Q3 2022 Caesarstone Ltd Earnings Call
Okay.
[music].
Hello, and welcome to the Caesars Total Ltd third quarter 2022 earnings conference call.
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Australia a question. Please press Star then two please note today's event is being recorded and now I would like to turn the call over to Brad Cray Investor Relations. Mr. Craig. Please go ahead.
Thank you operator, and good morning to everyone I am joined by <unk>, All the game, either Starnes, Chief Executive Officer, and the home Trust, either Stern 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 third quarter 2020 earnings release, which is posted on the company's Investor Relations website.
And I would now like to turn the call over to Yuval. Please go ahead.
Thank you Brad and good morning, everyone.
Third quarter 2022 results reflect further progress against our multi pronged growth strategy to transform <unk> into a leading premium multi material content company.
We produced our seventh consecutive quarter of double digit revenue growth on a constant currency basis, leading to another quarter of record revenue.
In our largest market the U S. Our results benefited in part from.
Organic growth from the successful integration of our only corn, because then I can tell business.
In the fourth quarter of 2020, and the expanding presence will further innovative digital connect platform of course, most of America, which is substantially improving customer experience and engagement.
Out of our business.
Additionally, successful implementation of pricing initiatives is helping to more than offset softening volume due to the challenging microeconomic environment as higher interest rates and inflation have continued to pressure our renovation and new construction activity mainly in the U S.
As a result of these market economic conditions, we have over the taken measures to align our production and inventory levels to new conditions in the market and plan to continue to take actions to reduce costs.
In response to the increases in shipping and raw material prices.
Our margins, we have announced three price increases sulfo in 2022 with our most recently announced price increase in July which is partly reflected in our third quarter results.
Additionally, we are carefully monitoring the demand environment and would note that.
Our global markets outside the U S have been less impacted by inflation and higher interest rates overall.
Overall, while we believe the execution of our strategy remains effective foreign exchange rate fluctuations primarily related to the strengthening U S. Dollar have become an increasing headwind to our top and bottom line as reflected in our third quarter results.
Our results in all regions outside the U S were negatively impacted by the strong dollar compared to respective local currencies.
Today, we have revised our full year 2022 outlook, but don't want you to reflect these unfavorable foreign exchange impacts that are expected to continue through year end.
Our revised outlook also factors in to lesser extent, the impact of higher shipping costs and shipping delays.
As we look forward I would like to reiterate that the actions we have taken through our global.
The growth acceleration plan over the past several years to create efficiencies and diversify our business mix beyond quotes.
They have allowed us to push through the pandemic the global supply chain crisis, and most significant significant inflationary pressures.
The industry has seen in years.
With this in mind, we believe we are well positioned with the right talent in place to execute through this complex environment and we have additional levers to pull to optimize productivity at our plants and inventory levels as necessary.
Furthermore, we still have ample resources to execute our strategic multi material growth initiatives to create long term value.
We have introduced our silicone branded global posted on collection in the U K, Israel, and Australia markets and expected to launch in the North American region during 2023.
I'm proud of our entire team's efforts to execute the initiatives under the global growth acceleration plan. During these complex times.
With that.
I will now turn the call to <unk> to discuss more details on our financial results and outlook.
Thank you Ron and good morning, everyone.
I will start by discussing our third quarter results.
Global revenue grew 10, 6% to a third quarter record of $187 million.
Compared to $163 3 million in the third quarter of last year.
On a constant currency basis third quarter revenues was higher by 14, 9% compared to the same period last year.
Primarily due to higher pricing and of course, our global footprint, particularly in North America.
The four 3% difference between the U S dollar revenues and constant currency revenues.
Flips the previously discussed headwinds.
From the strong U S dollar against all of the generated revenues in all markets outside of the U S.
In the Americas constant currency sales were up 10, 2%, mainly due to growth in the U S and Canada.
In the U S sales were up 10% driven.
Driven by solid organic growth generated from higher prices.
In Canada sales were up eight 7% deal with every year on a constant currency basis.
Driven by strong performance in all channels with a kiss has continued to experience strong yield the real goal.
In the APAC region constant currency sales were up 17, 4%.
Australia, which accounts for the majority of our sell in the region and so you have the real growth.
<unk>, 6% on a constant currency basis, despite continued headwinds from supply chain issues.
Our EMEA region experienced constant currency sales growth of 41, 1%.
Primarily reflecting strong performance in our email indirect business.
Our growth in this region was higher than usual given the timing of customer orders.
In Israel on a constant currency basis sales increased by 16, 5% in the third quarter.
Partially resulting from the timing of the Jewish holidays that took place in October of this year looking at our third quarter P&L performance.
Gross margin was 23% for the quarter adjusted gross margin was 23, 1% compared to 26, 3% in the prior year quarter.
Do you have any other differences in gross margin.
Dominantly reflected unfavorable foreign currency exchange rate fluctuations.
With the reminder of the difference attributable to higher logistics shipping delays and raw material costs, which were partially offset by our pricing actions.
Looking ahead, we expect an unfavorable impact of foreign exchange rates higher raw material and shipping costs to persist.
In response, we expect to partially mitigate this impact through cost efficiencies and additional thoughts and actions building upon our.
He previously enacted 2022 price increases.
Our most recent price increase went into effect in July and was partially reflected in our third quarter of 2022 results.
As you mentioned, we have already taken measures to align our production and inventory levels to new conditions in the market.
Plan to continue to take actions to reduce costs.
Operating expenses were 21, 3% of revenue.
Compared to 27% into by quarter.
Excluding legal settlements and loss contingencies.
Operating expenses were 29% of revenue compared to 21% in the prior year quarter.
Adjusted EBITDA in the third quarter was $13 $4 million, representing a margin of seven 4%.
Compared to $17 $7 million or margin of 10, 8% in the prior year quarter.
The year over year decline, primarily reflects the decline in gross margin.
Which was largely impacted by the negative ethics.
Turning to our balance sheet. She has a strong balance sheet as of September 30th 2022 included cash cash equivalents and short term bank deposits and short and long term marketable securities of $66 2 million.
With total debt to financial institutions of $74 $5 million.
We believe our balance sheet continues to provide us with an ample resources to execute on our strategic initiatives.
Moving to our outlook.
As Dave mentioned, we are revising full year 2022 guidance for revenue to be in the range of $619 million to 700 million gallons.
Compared to a prior range of $710 million to $725 million.
The revised revenue range is predominantly due to the impact of foreign currency exchange rate fluctuations.
We have also moderated a little volume expectations for the year.
Do the softening economic conditions.
<unk> discussed today.
Additionally.
We now expect adjusted EBITDA as a percentage of sales to be approximately eight to eight 5% for the full year 2022.
Okay.
This compares to our pilot expectation for the margin to be similar to 10 seats in 2021.
The change in expected adjusted EBITDA performance is also predominantly due.
Due to unfavorable foreign currency exchange rates.
To a lesser extent due to higher shipping and logistics related costs.
Dan.
Let me turn the call back to you for closing comments.
Thinking at home in closing, we remain encouraged by the ongoing disciplined execution of our global growth acceleration plan.
I'm grateful for the significant contributions of all our team members across the globe and I appreciate their dedication to excellence, while working through a volatile globally landscape.
We are confident that our leadership teams are taking the right actions to deliver on our objectives.
This includes evaluating areas to further improve our margins and operating levers through careful cost management and the implementation of price increases where necessary.
Because you're moving to 2023, although it is hard to predict the magnitude and duration of the complex macroeconomic environment. We are experiencing I am confident that we have the right plan in place to execute against our strategic pillars effectively.
We are focusing on the factors that are in our control to create additional shareholder value by leveraging our world renowned brand multi material product offerings and innovative go to market initiatives.
I look forward to updating you again on our progress in the coming quarters.
Thank you and we are now ready to open the call for questions.
Yes. Thank you at this time, we will begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble the roster.
And the first question comes from Stanley Elliott with Stifel.
Thank you Paul and thank you guys for taking taken the question.
Hum.
I guess starting with <unk>.
Starting off could you help remind us I guess what level of pricing you all have had.
Year to date through all of the increases and then maybe what sort of additional pricing are you contemplating.
And I guess it just is kind of what sort of pricing carryover should we expect in the 'twenty three.
You know all else being equal.
Thanks, Dan maybe I'll start so.
So far we had three price increases.
Through the year.
With the successful.
Recovery on the price increase node.
All our boom and shipping cost.
Pretty much covered by those price increases and we will be monitoring the cost going forward to see if we need any further pricing actions going forward.
The third.
The first price increase that we did was.
In July and August .
Relatively smaller than the first two one that we did in the first half of the year.
And we expect.
To benefit from the <unk> from.
So on the price increase also in Q4 and obviously in the entire in the beginning of 2023.
Perfect and kind of with the pricing strength I guess, it sounds like kind of building a little momentum.
When do you think youll get back to margin growth I understand the pricing or the inflation piece has been pretty volatile here. This year, but curious how were thinking about when we get back to margin expansion.
Tougher comps for certainly the first half of next year and then it obviously gets a little bit easier in the back half of 'twenty three.
Yeah.
Without the impact of the exchange rate in Q3.
I have expected to continue.
In the <unk>.
Both the gross margin goals.
Be happening in Q3, as well I think we.
Having to even expected.
Dollar to be that's going to impact us.
That much so I believe that now with the actions that we're taking together with maybe potential price increases in the near future, we should be coming to growth in our gross margin in the coming quarters.
<unk> tended to add to that.
Other than the fact that yield quarter over quarter. The majority of the decrease is coming from the FX rate.
All other factors are more or less neutralizing one another.
We are taking different actions not only pricing actions additional pricing action, but we have taken other cost efficiencies actions in order to improve gross margin down the road in the in future periods.
Perfect and I guess, you mentioned aligning production.
Are you all going to be importing more product you're shipping more product.
Yes, I would kind of tie in to your commentary about transportation costs being higher.
Just curious what's going to happen from a manufacturing perspective, or what changes you're making given the.
The demand environment that Youre seeing right now.
Indeed, we are actually seeing some increasing.
Utilization capacity of our Richmond Hill facility as we have shorter lines to supply our main markets in the U S and Canada for the North America market and we expect that to be continue in the next year as well, we do believe that if we need any any changes in production in order.
To manage our inventory carefully we will do it in all our plants, but probably mainly not in the Richmond facility. This time around.
Great guys. Thank you very much for the time and best of luck.
Thank you.
Thank you and the next question comes from Reuben Garner with the benchmark company.
Thank you and good morning, everybody.
I had some technical difficulties at the beginning of the call. So apologies if any of the questions are repetitive but.
Can you start can you can you quantify the FX impact to gross margin and EBITDA margin in the quarter.
You know what changed for the full year, it sounds like you're saying predominantly but could you put some numbers to it.
Yes.
Yes.
So the revenue the difference.
Between the reporting reported U S dollars and constant currency basis is four 3%.
Let's say two 8%.
Of the amount that we lost in revenues is going down to gross margin and <unk>.
And 2% in the in the EBITDA margin.
Yes.
This new collection that most of the most of the change is coming from the exchange rate differences.
Sure.
And that's what took place in the third quarter.
In the third quarter.
As opposed to the second quarter, when we saw the U S dollar getting stronger against the Israeli shekel in the third quarter of the us dollar.
<unk> got even stronger against all other currencies.
You know in which we are generating revenues compared to the Australian dollar the Canadian dollar and the GBP.
And yes.
Okay.
Yes.
Can you go into any more detail about what kind of cost actions, you're taking I think this is kind of a follow up with families question, but.
Are you are you.
Out shifts.
How do we think about how youre going to align production with the volume.
Florida.
Thanks Robert.
We are taking actions in <unk>.
All fronts. So we are taking.
Shift so so.
So we can so we're going to be producing less moving line to the current demand that we see in addition, we are looking on our OLED direct cost to make sure that we are making the right decisions there as well in order to make sure. The company is ready for it.
Any future challenges.
Just on the front of the exchange rate.
Differences, but also against any infiltration on demand that might be coming our direction.
Will you be pulling back on the growth investments.
Here in the U S as a as an example.
No not at all I mean, we are following.
Our global growth acceleration plan, we are launching our multi material.
Our multi material strategy.
Having launched our porcelain offering under the <unk> brand.
In the U K, Australia, and Israel This year and we are coming early next quarter.
Italy first quarter 2023 to the U S and Canada with this with this launch so we are continuing to we continue to execute our strategy.
And our global growth acceleration plan, we are looking on improving our footprint in the U S. At the same time and as as we will be.
Coming close any potential acquisition to do we will be looking at.
In detail to see if the fit to system.
Okay, and then last one for me is how do we think about.
Margin.
Alan side for next year.
It's pretty clear that there is potentially some volume headwinds coming for a period of time I mean, if we were to see.
10% volume declines what kind of decremental would we see on the on the business.
Given that you've been kind of behind from a price cost standpoint over the last year or so.
Okay.
We will still have still hard to say with regard to 2023.
But we.
We are focusing and aiming to to improve profitability and to improve our cash.
Cash balance for the activities that development and pricing and other cost efficiencies, but still early.
Still early to predict how it will shape up in 2023, given the macroeconomic.
Uncertainty and things that we saw in September and now in Q4.
Okay.
Okay. Thank you good luck guys.
Thank you.
Okay.
Thank you and this concludes our question and answer session and now I'd like to return the floor to you of all the gain for any closing comments.
Thank you for your attention. This morning, we look forward to updating you on our progress next quarter. Thank you very much.
<unk>.
Thank you.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.