Q1 2022 Caesarstone Ltd Earnings Call
Greetings and welcome to the Caesar Stone first quarter 2022 earnings conference call.
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A brief question and answer session will follow the formal presentation.
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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 Sir you may begin.
Thank you operator, and good morning to everyone I am joined by your ball Big game features stones, Chief Executive Officer.
Trust Caesar Stone Chief Financial Officer.
Certain statements in todays conference call and responses to various questions may constitute forward looking statements.
We caution you that such statements reflect only the companys 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 adjusted net income per share.
Adjusted gross profit adjusted EBITDA and constant currency.
The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's first quarter 2022 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.
We are thrilled to produce our sixth consecutive quarter of revenue goals as we continue to successfully execute our strategy to transform Caesar stone into leading premium multi material come to the company.
We achieved record first quarter revenue, increasing 18, 5% year over year on a constant currency basis to $117 million led by strong performance by our teams in the U S and Canada.
Most specifically, we benefited form cyclical sectors, helping to drive our growth.
First organic growth from the successful integration of Oh, my goodness and tile business.
While the fourth quarter of 2020.
Second continued strengths in the big box channel.
Third expansion of our innovative digital platform Cisco NEC in North America, and fourth successful execution of our strategic initiatives to capture a growing share of demand.
Our end markets.
Additionally in our.
Big box channel, which includes <unk> and other large retailers our citizens during the quarter remained strong overall with continued recovery in our business.
On the customer engagement side.
We are seeing continued positive reception of our digital she is connected Russell, where we now have nearly 900 retail partners and counting compared to 700 partners.
One quarter ago.
The platform has performed exceptionally well and is creating new revenue channels Caesar stone, while bringing us closer to our customers and business partners by providing an end to end solution for our Boston is that effectively manages okay.
Countertop value chain.
Overall, our results for the first quarter were in line with our expectations as we are benefiting from healthy demand for our products successful integration of acquired businesses and expansion of our digital platforms.
And the focused execution of our multi material growth strategy.
So at this point, we are excited to introduce new multi material product offerings in 2022.
With an innovative new global wholesale and collection under overseas don't brand it will be launched in the third quarter.
The vast majority over the porcelain products will be produced in India through our <unk>.
Integration of the Yodlee surround me call. It we could not be more excited to further extend our innovative content offerings and penetrate to more to our addressable markets.
We are also happy with all the recent quartz product launches, including eight new designs in the first quarter of 2022.
You have been received well by customers of basketball.
Our first quarter results also reflect the price increase we previously announced in January to mitigate rising costs.
This is also reflected in the gradual gross margin improvement compared to the fourth quarter of 2021.
We recently announced an additional price increasing that fail to further mitigate rising costs related to shipping and raw materials.
In conclusion, we are proud of our entire team's efforts to capture strong global demand for our best in class products and we are diligently monitoring the volatile global supply chain environment, as we work to mitigate higher shipping and raw material costs food, all the announced pricing actions.
We will continue to implement necessary pricing actions to pass through inflation and help us achieve our full year goals.
As pricing actions become effective we expect the positive sequential trajectory of our margins to continue into the following quarters.
Looking to the balance of the year do you believe that they'll have a strong brand cutting edge multi material product pipeline and strategic go to market initiatives collectively leave us well situated to deliver on our objectives.
With that I will now turn the call to know who to discuss more details on our financial results and outlook.
Thank you Bill and good morning, everyone.
I will start by discussing our first quarter results.
Global revenue grew 16, 7% plus first quota they called for $170 four.
$4 million.
Compared to $146 million in the first quarter of last year.
On a constant currency basis.
First quarter revenue was higher by 18, 5%.
Compared to the same period last year.
Primarily due to strong performance in North America.
In the Americas constant currency sales were up 22, 7%.
Mainly due to growth in Canada, and the U S.
In the U S.
Citizens with up 23%.
Driven by strong organic growth.
We experienced solid double digit growth all science data, so far with natural stone product.
So while the Army Corps business.
In Canada sales were up.
It is three 5% year over to you on a constant currency basis.
Driven by strong performance in all channels with Ikea sales more than doubling year over to you.
In the APAC region.
Instance, currency says with up six 2%.
Australia all accounts for the majority of fellow citizens the region and so you'll have to be able to close despite headwinds from supply chain issues.
In the EMEA region constant currency sales grew 26, 4%, primarily reflecting strong performance in the UK as well as the Norwood indirect mark.
In Israel on a constant currency basis sensitive up 12, 9% in the first quarter.
Reflecting solid core business performance.
Looking at the first quarter P&L performance.
Our gross margin was 25, 3% for the quarter.
Adjusted gross margin was 20 514 compared to 71% in the prior year quarter.
The seals the real difference.
Margin was in line with our expectations.
Primarily reflected higher shipping costs. In addition to continued pressure from low material prices.
Mainly in polyester.
This was partially offset by selling price increases and favorable product mix.
As we have discussed in previous quarters.
We continue to experience pressure from rising costs associated with shipping and raw materials.
Given the ongoing tight supply environment impacting our industry.
In the first quarter of 2022.
It was impacted mainly from shipping cost interest is of course always global footprint.
We expect the favorable impact of higher raw materials and shipping costs to persist.
In response.
We expect to partially mitigate this impact.
So any additional price increases that went into effect Julien April 2022.
Following that we will first go out with a price increase that went into effect on January 1st 2022.
Operating expenses were 21, 2% of revenue compared to 22, 8% in the prior year quarter.
Excluding legal settlements and loss contingencies operating expenses were 21, 7% of revenue.
Compared to 22, 3% in the prior year quarter.
Mainly due to the higher revenue.
Adjusted EBITDA in the first quarter was $15 7 million, representing a margin of nine 2%.
Compared to $23 million okay.
Oh and margin of 13, 9% in the prior year quarter.
Okay.
The year over year decline, primarily reflects the lower gross margins in.
In the current period.
Adjusted diluted earnings per share in the quarter was 14 cents compared to adjusted diluted earnings per share of 42 cents in the same period last year on a similar silicone.
Turning to our balance sheet.
It'll start as a balance sheet as of March 31st 2022 included cash cash equivalents and short term bank deposits and short and long term marketable securities.
Well $64 $2 million with a total debt to financial institutions of 11 8 million.
Well, but I think that's the way the solid net cash position of $52 $4 million.
We used approximately 23 million of cash flow for operations during the quarter.
This was primarily due to a $24 million increase store inventory balance during the quarter.
To support higher revenues.
And also as global shipping plus shows that have extended product lead times.
With all of this in mind, we believe our balance sheet remains strong.
With ample resources in place to execute far though on our strategic initiatives.
Moving to our outlook.
We are reiterating 2022 guidance for revenue.
To be in the range of 710 million die level.
So $725 million.
This implies a growth of approximately 11%, although 2021.
The midpoint of this range.
The drivers of gross dollar volume and price improvements in our key markets.
We continue to expect adjusted EBITDA is.
As a percentage of sales remained similar compared to 2021.
We anticipate higher sales.
And settings by says tool.
To offset increased costs in connection with all materials and shipping.
Our outlook also includes the investment costs associated with our global growth acceleration plan.
With that let me turn the call back to you for closing comments.
Thank you know.
In closing we are pleased with our strong start to 2022 as we continue to transform our Caesar stone into a global countertop leader.
As we move through this year, we are focused on executing further against our global growth acceleration plan to gain market share and build additional shareholder value while carefully monitoring the volatile global supply chain environment.
As I mentioned earlier, we have announced pricing actions that provide us with confidence in our ability to navigate the rising cost environment and we will look to implement further pricing actions as necessary to achieve our full year objectives.
We also remain committed to our long term goal of becoming a 1 billion dollar global console player by 2025, so multiple growth levers.
We are driving forward to achieve our long term goals by leveraging our athletes and technological transformation and augmented go to market strategy and premium brand recognition.
Okay.
In combination with other new cutting edge multi material product offerings. We believe we are on the right trajectory to accomplish our objectives and drive additional value creation.
I look forward to updating you further on our progress in the coming quarters.
Thank you and we are now ready to open the call for questions.
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Thank you. Our first question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.
Thank you everybody. Thank you guys for taking the call.
A quick question nice to see the the kind of reiteration of the guidance could.
Could you talk about the magnitude of the price increases in one queue into Q and then within that framework, if you're keeping kind of 11% sort of full year number out there.
Did the volume outlook stay the same with that additional pricing is is FX getting worse.
Any help with the moving pieces there would be great.
Hi, Tony Good to hear from you first I think you'd say, it's great to see that the first quarter is pretty much in line with our expectations and even a bit better.
We are very promising was to see the improvement in gross margin against the Q4 2021 and the price increases. These is stacking up in the market.
Broadly speaking the accepted these price increases.
To mitigate the rising cost that we are experiencing in the last two quarters of 2021.
With that in mind, what we are seeing now in Q1 and the beginning of Q2.
Some further increase of those costs. So we are expecting to mitigate those.
Another price increase that we announced in.
In March effective.
Something like 15 thoughts.
Absolutely.
To mitigate to mitigate further the cost inflation that we experienced in the first quarter of this year all of tobacco.
The latest global crisis.
Can you talk.
Yeah and then in addition to your question in the first quarter. We saw an increase in revenue that is coming not only from the five centers, but also coming from quantities. So.
It's a combination of those two items and not so much 50 50 between prices and volume.
And is that 50 50 kind of got a hold for the full year then as well.
We think that you in the coming quarters.
Pricing actions will be more dominant than the volume we are expecting both too.
<unk> contribute to our growth of double digits. This year as well, but I think pricing will be a bit more volume.
Going forward in the coming quarters.
Perfect and then can you talk about the manufacturing footprint I mean are you seeing E. L F.
Oh less costs in the Americas versus Israel or India.
Just curious kind of how the global footprint and I get it that do you have a lot more transportation cost you know coming out of India, and Israel, but would love to hear how the manufacturing footprint is operating.
Nowadays the thing we think now with the current shipping prices that we're experiencing the footprint is actually servicing us quite well we are located with the sources from China to India, Israel and then in the U S. So actually our proximity to the market.
He is quite is quite good and the spread of our.
Sources of products is actually it was widespread.
Hence we are utilizing more of a facility in the U S. Nowadays and we are on the other side of the Ocean. If you like on another side of the globe utilizing more of an OEM supplier in China too.
To be servicing out of the.
Business in Australia, so utilizing the global footprint of all those two are the best as we can.
And then lastly, the commentary on the Big box channel is that just a you know Ikea coming back you are you.
Getting placement in new locations is it new Skus would love to hear kind of how you're thinking about that part of the go to market strategy.
Two folds for my.
So my answer on this one first in the first quarter. Indeed, we have experienced an increase of revenue volumes and activity with the Ikea business of ours.
At the same time, we will.
Very pleased to hear form lows that we've alluded, we all know where.
A greater positive all of them together, we just thought that with them and we are putting more and more designs of.
The brand and our brand in loans as well so.
A big box strategy that we developed over the last few years is happening and the execution is he's a very.
Very well.
And we are very pleased with this.
Great guys. Thanks, so much I appreciate the time and best of luck.
Thank you Jonathan.
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Our next question comes from the line of Reuben Garner with the benchmark Company. Please proceed with your question.
Thank you good morning, everybody or good evening I guess.
On them so.
Maybe just to start off a follow up to the Stanley's question on the volume side.
Is there anything that you're seeing recently in your order data you know.
To start off the second quarter that had you may be a little bit more cautious or are you just looking at the kind of global environment.
Environment and rising rates in and just you know maybe taking a cautious stance you know as a result of that.
I believe that at the moment, what we are what we are experiencing is quite strong demand to our products.
We expect this demand to continue during the year, especially on the on the vehicles.
Previous a quadruple that launched.
The first quarter and expected porcelain product launch in Q3 of this year. So we continue to.
<unk>.
Baidu designs to the market.
On the back of very strong brands since don't Brent, we're expecting the demand to our products.
Continued to be strong.
All year long.
And and if there were a slowdown how do you I know this year was supposed to be a big kind of year for you guys from an investment standpoint and in growing.
The business, how do you guys think about.
You know the SG&A investments that you're planning if there if there is a pull back in in growth globally. Do you think you would pull back on the spending to grow the business or do you think you would kind of pressed board with it given your your balance sheet and capital situation.
We are demonstrating a very close.
All right.
Cost control, if you like Ruben and with that in mind, we will be monitoring diligently.
Volume and the demand.
Two our products during the year.
Just bear in mind that we that we all want we have budgeted for those launches that I mentioned earlier and they are already in.
The marketing spend almost no planned spend for the year.
And so far we haven't seen any signs that should that should be driving us to change our original plan.
Great and can you can you update us on on your strategy in the U S. I know, it's early days and in.
Integrating your acquisitions and you know kind of unfolding that strategy into some other markets any any progress or update there.
So indeed they.
The U S market is where we have the greatest opportunity and we are making are most of them.
Putting our most efforts and focus.
We all are more exposed now too as we plan to be to the modeling M. In the innovation sector.
So we are we are less less dependent on big projects and to extend and we are focusing on launching our digital platform <unk> connect continue our penetration to the big box channel and working hours.
Our footprint in the U S. Only Kona was one step on the right direction, we are looking for more way.
<unk> like the <unk> acquisition to see if we can improve our footprint in the U S and to cover.
More intensively more metros in the U S markets.
Great and then last one for me balance sheets, obviously in a great shape. Just curious how you guys are thinking about.
Thinking about that in this market given where the stock is how do you think about maybe share repurchases is that something that's that's come up as a potential use of cash and have you already spoke to this I apologize I had some technical difficulties earlier in the call.
No currently will then Oh the main purpose of our cash is to serve the two so the growth that we see and you know to sell for any potential M&A that might come down the road.
Yeah. So those are the main domain usage for so I would guess Reuben in addition to that I think we have quite consistent.
Thing attuned to investors and analysts that we are we would like to see cash being directed to fuel the growth of the company. We said when the growth will still ahead of us to know when the <unk> is a is happening it's even even a stronger message on that so the.
The cash that we have should be servicing the contingence to be servicing of growth and as in the who mentioned M&A and the east bundle for our growth.
Our strategy is with.
Great. Thanks, guys. Good luck.
Two of them.
Thank you we have reached the end of the question and answer session. Mr. Nadeem I would now like to turn the floor back over to you for closing comments.
Thank you for the folio attention. This morning, we look forward to updating you on our progress next quarter. Thank you very much. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.