Q2 2021 Caesarstone Ltd Earnings Call
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Greetings and welcome to the Caesars don't second quarter 2021 earnings conference call.
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host Brad Cray Investor Relations. Thank you you may begin.
You, operator, and good morning to everyone I.
I am joined by you bought the game easiest on Chief Executive Officer.
Here you Cobian.
These are stones, Chief financial officer, and the boom trucks director of Finance, who will succeed me as Chief Financial Officer on September 1st 'twenty 'twenty 1.
Certain statements on today's conference call and responses to various questions may constitute forward looking statements.
Caution you that such statements reflect only the company's current expectations and that actual events or results may differ materially.
For more information please refer to the risk factors contained in the company's most recent annual report on form 20-F.
Subsequent filings with the SEC.
In addition on this call the company will make reference to certain non-GAAP financial measures, including adjusted net income adjusted net income loss per share.
Adjusted gross profit.
Adjusted EBITDA in constant currency.
The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's second quarter 2021 earnings release, which is posted on the company's Investor Relations website.
Thank you and I would now like to turn the call over to Yuval. Please go ahead.
Thank you Brad and good morning, everyone.
As we move further into 2021.
I'm very pleased with the pace of recovery, we've seen across our business seems to unprecedented year of 2020 as demonstrated by our robust financial results this quarter.
During the second quarter, we achieved record quarterly revenue of $163 million.
Mainly driven by the focused execution of our global growth acceleration plan and that was the ability to capitalize on the continued recovery in the U S, where we continue to see the greatest potential for growth.
We also saw broad based improvement in demand across the majority of ours.
Mobile regions as economies around the world continue to recover from the pandemic.
We drove top line improvement in the U S. So a combination of core business improvement Big book Jimmy growth.
And the encouraging contribution from our previously announced accretive acquisition for me call them, If a mill stone supply on Florida, and Ohio Valley.
It is also important to remember this is 1 of our main strategic pillars is focused on improving customer experience and customer engagement.
Seem that these managed on there.
The civil projects in the global growth acceleration plan.
In relation to this pillow and as we have previously discussed <unk> connect is it a formative digital platform.
Produces a technological leap in the way, we communicate and connect with our customers and consumers.
Effectively manage the consumer purchase journey.
We recently started implementing C S connecting several of our key U S markets as planned and we are happy with the initial feedback and progress we've made.
This follows the successful pilot program in Australia during early 2021.
In the coming quarters, we expect to expand the rollout of this platform across the U S and Canada.
However, the initial U S launch is already opening new doors for our expanded U S sales force to establish new relationships and improve engagement.
Additionally, our success continues to be bolstered by further penetration into the big box channel from.
Sales of Caesars on branded slabs at U S home depot stores.
I would also note that our relationship with the QM remains very important to us and we are encouraged to see the recovery you know service into this retailer.
On the M&A side I'll be on integration of both Homelink on unduly continued to progress in line with all of them.
I will make on is proving to be extremely complimentary to our geographic footprint in the U S, bringing us closer to our customers and allowing us to take a vertically integrated approach to capture strong countertop demands in attractive high growth areas, most notably in Florida will demand remains strong.
Separately, our legal acquisition continues to be additive to our sales mainly in the APAC region.
And into the third quarter, we're excited to introduce vital sales of she's just on Brandon the only porcelain slabs in Israel.
This is an initial step in the launch of a new and exciting porcelain collection under the siltstone brands across our global footprint.
Looking at the cost side, we are pleased with our ability to flex capacity to meet demands, while we continuously evaluate additional opportunities to create efficiencies throughout our operations.
Both of them in 2021, although the team has displayed unwavering commitment to effectively mitigate global supply chain and inflation challenges impacting Caesar stone in our industry, who careful cost management.
In summary, we are highly encouraged by the execution of our strategy, which resulted in a significant growth during the second quarter and the first half of 2021.
We are leveraging our world class skills from brands to capture recovering countertop demands across our global footprint.
We are utilizing innovative technology based go to market initiatives, such as just connect to enhance customer experience and engagement.
We are carefully monitoring raising material on shipping cost.
Constantly evaluating opportunities to improve efficiencies in the operations and we are focused on are successfully developing testing and introducing premium multi material offerings to grow our addressable market in the quarters and years to come.
In July we announced the promotional from the home Trust.
The director of finance to the position of Chief Financial Officer, beginning on September <unk> 2021 as.
As a feel embarks on his next career opportunity.
Net home has demonstrated outstanding leadership and financial expertise during the 7 years with XI system.
Home has been a key player with implementing of our global growth acceleration plan over the past couple of years.
I'm confident in the home will be.
An excellent addition to our executive team and we anticipate a seamless transition.
Now before I hand, the call over to Phil to discuss our financial results and outlook I would like to personally thank him for all his contributions.
We have had.
Great partnership together over the last 3 years his leadership and achievements have helped us immensely to build strong foundations for the future of Caesar stone and I wish him. The best of luck on his next journey.
I would now on typical to a field.
Thank you al and good morning, everyone.
It hasn't been an exceptionally rewarding experience to work with you all on the entire team on CS are strong.
I'm proud of their accomplishments and milestones we have achieved together and I'm working closely with them in the home and the entire leadership team to ensure a smooth transition.
I will now discuss our second quarter 2021 results.
For the second quarter of 2021 global revenue increased to a record of $106 million to $35 million per se.
Renting 65, 1% growth compared to the prior year period.
On a constant currency basis second quarter revenue was higher by $55.5 per cent compared to the same period last year.
Primarily due to improved demand in most of the regions across our global footprint as economies around the world continue to recover from the pandemic.
Revenue for the period also included approximately $21 million and contribution from that from the acquisitions of forming corn and meal.
Now looking at our regions.
In the Americas constant currency sales were up 74, 2%, mainly due to growth in the U S.
In the U S sales were up 86, 6% driven by the acquisition of Army core on core business improvement and solid growth in the big box channel at.
Our sales in home depot stores more than doubled year on year for the second consecutive quarter.
We also experienced a benefit from a recovery in sales to Ikea stores in the U S.
In Canada on a constant currency basis sales are up 35.1 per cent dividend.
Driven by stronger stronger core business performance, which was partially offset by a decline in our Ikea says due to COVID-19 related restrictions.
In the APAC region constant currency sales grew 35.1 per cent in Australia, which accounts for the majority of our sales in the region growth was driven by improved demand.
Contributions from the early says were also additive to the APAC region says in the second quarter.
In the EMEA region.
Also on the currency surgical 77, 6% as we experienced strong demand in both the UK and our indirect markets.
In Israel on a.
Constant currency basis.
We were down 20.5 per cent in the second quarter, primarily related to more competitive market conditions.
Looking at our second quarter P&L performance.
We improved our gross margin by 760 basis points on a year over year basis to 8.228 per cent. Adjusted gross margin also expanded 70.760 basis points to 28.1 per cent compared to 20.5 per cent into prior year quarter.
Day over an improvement in gross margin, primarily reflects better regional and product mix more favorable currency exchange rates enhanced productivity in our factories and growing demand since the beginning of the pandemic, which were partially offset by lower selling prices and raw material and shipping inflation.
As we have discussed previously.
Do you have any inflation has to become an important dynamic foresees a stone in light of the tight supply environment impacting our industry.
We experienced some impact from rising inflation in the second quarter of 2021, particularly in polyester.
And we expect that higher raw material on shipping costs, we'd be more significant headwind to our margin in the second half of the year.
We expect to partially mitigate this impact to price increases and other cost cutting initiatives.
Operating expenses, excluding legal settlements and loss contingencies was 22.3 per cent of revenue compared to 21.6 per cent in the prior quarter.
The increase was mainly due to higher marketing and selling expenses that we expect to remain elevated on a year old value basis, as we continue to invest in sales and marketing at more normalized levels to support our brand and future growth.
Adjusted EBITDAR in the second quarter increased 188% equal value grew $18.8 million.
Presenting on margin of 11, 5 per cent compared to $6.5 million on.
Imagine a 6.6% in the prior quarter.
The 490 basis point improvement primarily reflects the higher gross margin compared to last deal.
Adjusted diluted earnings per share in the quarter were 21 cents on therapy for 6 million shares compared to adjusted loss per shelf 10 cents and dips.
Same period last year on $34.5 million shows.
Turning to our balance sheet.
As of June 30, F 'twenty 'twenty 1.
Hey, just on had cash cash equivalents and short term bank deposits and short and long term marketable securities of 121.1 million dollar.
We have total debt to financial institutions, a $13.3 million well.
Well winding us we have a strong net cash position of $107.8 million.
We believe our strong balance sheet and cash position leave us.
Well situated to invest further in the initiatives under the global golf acceleration plan.
Moving to our outlook.
We are reiterating our expectation for revenue on an adjusted EBITDA to be higher you'll really is in 2020, 1 with the expectation that revenue will grow faster than EBITDA.
This outlook assumes similar I knew on gross margin compared to 2020 with a more favorable mix and higher revenue being offset by the higher raw material and shipping costs that I mentioned earlier in the call.
We continue to invest in you know says on marketing at more normalized levels to support our brand and future growth.
As a reminder, these costs were temporarily reduced in 2020 in an effort to mitigate the pandemic related impacts.
Therefore with earnings as we invest in golf.
You have to use.
Our outlook continues to assume that pandemic related business low sticks, yes, we'll continue to fade as the airport doses.
With that let me turn the call back to <unk> for closing comments.
Thank you all for you in conclusion, our second quarter results reflect the positive momentum in our business and we are encouraged by our low performance in the first half of 2021.
Just on is becoming a more efficient and technology oriented organization with a great brand and strong potential will transform the market.
I would like to express my sincere gratitude to all our team members around the globe, who continue to drive our progress and accomplishments.
Thank you and we are now ready to open the call for questions.
Yeah.
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Our first question comes from Stanley Elliott with Stifel. Please proceed with your question.
Hello, everybody I hope you all are doing well congratulations on the nice quarter.
Starting off on the on the top line is there a way to break out kind of the revenue on a like for like basis, you'll kind of what youre doing on the core business versus what you're doing from additional product placements or or additional slots at home depot and recovery.
Recovering and Ikea et cetera.
Yeah, Hi, Stanley good too good to have you in the call.
Moving to the breakdown we can now provide these are mostly between the contribution from the M&A.
Deals that we had ohmic on them, the only and the core business.
Therefore, the M&A contribution together on Mokoena Mueller, you can take something like $21 million.
As a contribution for the second quarter revenue.
But I think still is that if you look at this is a share compared to last year, we've seen a very strong.
A recovery in all channels, both in day and in the core business.
Ikea home depot. So you know it was an easy comp in Q2 a day.
And last year, so the recovery was a meaningful in all our channels.
And Hugh you mentioned higher costs in the back half of the year, but kind of full year expectations for gross margin is really not on.
Not change.
How does it help us with the pricing mechanisms here.
How quickly can you get pricing into the market to offset this just curious how you're thinking about that.
Okay.
I think it's quite obvious this year that with the fluctuation of ships.
Shipping costs and raw material cost.
We need to act.
With the fast and and to go to the market and see what we can.
What it can do in the marketplace and this is going to be on will be second to price increases.
The year that we are issuing and at the moment. We are looking forward, we believe that we can offset.
Most if not all of the dollar impact of the.
Inflation cost increase that we are experiencing in the second half.
In terms of the commentary around Israel, you mentioned kind of down 20 ish percent.
More competitive market conditions could you shed a little more color on what exactly what's happening and in that market.
They do the marketing is going through a change in the end consumer the flavor anyway and the porcelain.
The penetration to these are the marketing is happening quite fast on that I'm very happy to say that we are part of this penetration as well as we move to the multi material on strategy.
2 years ago, and last year with the acquisition of <unk>, we are now.
Our personal and business are in Israel are in line with the market, Yes, it's still a it's happening.
And you saw that happen.
Years ago. So all in all I believe that we do see a change.
Change in our in the Israeli market, we are now piloting in Israel.
The first a 6 colors coming from the only plant of ours under the seasons on brand in Israel, and so far with a very good feedback from our from our customers and consumers.
Perfect I'll pass along thanks for the time and best of luck.
Thank you Omar.
Thank you. Our next question comes from Reuben Garner with the Benchmark Company. Please proceed with your question.
Thank you good afternoon guys.
So.
Maybe just to start can you quantify what the price cost drag that you experienced in the second quarter was.
You know whether its in dollars or gross margin percentage and then what your expectation is for the second half I just wanted to clarify you you've all I think you just said that the price you expect the price increases to offset.
The inflation that you're seeing but.
No.
If that's if that's what you said maybe it's after the second half is that the right way to think about it.
Yeah for sure.
For the second quarter, we started to experience the impact of the inflation in raw material prices and in our shipping costs.
We expect to see a more impactful impact day.
And the second in the in the in the third than in the second half of the year.
Yeah.
There is a lag between the time that we manufacture on the time that we sell.
Having said that we have implemented the price increase that are for example in the U S. You take day starting July 1st so.
So we expect as you well mentioned to offset the.
Yeah, the inflation at least partially or in full.
By increasing prices and starting.
Second half over there.
So your your full year guidance would imply.
Our lower gross margin in the second half relative to the first and relative to a year ago, how much price cost drag are you expecting in that outlook.
Outlook.
Pester Rubin.
Do expect.
Some of the decrease in gross margin in the second half, although a year on year for the full year impact. We we mentioned the beginning of the year and it's still the case that we are expecting a flat position between the 2020 in 2021, so pretty much similar to last year, Although we started in our position.
Placement growth in gross margin, we believe that for the full year is going to be quite similar to a year ago.
Okay and then.
On seasonality wise Q2 revenue is normally the.
The high point for the year is that.
Something that might be different this year in revenue could be higher than Q2, as we move into Q3 and Q4, because you're you're you're kind of ramping and you've got a lot of initiatives going on or would that be too aggressive.
So it could be the case normally our internal seasonality, both Q2 and Q3.
I've been recognizes the strong quarters in the year.
But it's true that some of our growth engines.
Kicking in and there might be a chance that we'll see some upside in day in day in Q3, all in on similar quarters.
Okay, and then home depot, you mentioned a couple of times I think you said that business has doubled how big is it now as a percentage of your business and you know either overall or in the U S and how how big of an opportunity is that or how big do you think it can get in the next couple of year.
Yes.
So the specific number we are not providing it.
Let's look at the proxy.
Yes.
Doing yes, it's true that the business he's been doubled quarter on quarter and indeed, we do see the big box and home depot was part of the bulk of that.
As a major player.
It's a great opportunity for us and we will be focusing more and more on the big box channel in the U S.
With more resources more.
Attention and we do believe that there is a great potential procedures done in the big box channel.
Got it and last 1 from me is our marketing and selling our expense I think it was about 23.6 million in the second quarter. I know you expect it to remain elevated is that the kind of number we should look for as we move into the back half and ending next year or was there anything.
Sort of 1 time or specific to the second quarter that made that number higher than that it will be.
I think that number doesn't reflect the reality that we are facing.
We mentioned in the beginning of deal that will be.
Bringing our spend to a more normalized level and it's happening in line with our plan. We are investing exactly we're spending exactly in line with our plan no deviation from the plan and we think I'd say it would be contributing to an ongoing series on growth journey for this year and for the coming years.
Got it. Thank you guys and congrats on the results and good luck moving forward.
Thank you very much thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I will now turn the call over to you Bob <unk> for closing remarks.
Thank you for your attention. This morning, we look forward to updating you on our progress next quarter.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.