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

Yosef Shiran, the Company's Chief Executive Officer, and Yair Averbuch, the Company's Chief Financial Officer, will host a conference call today, August 3, 2016, at 8:30 a.m. ET to discuss the results of the second quarter ended June 30, 2016, 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 1-888-481-2877 or [phone] (international). The toll-free Israeli number is 1 80 924 5906. The pass code is 487277.

To listen to a telephonic replay of the conference call, dial toll-free 1-877-870-5176 or [phone] (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

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, Supernatural, 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.

Caesarstone Sdot-Yam 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 Sdot-Yam Ltd. and its subsidiaries
Condensed consolidated statements of income
	Three months ended						Six months ended
	June 30,						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 Sdot-Yam 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 settlements 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 Sdot-Yam 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 Sdot-Yam 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.

Caesarstone Sdot-Yam Ltd. and its subsidiaries
Geographic breakdown of revenues by region (Unaudited)
	Three months ended June 30,				Six months ended June 30,
U.S. dollars in thousands	2016		2015		2016		2015
USA	$	59,942	$	57,093	$	109,254	$	105,108
Australia		33,485		26,975		59,211		50,345
Canada		24,251		19,128		41,901		33,056
Israel		11,130		9,572		21,413		19,422
Europe		6,860		6,750		13,422		11,402
Rest of World		6,680		8,009		14,061		16,005
	$	142,348	$	127,527	$	259,262	$	235,338