Q3 2021 Caesarstone Ltd Earnings Call
Greetings and welcome to the Caesar Stone third quarter 2021 earnings Conference call.
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It is now my pleasure to introduce your host Brad Cray Investor Relations. Thank you. Please go ahead.
Thank you operator, and good morning to everyone I enjoined by you've all the game Caesar Stone Chief Executive Officer.
And to whom trust you just don't Chief Financial Officer.
Certain statements in todays conference call and our responses to various questions may constitute forward looking statements.
We 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, and 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 loss.
Adjusted net income loss per share adjusted gross profit.
Adjusted EBITDA and.
In constant currency.
The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's third quarter 2021 earnings release, which is posted on the company's Investor Relations website.
You and I would now like to turn the call over to Yuval. Please go ahead.
Thank you Brad and good morning, everyone.
Building on our solid first half 2021 performance, we were pleased to achieve third quarter results demonstrated our ability to continue to effectively execute our global growth acceleration plan to drive business enhancements and value creation.
We achieved yet another period of record quarterly revenue and our fourth sequential quarter of year over year revenue growth attributable to increasing demand for our best in class products across the U S and the majority of our global markets.
In the U S. We were encouraged to see significant growth in our sales by three.
Yes.
Big box channel growth core business growth and the contribution of the Omicron acquisition.
And the Big box, Germany, although the schedule Seaters don't Brendan slabs for U S home depot stores continue to be another bright spot as revenue increased nearly 50% year over year.
We are also happy that our sales to Ikea U S recovered substantially during the quarter.
In addition, we drove core business improvements and experienced positive contributions from our acquisition of Formula One if a millstone supplier in the highly attractive markets of Florida, and Ohio Valley.
We are starting to see the benefits of synergies from the Army Corp.
The geographic and service benefits from this acquisition have been very encouraging and we could not be more pleased with the integration efforts of our teams.
Our APAC region continues to benefit from sales related to a little Yodlee acquisition and remain excited to launch an innovative new porcelain collection under the system then next to you.
As it relates to business enhancements initiatives during the third quarter, we rolled out our innovative <unk> connect platform.
It's really across the U S as planned.
We view this national rollout is another critical milestone.
Efforts to expand the reach of these digital platform that is helping us to simplify the contractor purchases posters and create a step change in the way, we communicate with our customers and consumers.
Feedback received from our partners and customers has been very positive.
We are currently evaluating implementation of the platform instead of all of our other global regions.
Separately as we discussed last quarter. Our teams are committed to effectively mitigate global supply chain of raw material cost increases impacting system in our industry through careful cost management and other strategic actions such as price increases.
Both of them, we have been able to offset some of the rising cost through the price increases that went into effect during 2021, and we recently announced additional price increases in most of our territories to be implemented on January 1st 2022.
We continue to diligently monitor cost trends.
We are taking actions to partially offset the rising costs, we do expect widespread global shipping challenges and rising input costs.
To continue to weigh on our margins in the coming quarters.
With gradual improvement during 2022, and you realize the price increases in all markets.
That said I am confident in the actions we are taking to enhance our operations and believe our business remains on a positive trajectory to deliver long term value.
Looking ahead.
We have a strong balance sheet and cash position to continue to deploy capital.
Greetings in nature.
This will include developing testing and introducing a premium multi material offerings to grow a little addressable market in the quarters and years to come.
I would also like to take a moment to highlight the publication of our first ever Global ESG report in October.
We are pleased with our ESG accomplishments to date.
I wanted to have now built the prudent framework to accomplish although the newly as cheap goals set forth in the report.
We believe our success is directly related to how will we take care of our clients our employees and our communities.
We are dedicated to help create a more sustainable future for all of our stakeholders.
With that I'll turn the call over to <unk> to discuss more details on our financial results and outlook.
Thank you Bob and good morning to everyone.
I will start by discussing our third quarter results.
So the third quarter of 2020, one global revenue increased for the third quarter the code of $163 3 million.
Presenting.
One 8% growth.
Compared to the prior year's period.
On a constant currency basis.
Third quarter revenue was higher by 29, 2% compared to the same period last year.
Primarily due to improved demand in most of our regions of course, our global footprint.
Revenue for the period also included approximately $22 8 million in contributions from all of the acquisition of all implemented I already said on the call.
We completed during Q4 last year.
Now looking at total agents.
In the Americas constant currency sales were up 42, 6%, mainly due to growth in the U S.
In the U S sales without the 51, 8% driven by Avalere acquisition of comic Con.
Coal business improvement and strong growth in the big box channel.
Hello sensing home depot stores were up nearly 50% you O'neill for the third quarter.
And we also experienced increased activity if they care for those in the U S.
Which led to a strong recovery in sales with basically Dana.
In Canada sales were up 11% on a constant currency basis.
Driven by stronger business performance and the slight increase in our first Ikea.
In the APAC region constant currency stay at a nickel of 16, 3% in Australia, which accounts for the majority of our sales in the region growth was driven by improved demand.
Type of Egypt, COVID-19 related restrictions that continued in most of the quota.
The into October.
Contributions from all of the business in Southeast Asia and the Yodlee.
Also additive to the APAC region sales in the third quarter.
In the email region constant currency sales grew 18, 2% as we experienced stronger demand in the U K and the indirect sales channel.
He needs however, on a constant currency basis.
There's a little down 12, 2% in the third quarter.
But none of it related to competitive market conditions in the region.
Together with lower number of selling days compared to the prior to get a quote.
Due to the timing of the Jewish holidays.
Looking at all of the third quarter P&L performance.
Although the gross margin was 26, 2% for the quota.
Adjusted gross margin was 26, 3% compared to 31, 4% in the prior year quarter.
The yield but here the difference in gross margin was in line with our expectations and primarily reflected higher raw material prices.
Mainly in polyester.
In addition to increasing shipping prices.
Which was partially offset by price increases and more favorable product mix and exchange rates.
As many displays and have experienced professionals falling raw material costs have increased as beautiful because I.
Given the ongoing tight supply environment impacting all of industry.
We did have a material impact from rising cost in the third quarter of 2021.
Particularly in the polyester on chicken prices.
Operating expenses, excluding legal settlements and loss contingencies with a 21% of revenues.
There to 18, 8% in the prior year quarter.
The increase was mainly due to a return to normalized levels of marketing and selling expenses.
And investments related to initiatives under our global quota acceleration trend.
Adjusted EBITDA in the third quarter was $17 7 million.
Presenting a margin of 10, 8%.
Totaled $23 7 million or margin of 19, 1% in the prior year quarter.
The year over year difference in margin.
It reflects the lower gross margins and together with the higher operating expenses compared to last year.
Adjusted diluted earnings per share in the core hotel plenty sense on $34 6 million shelf comp.
Compared to adjusted earnings per share of 41 thing in the same period last year on $34 5 million shares.
Turning to our balance sheet.
As of September 30th 'twenty, 'twenty, one we had cash cash equivalents and short term bank deposits.
And short and long term marketable securities.
$112 7 million.
With a total debt to financial institutions of the pinpoint kilometer.
Well, if I think the us with a strong cash position of $91 5 million.
Resiliency of our balance sheet continues to give us confidence in our ability to execute floats the initiative.
Our global growth acceleration.
In accordance with our dividend policy and based on our net income performance dealing with the sale of the court of appeal and benign months, particularly at the 2021, although both declared the dividend of <unk> shale with as they call date of November 17, and payment date of November 30th plenty of 'twenty one.
Moving to our outlook.
Based on our performance year to date, we are reiterating our expectations for revenue and adjusted EBITDA to be highly eagle for the year in 2020 one.
With the expectation that revenue will grow faster than EBITDA.
This outlook assumes slightly lower annual gross margin compared to 2020 with them all favorable mix and higher revenue being offset by the higher raw materials and shipping costs that I discussed earlier.
In the fourth quarter, we expect the Italian all material and shipping cost would it be an even more significant headwind to our margins.
We expect to partially mitigate the theme park.
Additional price increases and other cost cutting initiatives.
As you've already discussed on November 5th we announced a price increase in most of our markets to take effect on January 1st 2022.
Additionally.
We expect operating expenses to remain elevated on a year over year basis.
As we continue to invest in sales and marketing at normalized levels.
Both our brand and future growth.
These costs have returned.
We have ramped up investments in our growth initiatives following a temporary reduction in investment yields 2020.
And therefore don't indicate the pandemic related impacts.
With that.
Let me turn the call back to you for closing comments.
They can go home.
In closing our third quarter results represented continued progress against our strategic plan and we remain encouraged by our performance year to date.
Our successful national rollout of <unk> connect platform in the U S.
Synergies from our omicron business and our planned pulls from product launches give us optimism in the trajectory of our business as we make meaningful tangible progress on our global growth acceleration plan.
Looking to the remainder of the year, we have a strong cash position to continue with prudent investments in our sales and marketing capabilities as we utilize.
Our World Class C band to build additional value for our shareholders.
Thank you and you are not ready to open the call for questions.
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Our first question is coming from Stanley Elliott of Stifel. Please go ahead.
Hey, Good morning, this is Andrew <unk> for Stanley.
I'm wondering if you could.
I'm wondering if you could maybe bucket the margin headwinds in the quarter related to materials.
Shipping logistics or plant inefficiencies.
Maybe I'll start.
Generally speaking I think our margins came a glide to align to what we are advanced in the second quarter.
We haven't seen anything.
Additionally to what we already saw.
In our cost in raw materials and shipping costs.
In doing our production schedules in Q2 before servicing the markets in Q3, so all in all not great greater surprises very much in line with what we expected to have yeah. So.
The 5% decrease.
Can be attributed to.
240 basis points relates to the higher raw material costs.
210 basis.
Basis points related to the landed cost to the increase in the London buses.
And 250 basis points related to the lower throughput that we had been in our Israeli plants.
Those three items will partially offset by a by a higher revenue improved product and regional mix of around 280 basis points.
Okay.
Perfect. Thank you.
And I guess on Q4, what sort of margin headwinds would you expect there and when do you think price cost would turn positive for you all and when do you expect to see year over year margin growth, either gross margins or EBITDA margins.
Yeah.
We do believe that the fourth quarter is a it will be a continuation of what we see.
In Q3 with some adjustments as we as we see the you know the.
Products are coming form the balance sheet to the to the P&L, Yes, we are expecting to demonstrate some gross margin recovery on the back with all the global price increase that we are at.
<unk> announced.
So the price increase.
We will offset a portion in Q4, but we will have.
Uh huh.
The impact dealing are yielding next year.
As we said are the but I think it will be a majority of it will be effective January 5th. In addition, keep in mind that our Q4, given our seasonality is ease a bit.
Our slowest quarter in terms of revenues given holidays Christmas. So it it will also impact our margins in Q4.
Yeah.
Thank you.
Last one on mm.
Connect I was wondering if you could maybe.
Provide any metrics around that maybe.
What percent of the U S is trained in using this and does it give you any better visibility into 2022.
Yeah, and this is going to platform has been launched two quarters ago and since then we all theyre distributing all expanding the the spreads and the presence of <unk> connect in the market, especially with our kitchen and Bath.
Partners. So far we're very pleased with the take of this.
Of this platform, but it's very early days too.
Now to put the you know the the metrics financial metrics around our expectations, we are going to be expecting way more of that in 2022.
It'll be more than happy to report on the progress in the coming quarters.
Okay.
Awesome, that's all I got thank you.
Thank you very much Andrew.
Once again, ladies and gentlemen that is star one to register a question at this time.
One moment, please while we poll for any additional questions.
Were showing no additional questions at this time I would like to turn the floor back over to Mr. Jacobs for closing comments.
Thank you for your attention. This morning, we look forward to updating you on our progress next quarter.
Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines.
Webcast at this time and enjoy the rest of your day.
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Okay.