Form 6-K Caesarstone Ltd. For: Aug 03

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On August 3, 2016, Caesarstone Ltd. issued a press release entitled “Caesarstone Reports Record Quarter Results”.  A copy of this press release is furnished as Exhibit 99.1 herewith.

The GAAP financial information included in consolidated balance sheets, consolidated statements of income and condensed consolidated statements of cash flows contained in the press release attached as Exhibit 99.1 to this Report on Form 6-K are hereby incorporated by reference into (i) the Registrant’s Registration Statements on Form S-8 (Files No. 333- 180313 and No. 333-210444) and (ii) the Registrant’s Registration Statement on Form F-3 (File No. 333-196335).

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The following exhibit is furnished as part of this Form 6-K:

 

Caesarstone Reports Record Quarter Results

·	Second quarter Revenue grew 11.6% to a new record of $142.3 million; up 13.4% on a Constant Currency Basis

·	Second Quarter diluted EPS grew by 12.3% to $0.73

·	Reiterates Full-Year Guidance for Revenue and Adjusted EBITDA

 

MP MENASHE, Israel--(BUSINESS WIRE) -- Caesarstone Ltd. (NASDAQ: CSTE), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its second quarter ended June 30, 2016.

Revenue in the second quarter of 2016 increased by 11.6% to a new record of $142.3 million compared to $127.5 million in the same quarter of the prior year. On a constant currency basis, second quarter revenue growth was 13.4%. Growth in revenue was driven primarily by continued increases in Canada and Australia sales, which were up 26.8% and 24.1%, respectively. On a constant currency basis, Canada and Australia revenue grew by 33.1% and 29.5%, respectively. Growth in the United States was 5.0% in the second quarter.

Yosef Shiran, Chief Executive Officer, commented, “We are pleased to have delivered a strong quarter.  Our good performance in major markets around the world reflects both the strength of our brand and our consistent execution.  In the U.S., we have worked hard and implemented various changes to deepen our capabilities and to support the execution of our go to market strategy.  We expect to leverage our global strength to achieve our full-year plan while we successfully position our US business for accelerated growth in 2017 and beyond.”

Gross margin in the second quarter was 42.1% compared to 41.3% in the same period in the prior year. The increase was predominantly driven by favorable product mix, economies of scale and, to a lesser extent, lower raw material costs and lower manufacturing costs in Israel. The increase was partially offset by inefficiencies related to the U.S. manufacturing facility and negative exchange rate fluctuations.

Operating expenses in the second quarter were $28.7 million, or 20.2% of revenues. This compares to the prior year second quarter level of $24.3 million, or 19.1% of revenues. The increase in expenses was primarily due to increased marketing and sales capabilities, particularly in the United States, as well as legal settlements and loss contingency expenses that were not incurred in the prior year’s second quarter.

Operating income in the second quarter was $31.3 million, a margin of 22.0%, compared to $28.3 million, an operating margin of 22.2%, in the second quarter of 2015.

Adjusted EBITDA, which excludes share-based compensation and legal settlements and loss contingencies expenses, reached a record of $39.8 million in the second quarter of 2016, a margin of 27.9%. This compares to adjusted EBITDA of $33.5 million in the prior year’s second quarter, a margin of 26.3%.  This year-over-year margin improvement reflects the improved gross margin mentioned above.

Finance expense in the second quarter was $1.4 million compared to $0.4 million during the same period in the prior year. The change was primarily due to $0.5 million net losses related to currency exchange rates fluctuations in the second quarter of 2016 compared with net gains of $0.4 million in the second quarter of 2015.

The Company reported net income attributable to controlling interest for the second quarter of 2016 of $25.4 million compared to $22.9 million in the same quarter in the prior year. Adjusted diluted net income per share for the second quarter was $0.73 on 34.9 million shares as compared to last year’s second quarter result of $0.65 on 35.5 million shares. This growth mainly reflects operating improvements with a minor beneficial impact of the Company’s share repurchases over the first half of 2016.  The Company repurchased 494,776 shares in the second quarter for a total of $18.0 million.

The Company's balance sheet as of June 30, 2016 included cash, cash equivalents and short-term bank deposits of $55.7 million.

Guidance

The Company today reiterated its full-year 2016 guidance for revenue of $550 million to $565 million and for full-year adjusted EBITDA of $138 million to $145 million.

CEO Update

The Company expects that a new CEO will be appointed by the end of September 2016. As the Company published on May 23, 2016, Yos Shiran’s last day in office is August 21, 2016. The Company’s Chairman of the Board, Yonathan Melamed, will act as an interim CEO for the period before a new CEO is in office.

Conference Call Details

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 487277.  The replay will be available beginning at 11:30 a.m. ET on Wednesday, August 3, 2016 and will last through 11:59 p.m. ET August 17, 2016.

About Caesarstone

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.

Investor Relations Contact

James Palczynski

Partner

ICR, Inc.

+1 (203) 682-8229

Caesarstone Ltd. and its subsidiaries

Condensed consolidated balance sheets

 

		As of
U.S. dollars in thousands		June 30, 2016				December 31, 2015
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents and short-term bank deposits		$	55,684			$	62,807
Trade receivables, net			72,550				59,185
Other accounts receivable and prepaid expenses			37,302				32,230
Inventories			103,854				95,479
Total current assets			269,390				249,701
LONG-TERM ASSETS:
Severance pay fund			3,342				3,296
Other receivables long-term			8,623				8,603
Total long-term assets			11,965				11,899
PROPERTY, PLANT AND EQUIPMENT, NET			223,136				225,438
OTHER ASSETS			5,707				6,883
GOODWILL			36,196				35,821
Total assets		$	546,394			$	529,742
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit		$	6,123			$	3,241
Trade payables			45,128				46,382
Related party and other loan			3,240				3,251
Accrued expenses and other liabilities			30,113				27,986
Total current liabilities			84,604				80,860
LONG-TERM LIABILITIES:
Long-term loan and financing leaseback from a related party			8,337				8,472
Legal settlements and loss contingencies long-term			12,481				11,190
Accrued severance pay			4,286				4,309
Long-term warranty provision			922				934
Deferred tax liabilities, net			14,314				14,767
Share-based payment			22				148
Total long-term liabilities			40,361				39,820
REDEEMABLE NON-CONTROLLING INTEREST			10,694				8,841
EQUITY:
Ordinary shares			370				370
Treasury shares - at cost			(29,768	)			-
Additional paid-in capital			144,583				142,765
Accumulated other comprehensive loss			(612	)			(1,892	)
Retained earnings			296,162				258,978
Total equity			410,735				400,221
Total liabilities and equity		$	546,394			$	529,742

 

Caesarstone Ltd. and its subsidiaries

Condensed consolidated statements of income

 

		Three months ended June 30,								Six months ended June 30,
U.S. dollars in thousands (except per share data)		2016				2015				2016				2015
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues		$	142,348			$	127,527			$	259,262			$	235,338
Cost of revenues			82,374				74,921				156,670				137,418
Gross profit			59,974				52,606				102,592				97,920
Operating expenses:
Research and development			825				721				1,649				1,429
Marketing and selling			16,834				14,796				33,808				30,358
General and administrative			10,029				8,809				19,881				17,108
Legal settlements and loss contingencies, net			1,000				-				1,733				-
Total operating expenses			28,688				24,326				57,071				48,895
Operating income			31,286				28,280				45,521				49,025
Finance expenses, net			1,442				399				1,198				2,292
Income before taxes on income			29,844				27,881				44,323				46,733
Taxes on income			3,560				4,616				5,930				7,087
Net income		$	26,284			$	23,265			$	38,393			$	39,646
Net income attributable to non-controlling interest			(875	)			(376	)			(1,209	)			(397	)
Net income attributable to controlling interest		$	25,409			$	22,889			$	37,184			$	39,249
Basic net income per ordinary share		$	0.73			$	0.65			$	1.06			$	1.11
Diluted net income per ordinary share		$	0.73			$	0.65			$	1.06			$	1.11
Weighted average number of ordinary shares used in computing basic income per ordinary share			34,811,600				35,271,094				35,012,141				35,209,290
Weighted average number of ordinary shares used in computing diluted income per ordinary share			34,901,415				35,462,407				35,120,375				35,463,806

 

Caesarstone Ltd. and its subsidiaries

Selected Condensed consolidated statements of cash flows (Unaudited)

 

		Six months ended June 30,
U.S. dollars in thousands		2016				2015
Cash flows from operating activities:
Net income		$	38,393			$	39,646
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,969				9,598
Share-based compensation expense			1,547				(137	)
Accrued severance pay, net			(77	)			172
Changes in deferred tax, net			(6,927	)			(889	)
Capital loss			8				-
Legal settlemnets and loss contingencies, net			1,733				-
Increase in trade receivables			(12,404	)			(14,560	)
Decrease (increase) in other accounts receivable and prepaid expenses			943				(2,850	)
Increase in inventories			(6,052	)			(19,564	)
Increase (decrease) in trade payables			(960	)			9,366
Decrease in warranty provision			(93	)			(138	)
Increase in accrued expenses and other liabilities including related party			2,552				2,260
Net cash provided by operating activities			32,632				22,904
Cash flows from investing activities:
Purchase of property, plant and equipment			(10,812	)			(46,553	)
Proceeds from sale of property, plant and equipment			21				-
Decrease in long term deposits			19				25
Net cash used in investing activities (*)			(10,772	)			(46,528	)
Cash flows from financing activities:
Changes in short-term bank credit and loans, net			2,395				8,256
Repayment of a financing leaseback related to Bar-Lev transaction			(548	)			(450	)
Purchase of treasury shares at cost			(29,768	)			-
Net cash provided by (used in) financing activities			(27,921	)			7,806
Effect of exchange rate differences on cash and cash equivalents			(1,062	)			(843	)
Decrease in cash and cash equivalents and short-term bank deposits			(7,123	)			(16,661	)
Cash and cash equivalents and short-term bank deposits at beginning of the period			62,807				54,327
Cash and cash equivalents and short-term bank deposits at end of the period		$	55,684			$	37,666
Non - cash investing:
Changes in trade payables balances related to purchase of fixed assets			(437	)			2,573

 

(*) Cash used in investing activities does not include changes in bank deposits as such balance is included in the “cash and cash equivalents and short term bank deposits” line at the beginning and end of the period.

 

Caesarstone Ltd. and its subsidiaries (Unaudited)

		Three months ended June 30,								Six months ended June 30,
U.S. dollars in thousands		2016				2015				2016				2015
Reconciliation of Net Income to Adjusted EBITDA:
Net income		$	26,284			$	23,265			$	38,393			$	39,646
Finance expenses, net			1,442				399				1,198				2,292
Taxes on income			3,560				4,616				5,930				7,087
Depreciation and amortization			7,064				4,917				13,969				9,598
Legal settlements and loss contingencies, net (a)			1,000				-				1,733				-
Share-based compensation expense (b)			417				314				1,547				401
Adjusted EBITDA (Non-GAAP)		$	39,767			$	33,511			$	62,770			$	59,024

(a)	Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.
(b)	Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company.
	In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.

Caesarstone Ltd. and its subsidiaries  (Unaudited)

		Three months ended June 30,								Six months ended June 30,
U.S. dollars in thousands		2016				2015				2016				2015
Reconciliation of net income attributable to controlling interest to adjusted net income attributable to controlling interest:
Net income attributable to controlling interest		$	25,409			$	22,889			$	37,184			$	39,249
Legal settlements and loss contingencies, net (a)			1,000				-				1,733				-
Share-based compensation expense (b)			417				314				1,546				401
Tax adjustment (c)			(1,158	)			-				(1,158	)			-
Total adjustments			259				314				2,121				401
Less tax on non-tax adjustments (d)			220				49				524				61
Total adjustments after tax			39				265				1,597				340
Adjusted net income attributable to controlling interest (Non-GAAP)		$	25,448			$	23,154			$	38,781			$	39,589
Adjusted diluted EPS (e)		$	0.73			$	0.65			$	1.10			$	1.12

(a)	Consists of legal settlements expenses and loss contingencies, net, related to individual silicosis claims.
(b)	Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company.
	In addition, includes expenses for phantom awards granted and the related payroll expenses as a result of exercises.
(c)	Tax adjustment as a result of tax settlement with the Israeli tax authorities.
(d)	Tax adjustments for the three and six months ended June 30, 2016 and 2015 were based on the effective tax rates for these periods, respectively.
(e)	In calculating adjusted diluted (Non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of share-based compensation expense in accordance with FASB ASC 718.