Caesarstone(CSTE) - 2023 Q1 - Quarterly Report

Executive Summary & Strategic Overview Caesarstone achieved record full-year revenue in FY2022 despite Q4 decline and net loss, driven by strategic initiatives focusing on cost optimization and multi-material expansion Key Financial Highlights Caesarstone achieved record revenue of $690.8 million in FY2022, a 7.3% YoY increase (10.8% at constant currency), despite a 6.8% Q4 revenue decline (2.1% at constant currency), reporting a full-year net loss of $57.1 million primarily due to a $71.3 million non-cash impairment charge FY2022 Key Financial Highlights | Metric | Amount (million USD) | | :--- | :--- | | Full-Year Revenue | 690.8 | | Full-Year Revenue YoY Growth | 7.3% | | Full-Year Revenue YoY Growth (Constant Currency) | 10.8% | | Full-Year Net Loss | 57.1 | | Full-Year Loss Per Share | 1.66 | | Full-Year Adjusted Net Income | 10.6 | | Full-Year Adjusted Diluted EPS | 0.31 | | Full-Year Adjusted EBITDA | 51.9 | Q4 2022 Key Financial Highlights | Metric | Amount (million USD) | | :--- | :--- | | Q4 Revenue | 159.4 | | Q4 Revenue YoY Decrease | 6.8% | | Q4 Revenue YoY Decrease (Constant Currency) | 2.1% | | Q4 Net Loss | 74.0 | | Q4 Loss Per Share | 2.15 | | Q4 Adjusted Diluted Loss Per Share | 0.02 | | Q4 Adjusted EBITDA | 5.7 | CEO Commentary & Strategic Initiatives CEO Yuval Dagim highlighted record full-year revenue despite macroeconomic challenges, focusing on a multi-pronged growth strategy including cost rationalization, working capital management, expanded distribution, and new product launches - The company is focusing on cost control and future growth investments through its global growth acceleration plan, including 9% workforce reduction in H2 2022[3] - The company is more effectively managing working capital by balancing facility production and reducing SKUs to align inventory levels with current demand[3] - The company is expanding its U.S. operations, investing in new distribution centers, and acquiring a Swedish distributor to expand in Europe; new porcelain products will launch in the U.S. and Canada in H1 2023 as part of its multi-material strategy[3] Full Year 2022 Financial Results This section provides a detailed overview of Caesarstone's full-year 2022 financial performance, covering revenue, gross profit, operating expenses, net income, and adjusted EBITDA Revenue Performance Full-year 2022 revenue reached a record $690.8 million, increasing 7.3% year-over-year, or 10.8% at constant currency, primarily driven by growth in the U.S. and Canada FY2022 Revenue Overview | Metric | 2022 (million USD) | 2021 (million USD) | YoY Growth | YoY Growth (Constant Currency) | | :----- | :------------------ | :------------------ | :--------- | :----------------------------- | | Revenue | 690.8 | 643.9 | 7.3% | 10.8% | Gross Profit and Margin Gross margin for FY2022 decreased to 23.6% from 26.6% in 2021, primarily due to lower capacity utilization, increased raw material and shipping costs, and unfavorable exchange rates, partially offset by product mix and pricing FY2022 Gross Margin | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Gross Margin | 23.6% | 26.6% | | Adjusted Gross Margin | 23.8% | 26.8% | - The decrease in adjusted gross margin primarily reflects increased manufacturing costs due to lower capacity utilization, higher raw material prices, unfavorable exchange rates, and increased shipping costs, partially offset by a favorable product mix and higher selling prices[23] Operating Expenses and Income (Loss) Operating expenses significantly increased to $221.9 million in 2022, including a $71.3 million non-cash impairment charge, resulting in an operating loss of $58.7 million compared to income of $27.4 million in 2021 FY2022 Operating Expenses and Income (Loss) | Metric | 2022 (million USD) | 2021 (million USD) | | :----- | :------------------ | :------------------ | | Operating Expenses | 221.9 | 144.1 | | Impairment Expenses | 71.3 | - | | Operating Income (Loss) | (58.7) | 27.4 | - Operating expenses in 2022 included a $71.3 million non-cash impairment charge[10] - Excluding legal settlements, loss contingencies, and impairment charges, adjusted operating expenses as a percentage of revenue improved to 21.7% from 21.9% in the prior year[10] Finance Income (Expenses) The company reported net finance income of $3.1 million in FY2022, a significant improvement from a $7.6 million expense in the prior year, primarily due to foreign exchange rate fluctuations FY2022 Finance Income (Expenses) | Metric | 2022 (million USD) | 2021 (million USD) | | :----- | :------------------ | :------------------ | | Finance Income (Expenses), Net | 3.1 | (7.6) | - The difference in finance income (expenses) primarily resulted from foreign exchange rate fluctuations[11] Net Income (Loss) and EPS Net loss attributable to controlling interest was $57.1 million in FY2022, including the after-tax impact of impairment charges, resulting in a diluted loss per share of $1.66, while adjusted diluted EPS was $0.31 FY2022 Net Income (Loss) and EPS | Metric | 2022 (million USD) | 2021 (million USD) | | :----- | :------------------ | :------------------ | | Net Loss Attributable to Controlling Interest | (57.1) | 19.0 | | Net Loss Per Share | (1.66) | 0.51 | | Adjusted Diluted Net Income Per Share | 0.31 | 0.83 | Adjusted EBITDA Adjusted EBITDA for FY2022 was $51.9 million with a 7.5% margin, down from $68.2 million and a 10.6% margin in 2021, primarily reflecting the decrease in gross margin FY2022 Adjusted EBITDA | Metric | 2022 (million USD) | 2021 (million USD) | 2022 Margin | 2021 Margin | | :----- | :------------------ | :------------------ | :---------- | :---------- | | Adjusted EBITDA | 51.9 | 68.2 | 7.5% | 10.6% | - The year-over-year decrease in adjusted EBITDA margin primarily reflects the lower gross margin[25] Fourth Quarter 2022 Financial Results This section presents Caesarstone's financial performance for the fourth quarter of 2022, detailing revenue, gross profit, operating expenses, net income, and adjusted EBITDA Revenue Performance Fourth quarter 2022 revenue decreased 6.8% year-over-year to $159.4 million, or 2.1% at constant currency, as APAC growth was offset by weaker performance in other regions due to macroeconomic challenges Q4 2022 Revenue Overview | Metric | Q4 2022 (million USD) | Q4 2021 (million USD) | YoY Change | YoY Change (Constant Currency) | | :----- | :-------------------------- | :-------------------------- | :--------- | :----------------------------- | | Revenue | 159.4 | 171.1 | (6.8)% | (2.1)% | - Sales improvement in APAC (at constant currency) was offset by weaker performance in other regions due to macroeconomic challenges and decreased demand[20] Gross Profit and Margin Gross margin for Q4 2022 was 19.4%, down from 23.2% in the prior year, primarily due to lower capacity utilization, increased raw material and shipping costs, and unfavorable foreign exchange rates, partially offset by pricing actions Q4 2022 Gross Margin | Metric | Q4 2022 | Q4 2021 | | :----- | :------------- | :------------- | | Gross Margin | 19.4% | 23.2% | | Adjusted Gross Margin | 19.7% | 23.3% | - The year-over-year decrease in gross margin was primarily due to increased manufacturing costs from lower capacity utilization, higher raw material and shipping costs, and unfavorable foreign exchange rate fluctuations, partially offset by pricing actions[5] Operating Expenses and Income (Loss) Operating expenses surged to $106.1 million in Q4 2022, including a $71.3 million one-time non-cash impairment charge, resulting in an operating loss of $75.2 million compared to income of $3.3 million in Q4 2021 Q4 2022 Operating Expenses and Income (Loss) | Metric | Q4 2022 (million USD) | Q4 2021 (million USD) | | :----- | :-------------------------- | :-------------------------- | | Operating Expenses | 106.1 | 36.3 | | Impairment Expenses | 71.3 | - | | Operating Income (Loss) | (75.2) | 3.3 | - Operating expenses in Q4 2022 included a $71.3 million one-time non-cash impairment charge[6] - Excluding legal settlements, loss contingencies, and impairment charges, adjusted operating expenses as a percentage of revenue were 22.2%, slightly higher than 21.9% in the prior year period[6] Finance Expenses Net finance expenses for Q4 2022 were $0.4 million, a significant decrease from $7.4 million in the prior year, primarily reflecting foreign exchange rate fluctuations Q4 2022 Finance Expenses | Metric | Q4 2022 (million USD) | Q4 2021 (million USD) | | :----- | :-------------------------- | :-------------------------- | | Finance Expenses, Net | 0.4 | 7.4 | - The difference in finance expenses primarily reflects foreign exchange rate fluctuations[8] Net Income (Loss) and EPS Net loss attributable to controlling interest was $74.0 million in Q4 2022, primarily due to the after-tax impact of impairment charges, resulting in a diluted loss per share of $2.15, while adjusted diluted loss per share was $0.02 Q4 2022 Net Income (Loss) and EPS | Metric | Q4 2022 (million USD) | Q4 2021 (million USD) | | :----- | :-------------------------- | :-------------------------- | | Net Loss Attributable to Controlling Interest | (74.0) | (2.9) | | Net Loss Per Share | (2.15) | (0.11) | | Adjusted Diluted Net Income (Loss) Per Share | (0.02) | 0.01 | Adjusted EBITDA Adjusted EBITDA for Q4 2022 was $5.7 million with a 3.6% margin, down from $11.5 million and a 6.7% margin in the prior year, primarily reflecting lower operating income Q4 2022 Adjusted EBITDA | Metric | Q4 2022 (million USD) | Q4 2021 (million USD) | Q4 2022 Margin | Q4 2021 Margin | | :----- | :-------------------------- | :-------------------------- | :------------------- | :------------------- | | Adjusted EBITDA | 5.7 | 11.5 | 3.6% | 6.7% | - The year-over-year decrease in adjusted EBITDA primarily reflects lower operating income[7] Balance Sheet and Liquidity This section outlines Caesarstone's financial position as of December 31, 2022, including key balance sheet figures, debt levels, and the company's dividend policy Key Balance Sheet Figures As of December 31, 2022, the company held $59.2 million in cash, cash equivalents, and marketable securities, with total debt to financial institutions of $31.0 million, while total assets decreased from $867.653 million in 2021 to $752.981 million Key Balance Sheet Data (as of December 31) | Metric | 2022 (thousand USD) | 2021 (thousand USD) | | :--- | :-------------- | :-------------- | | Cash and cash equivalents and short-term bank deposits | 52,081 | 74,315 | | Short-term available for sale marketable securities | 7,077 | 11,228 | | Short-term bank credit | 26,135 | 12,523 | | Long-term bank and other loans and financing liability of land from a related party | 4,823 | 6,240 | | Total assets | 752,981 | 867,653 | | Total liabilities and equity | 752,981 | 867,653 | Dividend Policy Caesarstone's dividend policy allows for quarterly cash dividends up to 50% of year-to-date reported net income, with a minimum of $0.10 per share, but no dividend is planned for Q4 2022 due to a net loss attributable to controlling interest - The company's dividend policy stipulates quarterly cash dividends up to 50% of year-to-date reported net income, but no less than $0.10 per share[27] - In accordance with the dividend policy, the company does not intend to pay a dividend for Q4 2022 due to the net loss attributable to controlling interest[27] Outlook for 2023 Given challenging macroeconomic conditions and slowing construction, Caesarstone anticipates 2023 revenue to be flat year-over-year, with modest gradual improvement in full-year adjusted EBITDA margin, driven by pricing, cost optimization, and other mitigating measures - The company anticipates 2023 revenue to be flat year-over-year, primarily offsetting lower volumes and unfavorable exchange rates through pricing actions[13] - The company expects a modest gradual improvement in full-year 2023 adjusted EBITDA as a percentage of sales, attributed to pricing strategies, cost optimization, and other measures expected to offset higher raw material and shipping costs in 2023 inventory[13] - CFO Nahum Trost stated that the company's outlook is achievable and appropriate given industry uncertainties, and it is prepared to execute its multi-pronged growth strategy[28] Company Information This section provides background on Caesarstone as a global leader in premium surface materials, explains the use of non-GAAP financial measures, and includes a disclaimer regarding forward-looking statements About Caesarstone Caesarstone is a global leader in premium surface materials, specializing in countertop products since 1987, pioneering quartz countertops and expanding into porcelain and natural stone, with operations in over 50 countries - Caesarstone is a global leader in premium surface materials, specializing in countertop products, pioneering quartz countertops since 1987 and expanding into porcelain and natural stone[31] - The company offers a multi-material product portfolio of over 100 colors, combining innovative technology and design passion to deliver high-quality, sustainable surface materials for various indoor and outdoor applications[31] Non-GAAP Financial Measures Explanation The company provides non-GAAP financial measures (Adjusted Gross Profit, Adjusted Net Income/Loss, Adjusted EBITDA) as supplementary information to GAAP metrics, used by management to assess core business performance and aid investor understanding - The non-GAAP measures provided by the company should be considered supplementary to, not a substitute for, comparable GAAP measures[15] - The company provides these non-GAAP financial measures as they better measure its core business, are used internally by management to evaluate ongoing performance, and are believed to assist investors in understanding the company's operating performance[15] Forward-Looking Statements Disclaimer This press release contains forward-looking statements regarding future events, objectives, and expectations, subject to known and unknown risks and uncertainties, including global economic factors, supply chain issues, and regulatory changes, with no obligation to update these statements - Information in this press release may contain “forward-looking statements” protected by the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995[32] - Actual results may differ materially from projections due to known or unknown risks and uncertainties, including COVID-19 impacts, global economic and geopolitical factors, supply chain constraints, raw material shortages, exchange rate fluctuations, competitive pressures, and regulatory requirements[32] - The company undertakes no obligation to update or revise forward-looking statements[32] Financial Statements (Condensed Consolidated) This section provides the condensed consolidated financial statements, including the balance sheets, statements of income (loss), and statements of cash flows for the specified periods Balance Sheets The condensed consolidated balance sheets present Caesarstone's financial position as of December 31, 2022, and 2021, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (as of December 31, in thousand USD) | U.S. dollars in thousands | Dec 31, 2022 (Unaudited) | Dec 31, 2021 (Audited) | | :----------------------- | :----------------------- | :--------------------- | | ASSETS: | | | | Cash and cash equivalents and short-term bank deposits | $52,081 | $74,315 | | Short-term available for sale marketable securities | 7,077 | 11,228 | | Trade receivables, net | 77,898 | 82,815 | | Inventories | 238,232 | 204,725 | | Total current assets | 407,858 | 408,526 | | Property, plant and equipment, net | 169,292 | 221,150 | | Goodwill | - | 45,800 | | Total assets | $752,981 | $867,653 | | LIABILITIES AND EQUITY: | | | | Short-term bank credit | $26,135 | $12,523 | | Trade payables | 62,194 | 81,369 | | Total current liabilities | 164,984 | 183,294 | | Long-term bank and other loans and financing liability of land from a related party | 4,823 | 6,240 | | Total long-term liabilities | 159,048 | 182,195 | | Total equity | 421,046 | 494,295 | | Total liabilities and equity | $752,981 | $867,653 | Statements of Income (Loss) The condensed consolidated statements of income (loss) present the company's financial performance for the three and twelve months ended December 31, 2022, and 2021, including revenues, costs, and net income/loss Condensed Consolidated Statements of Income (Loss) (in thousand USD, except per share data) | U.S. dollars in thousands (except per share data) | Three months ended Dec 31, 2022 (Unaudited) | Three months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 (Audited) | | :---------------------------------------------- | :------------------------------------------ | :------------------------------ | :------------------------------------------- | :----------------------------------------- | | Revenues | $159,369 | $171,057 | $690,806 | $643,892 | | Cost of revenues | 128,438 | 131,379 | 527,561 | 472,394 | | Gross profit | 30,931 | 39,678 | 163,245 | 171,498 | | Total operating expenses | 106,111 | 36,336 | 221,932 | 144,069 | | Operating income (loss) | (75,180) | 3,342 | (58,687) | 27,429 | | Finance expenses (income), net | 407 | 7,425 | (3,079) | 7,590 | | Net income (loss) attributable to controlling interest | (73,966) | (2,877) | (57,054) | 18,966 | | Diluted net income (loss) per ordinary share | (2.15) | (0.11) | (1.66) | 0.51 | Statements of Cash Flows The condensed consolidated statements of cash flows detail cash flows from operating, investing, and financing activities for the twelve months ended December 31, 2022, and 2021 Condensed Consolidated Statements of Cash Flows (as of December 31, in thousand USD) | U.S. dollars in thousands | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 (Audited) | | :------------------------ | :------------------------------------------- | :----------------------------------------- | | Net cash provided by (used in) operating activities | $(23,311) | $20,684 | | Net cash used in investing activities | $(7,285) | $(34,885) | | Net cash provided by (used in) financing activities | $9,156 | $(25,254) | | Decrease in cash and cash equivalents and short-term bank deposits | $(22,234) | $(39,933) | | Cash and cash equivalents and short-term bank deposits at end of the period | $52,081 | $74,315 | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP financial measures to their corresponding non-GAAP adjustments for various periods Gross Profit to Adjusted Gross Profit Reconciliation This section provides the reconciliation of GAAP gross profit to adjusted gross profit for Q4 and full-year 2022 and 2021, detailing adjustments such as share-based compensation, acquisition-related asset amortization, and restructuring expenses Gross Profit to Adjusted Gross Profit Reconciliation (in thousand USD) | U.S. dollars in thousands | Three months ended Dec 31, 2022 (Unaudited) | Three months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 | | :------------------------ | :------------------------------------------ | :------------------------------ | :------------------------------------------- | :------------------------------- | | Gross profit | $30,931 | $39,678 | $163,245 | $171,498 | | Share-based compensation expense (a) | 86 | 107 | 315 | 321 | | Amortization of assets related to acquisitions | 72 | 79 | 306 | 852 | | Restructuring expenses (b) | 237 | - | 237 | - | | Adjusted Gross profit (Non-GAAP) | $31,326 | $39,864 | $164,103 | $172,671 | Net Income (Loss) to Adjusted EBITDA Reconciliation This reconciliation details the adjustments from GAAP net income (loss) to adjusted EBITDA for Q4 and full-year 2022 and 2021, including finance expenses, taxes, depreciation, amortization, legal settlements, and impairment charges Net Income (Loss) to Adjusted EBITDA Reconciliation (in thousand USD) | U.S. dollars in thousands | Three months ended Dec 31, 2022 (Unaudited) | Three months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 | | :------------------------ | :------------------------------------------ | :------------------------------ | :------------------------------------------- | :------------------------------- | | Net income (loss) | $(73,888) | $(3,303) | $(56,366) | $17,889 | | Finance expenses (income), net | 407 | 7,425 | (3,079) | 7,590 | | Taxes on income | (1,699) | (780) | 758 | 1,950 | | Depreciation and amortization | 9,121 | 8,916 | 36,344 | 35,407 | | Legal settlements and loss contingencies, net (a) | (492) | (1,181) | 568 | 3,283 | | Impairment expenses related to goodwill and long lived assets | 71,258 | - | 71,258 | - | | Adjusted EBITDA (Non-GAAP) | $5,713 | $11,535 | $51,869 | $68,248 | Net Income (Loss) Attributable to Controlling Interest to Adjusted Net Income (Loss) Attributable to Controlling Interest Reconciliation This reconciliation provides detailed adjustments from GAAP net income (loss) attributable to controlling interest to non-GAAP adjusted net income (loss) for Q4 and full-year 2022 and 2021, including legal settlements, acquisition adjustments, share-based compensation, and impairment expenses Net Income (Loss) Attributable to Controlling Interest to Adjusted Net Income (Loss) Attributable to Controlling Interest Reconciliation (in thousand USD, except per share data) | U.S. dollars in thousands (except per share data) | Three months ended Dec 31, 2022 (Unaudited) | Three months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 | | :---------------------------------------------- | :------------------------------------------ | :------------------------------ | :------------------------------------------- | :------------------------------- | | Net income (loss) attributable to controlling interest | $(73,966) | $(2,877) | $(57,054) | $18,966 | | Legal settlements and loss contingencies, net (a) | (492) | (1,181) | 568 | 3,283 | | Amortization of assets related to acquisitions, net of tax | 536 | 502 | 2,084 | 2,391 | | Share-based compensation expense (b) | 259 | 458 | 1,502 | 1,845 | | Impairment expenses related to goodwill and long lived assets | 71,258 | - | 71,258 | - | | Restructuring expenses (d) | 684 | - | 684 | - | | Total adjustments after tax | 73,130 | 3,040 | 67,679 | 9,668 | | Adjusted net income (loss) attributable to controlling interest (Non-GAAP) | $(836) | $163 | $10,625 | $28,634 | | Adjusted earning (loss) per share (f) | $(0.02) | $0.01 | $0.31 | $0.83 | Geographic Revenue Breakdown This section presents a detailed table of revenue breakdown by geographic region for the fourth quarter and full year of 2022 and 2021, including year-over-year changes Geographic Revenue Breakdown Table This section provides detailed revenue data by geographic region (USA, Canada, Latin America, Australia, Asia, EMEA, Israel) for Q4 and full-year 2022 and 2021, including reported and constant currency year-over-year percentage changes Geographic Revenue Breakdown (in thousand USD) | U.S. dollars in thousands | Three months ended Dec 31, 2022 (Unaudited) | Three months ended Dec 31, 2021 | Twelve months ended Dec 31, 2022 (Unaudited) | Twelve months ended Dec 31, 2021 (Audited) | YoY % change (Q4) | YoY % change CCB (Q4) | YoY % change (FY) | YoY % change CCB (FY) | | :------------------------ | :------------------------------------------ | :------------------------------ | :------------------------------------------- | :----------------------------------------- | :---------------- | :-------------------- | :---------------- | :-------------------- | | USA | $76,394 | $77,613 | $342,293 | $305,353 | (1.6)% | (1.6)% | 12.1% | 12.1% | | Canada | 20,673 | 22,263 | 93,377 | 84,467 | (7.1)% | 0.1% | 10.5% | 14.6% | | Latin America | 964 | 1,618 | 4,481 | 4,702 | (40.4)% | (40.4)% | (4.7)% | (4.7)% | | America's Total | 98,031 | 101,494 | 440,151 | 394,522 | (3.4)% | (1.8)% | 11.6% | 12.4% | | Australia | 29,346 | 30,730 | 116,284 | 118,714 | (4.5)% | 6.6% | (2.0)% | 6.2% | | Asia | 7,891 | 8,011 | 34,607 | 30,390 | (1.5)% | (0.3)% | 13.9% | 15.3% | | APAC Total | 37,237 | 38,741 | 150,891 | 149,104 | (3.9)% | 5.1% | 1.2% | 8.1% | | EMEA | 15,266 | 18,160 | 63,320 | 60,836 | (15.9)% | (4.0)% | 4.1% | 16.7% | | Israel | 8,835 | 12,662 | 36,444 | 39,430 | (30.2)% | (23.7)% | (7.6)% | (4.5)% | | Total Revenues | $159,369 | $171,057 | $690,806 | $643,892 | (6.8)% | (2.1)% | 7.3% | 10.8% |