | Gross Margin | 23.0% | 26.2% | -320 bps | | Adjusted Gross Margin | 23.1% | 26.3% | -320 bps | | Operating Income | $3.2M | $8.9M | -64.3% | | Adjusted EBITDA | $13.4M | $17.7M | -24.3% | | Adjusted EBITDA Margin | 7.4% | 10.8% | -340 bps | | Net Loss Attributable to Controlling Interest | ($0.5M) | $5.9M | - | | Diluted EPS | ($0.02) | $0.17 | - | | Adjusted Diluted EPS | $0.01 | $0.20 | -95.0% | Geographic Revenue Analysis Q3 2022 Revenue by Region (USD in thousands) | Region | Q3 2022 Revenue | Q3 2021 Revenue | YoY Growth | YoY Growth (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | USA | $87,623 | $79,065 | 10.8% | 10.8% | | Canada | $23,607 | $22,479 | 5.0% | 8.7% | | Australia | $31,204 | $29,215 | 6.8% | 14.6% | | EMEA | $17,004 | $14,106 | 20.5% | 41.1% | | Israel | $10,985 | $9,759 | 12.6% | 16.5% | | Total | $180,727 | $163,341 | 10.6% | 14.9% | Balance Sheet & Liquidity As of September 30, 2022, the company maintained a solid liquidity position with $66.2 million in cash and equivalents against $34.5 million in total debt Key Balance Sheet Items (as of Sep 30, 2022) | Item | Amount (USD) | | :--- | :--- | | Cash, cash equivalents, and marketable securities | $66.2 million | | Total debt to financial institutions | $34.5 million | Dividend No dividend will be paid for Q3 2022 due to the reported net loss, in accordance with the company's dividend policy - No dividend will be paid for Q3 202213 - The decision is based on the company's dividend policy and the reported net loss attributable to controlling interest for the quarter13 Outlook The company revised its full-year 2022 outlook downwards, projecting revenue between $690 million and $700 million and an Adjusted EBITDA margin of 8.0% to 8.5%, due to currency and economic conditions Revised Full Year 2022 Guidance | Metric | Previous Guidance | Revised Guidance | | :--- | :--- | :--- | | Revenue | $710M - $725M | $690M - $700M | | Adjusted EBITDA Margin | Not specified (10.6% in 2021) | ~8.0% - 8.5% | - The guidance reduction is predominantly attributed to unfavorable foreign currency exchange rates, moderated volume expectations from softening economic conditions, and higher shipping and logistics costs14 Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Caesarstone Ltd. and its subsidiaries, including balance sheets, income statements, and cash flow statements Condensed consolidated balance sheets Balance Sheet Summary (USD in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $435,027 | $408,526 | | Total Assets | $853,379 | $867,653 | | Total Current Liabilities | $191,843 | $183,294 | | Total Liabilities | $352,476 | $365,489 | | Total Equity | $492,925 | $494,295 | Condensed consolidated statements of income Income Statement Summary - Three Months Ended Sep 30 (USD in thousands) | Account | 2022 (Unaudited) | 2021 | | :--- | :--- | :--- | | Revenues | $180,727 | $163,341 | | Gross Profit | $41,617 | $42,734 | | Operating Income | $3,155 | $8,876 | | Net Income (Loss) | ($364) | $5,870 | | Net Income (Loss) Attributable to Controlling Interest | ($463) | $5,948 | Selected Condensed consolidated statements of cash flows Cash Flow Summary - Nine Months Ended Sep 30 (USD in thousands) | Account | 2022 (Unaudited) | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($24,292) | $21,445 | | Net cash used in investing activities | ($2,765) | ($30,840) | | Net cash provided by (used in) financing activities | $12,463 | ($19,311) | | Decrease in cash and cash equivalents | ($15,755) | ($29,198) | | Cash and cash equivalents at end of period | $58,560 | $85,050 | Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP to non-GAAP financial measures, adjusting for non-recurring items to present Adjusted Gross Profit, Adjusted EBITDA, and Adjusted Net Income, reflecting core operating performance Q3 2022 Reconciliation of Net Income to Adjusted EBITDA (USD in thousands) | Line Item | Amount | | :--- | :--- | | Net loss | ($364) | | Finance expenses, net | $4,307 | | Taxes on income | ($788) | | Depreciation and amortization | $9,200 | | Legal settlements and loss contingencies, net | $602 | | Share-based compensation expense | $375 | | Other adjustments | $57 | | Adjusted EBITDA (Non-GAAP) | $13,389 | Q3 2022 Reconciliation of Net Income to Adjusted Net Income (USD in thousands) | Line Item | Amount | | :--- | :--- | | Net loss attributable to controlling interest | ($463) | | Total adjustments after tax | $476 | | Adjusted net income attributable to controlling interest (Non-GAAP) | $13 |