Q4 2023 Caesarstone Ltd Earnings Call

Operator: Thanks for watching! Seasons 1 & 2. Greetings and welcome to the Caesarstone 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question, you may press star, then 1 on a touchtone telephone.

Yeah.

Greetings and welcome.

Did the Caesar stone fourth quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

Okay.

To ask a question you May press Star then one on a touchtone telephone.

Operator: To withdraw your question, please press the star key followed by 2. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cray of ICR. Thank you. You may begin.

To withdraw your question. Please press Star then two.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Brad Creek of ICR. Thank you you may begin.

Thank you operator, and good morning to everyone on the line I enjoined by Yo sure Hi, Caesar Stone as Chief Executive Officer, and the home Trust, She's a stern Chief Financial Officer.

Brad Cray: Thank you, Operator, and good morning to everyone on the line. I am joined by Yosh Shiran, Caesarstone's Chief Executive Officer, and Nahum Truss, Caesarstone's Chief Financial Officer. Certain statements in today's conference call and 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-S and subsequent filings with the SEC.

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 company's current expectations 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 us.

C C.

Brad Cray: In addition, on this call, the company will make reference to certain non-GAAP financial measures, including adjusted net loss income, adjusted net loss 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 fourth quarter 2023 earnings release, which is posted on the company's investor relations website. On today's call, Yos will discuss our business activity, and Nahum will then cover additional details regarding financial results before we open the call for questions. Thank you, and I would now like to turn the call over to you. Please go ahead.

Addition, on this call the company will make reference to certain non-GAAP financial measures, including adjusted net loss income.

Adjusted net loss or 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.

And the company's fourth quarter 2023 earnings release, which is posted on the company's Investor Relations website.

On today's call, we'll discuss our business activity and to whom we will then cover additional details regarding financial results before we open the call for questions. Thank you and I would now like to turn the call over to Yours. Please go ahead.

Yuval Dagim: Thank you, Brad. Good day, and thank you everyone for joining us to discuss our fourth quarter and full results. In 2023, we were able to navigate through challenging macroeconomic, regional, geopolitical, and regulatory dynamics occurring in our key markets. We implemented a new strategic plan and initiated significant restructuring actions, which allowed us to accomplish our primary financial objective of generating positive cash flow from operations. We more than delivered on this front, as our working capital management and mean food savings stemming from our global restructuring actions generated positive operating cash flow for four consecutive quarters, totaling $66.5 million. This left us with a solid net cash position of $83.5 million.

Thank you Brad Good day, and thank you everyone for joining us to discuss our fourth quarter and full year results.

In 2023, we were able to navigate through challenging macroeconomic regional geopolitical and regulatory dynamics.

Oh clearing in our key markets.

We have implemented a new strategic plan and initiated a significant restructuring actions.

Which allowed us to accomplish our primary financial objective of generating positive cash flow from operations.

We more than delivered on this front as our working capital management and meaningful savings stemming from our global restructuring actions Jenny.

Generated positive operating cash flow in four consecutive quarters.

Totaling $66 $5 million.

This left us with a solid net cash position of $83 $5 million.

Yuval Dagim: Overall, we are executing in accordance with our strategic plan. We believe actions taken during 2023 have set the foundation for an optimized production footprint, better utilization of resources, an improved cost structure, and a realigned workforce, allowing us to capture greater efficiencies and opportunities. We believe that these factors will allow us to enhance our brand, better compete, grow market share, and get back to profitability. In regard to driving production cost efficiencies, We are quickly transitioning production to our global network of production business partners. In the second quarter of 2023, we made the decision to close our tortilla manufacturing facility. And in December, we announced the closure of our Richmond Hill facility.

Overall, we are executing in accordance with our strategic plan.

We believe actions taken during 2023 have set the foundation for an optimized production footprint better utilization of resources and improved cost structure, and realign workforce, allowing us to capture greater efficiencies and opportunities.

We believe that these factors will allow us to enhance our brand better compete grow market share and get back to profitability.

In regard to driving production cost efficiencies.

We are quickly transitioning production to a global network of production business partners.

In the second quarter of 2023, we've made the decision to close those tortilla manufacturing facility.

And in December we announced the closing of our Richmond Hill facility.

Following these strategic changes to our operations, we are now sourcing over 40% of our products from production business partners.

Yuval Dagim: Following the strategic changes to our operations, we are now sourcing over 40% of our products from production business partners. We expect that percentage to trend up further as we move through 2021. As another result of the closure of these two facilities, we have reduced our spend on CAPEX, and we are able to reduce our workforce by approximately 14% across the organization. In turn, we expect to realize annual cost savings of approximately $20 million in 2024 and $30 million in 2025 on top of the savings that were already realized during 2020. We also maintain our view that we have potential for additional cash inflows as sub-leases are executed on the non-cancellable long-term lease agreements associated with the Sturtean Facility and upon the potential realization of our Richmond Hill property.

We expect that percentage to trend up further as we move through 2024.

It's another result of the closure of these two facilities, we have reduced our spend on capex and we're able to reduce our workforce by approximately 14% across the organization.

In turn we expect to realize annual cost savings of approximately $20 million in 2024.

And $30 million in 2025 on top of the savings that were already realized during 2023.

We also maintain our view that we have potential for additional cash inflows as sub leases a.

Executed on the noncancelable long term lease agreements associated with still a T M facility.

And upon the potential realization of our Richmond Hill property.

With all these in mind, we believe that we have a clear strategy in place to reduce our manufacturing cost base and invest a portion of our savings.

Into our brand sales marketing R&D and an expansion of our premium porcelain products to reignite.

Ratable growth across the business.

Now I would like to provide an update on our Australian market.

As we previously announced in December 'twenty to 'twenty, three the Australian Federal State and territory governments announced the joint decision to ban the use supply and when your fixture of engineered stone slabs containing crystalline silica in Australia.

Yuval Dagim: With all this in mind, we believe that we have a clear strategy in place to reduce our manufacturing cost base and invest a portion of our savings into a brand, sales, marketing, R&D, and an expansion of our premium porcelain products to reignite profitable growth across the business. Now, I would like to provide an update on our Australian market. As we previously announced, in December 2023, the Australian Federal, State, and Territory Governments announced a joint decision to ban the use, supply, and manufacture of engineered stone slabs containing crystalline silica in Australia, including Caesarstone's quartz-based products. The ban is expected to go into effect on July 1st, 2024 in most Australian states and territories.

Including sees a strongest quotes based products.

The ban is expected to go into effect on July 1st 2024 in most Australian States and territories.

This is a strong brand is well known in Australia, and our products are and tremendous success in the region over the years.

We have been proactive in our approach to supplier, Australia market with alternative materials that will comply with the New York Relations.

By the end of the second quarter of 'twenty 'twenty four we will have a full collection of alternative products, which we believe will allow us to retain our position in the Australian market.

In conclusion doing point be twenty-three, we took significant actions to restructure and stabilize the business.

We devoted resources to areas that we believe will allow us to capture profitable growth all while achieving our goal to further improve our cost position.

While we are pleased with our progress is measured against our initial plan there is more work to be done.

With our restructuring and other cost saving actions, we are prepared to prudently allocate capital back into the business primarily into our branding and R&D to drive topline growth.

Yuval Dagim: The Caesarstone brand is well known in Australia, and our products have earned tremendous success in the region over the years. We have been proactive in our approach to supply our Australian market with alternative materials that will comply with the new regulations. By the end of the second quarter of 2024, we will have a full collection of alternative products, which we believe will allow us to retain our position in the Australian market. In conclusion, during 2023, we took significant actions to restructure and stabilize the business. We diverted resources to areas that we believe will allow us to capture profitable growth, all while achieving our goal to further improve our net-cost position. While we are pleased with our progress as measured against our initial plan, there is more work to be done.

Margin expansion and profitability.

We believe we have the right global strategy in place to improve our results and drive value to all our stakeholders.

Thank you and I will now turn the call over to know whom to walk through the details of our financial performance.

Thank you Jos and good morning, everyone.

Looking at our fourth quarter results.

Global revenue in the fourth quarter was $128 $5 million.

Compared to $159 $4 million in the fourth quarter of last year.

On a constant currency basis sales were down 19, 6%.

The decrease was primarily driven by softer global market conditions.

Equally in North America, and renovation and remodel channels.

As a result of higher interest rates.

Which has impacted the residential spending.

In addition, our sales were impacted by the competitive landscape for Florida.

In the U S.

That's where the down 21.1% mainly tied to softer residential end markets.

Yuval Dagim: With our restructuring and other cost-saving actions, we are prepared to prudently allocate capital back into the business, primarily into our branding and R&D, to drive top line growth, margin expansion, and profitability. We believe we have the right global strategy in place to improve our results and drive value for all our stakeholders. Thank you, and I will now turn the call over to Nahum to walk through the details of our financial performance. Thank you, Yuval, and good morning, everyone.

Literally source third party distributor.

This was partly offset.

The higher year over year sales with <unk> customers and improved performance in our commercial business.

Canada since we're a little by 13% on a constant currency basis experiencing similar market dynamics as the U S, but to a lesser extent.

Australia sales were off by approximately eight 1% on a constant currency basis, reflecting slower market conditions.

The Australian government's decision to ban quote slips did not have an impact on our fourth quarter sales given the planned meet twenty-twenty full implementation of the pooling.

And he says well challenged in the fourth quarter, mainly as a result of the world.

Nahum Truss: Looking at our fourth-quarter results, global revenue in the fourth quarter was $128.5 million, compared to $159.4 million. QAQ, on a constant currency basis. Sales were down 19.6%. The decrease was primarily driven by softer global market conditions, particularly in North American Renovation and Remodel Channels, mainly as a result of higher interest rates, which have impacted residential spending. In addition, our sales were impacted by the competitive landscape for our product. In the U.S.

Which has significantly reduced activity in the region.

Looking at our fourth quarter P&L performance.

Our gross margin was 18, 1% for the quarter.

Adjusted gross margin was 18, 9% compared to 19, 7% in the prior year a quote.

The year over year decrease in margin, mainly reflected the impact of lower revenues.

Unfavorable product mix.

So moving inventory provisions.

The increased manufacturing unit cost driven by lower fixed cost absorption due to the lower capacity utilization.

Nahum Truss: Sales were down 21.1%, mainly tied to softer residential end markets, particularly through third-party distributors. This was partially offset by hiring year-over-year sales with Big Baugh customers and improved performance in our commercial... Canada's sales were lower by 13.8% on a constant currency basis. Although experiencing similar market dynamics as the U.S., but to a lesser extent, Australia's sales were off by approximately 8.1% on a constant currency basis, reflecting slower market conditions.

These factors were partially offset by lower seafood it expenses and the benefits of our impulse production footprint as we transition production to our global network of third party manufacturing partner.

Operating expenses in the fourth quarter were $56 $5 million compared to $106 $1 million.

In the prior quarter.

Mainly related to a higher one time noncash charge into poverty.

Excluding legal settlements loss contingencies, and restructuring and impairment expenses.

Operating expenses were 24, 3% of revenue compared to 22, 2% in the prior year quarter.

The higher percentage, mainly resulted from the lower revenues.

Adjusted EBITDA in the fourth quarter was one $4 million compared to $5 $7 million into five quota.

Nahum Truss: The Australian government's decision to ban quoted slavs did not have an impact on our fourth quarter sales, given the planned mid-2024 implementation of that ruling. In Israel, cells were challenged in the fourth quarter mainly as a result of the war on terror, which has significantly reduced activity in the region. Looking at our fourth quarter P&L performance, Our gross margin was 18.1% for the quarter. Adjusted gross margin was 18.9%, compared to 19.7% in the prior year. The year-over-year decrease in margin mainly reflected the impact of lower revenues due to an unfavorable product.

The decrease primarily reflects the operating loss and lower gross margin.

Now looking at our full year financial performance highlights.

That's for the full year, a little down 18, 2% on a constant currency basis sales were down 17%, mainly due to lower volume driven by challenging market conditions across our global footprint.

Gross margin for the year was 16, 3% compared to 23, 6% last year.

Adjusted gross margin was 17% compared to 23, 8%.

The difference in adjusted gross margin mainly reflects lower revenues.

And the increased manufacturing unit costs due to lower fixed cost absorption.

This was mainly related to lower capacity utilization as we undertook significant restructuring actions within the business drilling 2023.

Nahum Truss: Higher slow-moving inventory provisions and increased manufacturing unit costs driven by lower fixed cost absorption due to lower capacity utilization. These factors were partially offset by lower seafood expenses and the benefits of our improved production footprint. Transition Production to our global network of third-party manufacturing partners. Operating expenses in the first quarter were $56.5 million, compared to $106.1 million in the prior year, mainly related to a higher one-time non-kept charge in the pioneer, including legal settlements, lost contingencies, and restructuring and impairment expenses. Operating expenses were 24.3% of revenue compared to 22.2% in the prior year. The higher percentage mainly resulted from lower risk.

The unfavorable impact of the underutilized capacity at our plants was partially offset by the benefits of higher ISP.

Global shipping costs and improved production footprint as we transitioned a significant portion of production through our network of third party manufacturing partners.

Thank you.

Excluding legal settlements and loss contingencies restructuring and noncash impairment expenses, we incurred during the year.

Operating expenses for the full year with 24, 2% of revenue.

Compared to 21, 7% in the prior year.

Our full year 'twenty 'twenty fully adjusted EBITA was a loss of $9 $4 million compared to a gain of 51 $9 million last year.

The year over year change, primarily reflecting the lower gross margin and operating loss.

Turning to our balance sheet.

He has a strong balance sheet remains solid.

As of December 31st 'twenty, 'twenty free cash cash equivalents.

In short term bank deposits total to $91 $1 million with a total debt to financial institutions of $7 $6 million.

During the fourth quarter, we generated another quarter of positive cash flow from operations.

Nahum Truss: Adjusted EBITDA in the fourth quarter was $1.4 million compared to $5.7 million in the prior quarter. The decrease primarily reflects an operating loss and lower gross margin. Now looking at our full year financial performance highlights. Just for the full year, we're down 18.2%. On a constant currency basis, sales were down 17%, mainly due to lower volume driven by challenging market conditions, and, of course, our global... Gross margin for the year was 16.3% compared to 23.6% last year. Adjusted gross margin was 17% compared to 23.8%. The difference in adjusted gross margin mainly reflects lower revenues and increased manufacturing unit costs due to lower fixed cost absorption.

Pinpoint $2 million.

Well the yield cash flow from operations totaled $66 $5 million.

Mainly driven by inventory reductions.

In the quota and the full year.

Our net cash position as of December 31st 2023 was $83 $5 million compared to $28 $2 million as of December 31st 2022.

In regards to this though John plant closure, which occurred during the second quarter of 2023, and Richmond Hill plant closure, which have killed young genuinely 'twenty 'twenty four.

We now expect to realize savings of 20 million in 2024.

Compared to a full year of 2023 result.

We expect the additional $10 million up until 'twenty 'twenty four for a total of $30 million of savings compared to full year 2023 he thought.

We are still in the process of accepting beats to sublease portions of the noncancelable lease agreement.

Nahum Truss: This was mainly related to lower capacity utilization as we undertook significant restructuring actions within the business during 2020. The unfavorable impact of the underutilized capacity at our plant, partially offset by the benefits of higher ASP, lower shipping costs, and improved production footprint as we transition a significant portion of production to our network of third-party manufacturing partners throughout the U.S., including legal settlements, lost contingencies, restructuring, and non-cash impairment expenses we incurred during the year. Operating expenses for the full year were 24.2% of revenue, compared to 21.7% in the prior year.

<unk> was the ability of our manufacturing facility.

Which will allow us to recognize additional cash inflows on top of the plant.

Cost savings.

At our Richmond Hill site, you are looking for the best alternative to monetize that asset.

In regards to oil outlook.

Based on our significant restructuring initiatives underway.

Lino operations and our focus on profitability.

We have entered a 2024 on a much stronger footing.

Two a year ago.

We are seeing signs of stabilization in what has been a turbulent demand environment.

Against this backdrop I will provide color on our outlook for full year 2024.

Revenues in the first quarter of 'twenty 'twenty four are trending in line.

With the fourth quarter.

So we expect the both periods to be roughly similar.

We expect the first quarter to be able to the lowest revenue quarter for the U and for revenues to be stronger in the following quarters based on our historical seasonality trend.

He started to consider several assumptions in the North America, we expect to begin seeing more favorable year over year comparisons.

Nahum Truss: Our full-year 2023 adjusted EBITDA was a loss of $9.4 million compared to a gain of $51.9 million last year, with the year-over-year change primarily reflecting lower gross margin and operating loss. Turning to our balance sheet, Caesarstone's balance sheet remains solid.

Moving to the second quarter of <unk>.

In Australia, we expect to perform roughly in line with the market for our products.

We anticipate the regulatory decision caused a temporary air pocket himself as we introduce alternative materials.

Comply with the regulations during the first half of 'twenty 'twenty four.

Nahum Truss: As of December 31st, 2023, Keshe Keshe Kui Wolentz, and Shorten Bank Deposits totaled $91.1 million, with a total debt to financial institutions of $7.6 million. During the fourth quarter, we generated another quarter of positive cash flow from operations of $13.2 million. For the year, cash flow from operations totaled $66.5 million, mainly driven by inventory reductions in the quarter and the full year. Our net cash position as of December 31st, 2023 was $83.5 million compared to $28.2 million as of December 31st, 2023. In regards to the Dot Yam plant closure, which occurred during the second quarter of 2023, and the Richmond Hill plant closure, which occurred during January 2024, we now expect to realize savings of $20 million in 2024 compared to a full year of 2023 results.

In Israel.

And those are likely to remain depressed due to the long tail, but we expect those thresholds to ease as we move through 2020 four.

Based on our revenue outlook and restructuring actions.

We believe full year adjusted EBITDA will be positive.

As mentioned the closure of the two plants are poised to bring us realized P&L savings of approximately $20 million in 'twenty 'twenty four compared to 2023.

We expect adjusted EBITDA for the first quarter to be negative to breakeven.

Given the expected timing of spend on sales and marketing and related expenses and the savings that are coming from Richmond Hill plant would it become more significant in the second half of the year.

We will remain focused on improving our bottom line as we move through the year and believe the significant actions, we have taken to restructure and stabilize the business. It set the foundation to do so.

In turn we are prudently allocating resources to areas that we believe will allow us to capture a profitable growth.

Finally based on all the improvements and actions that we're taking we expect 'twenty 'twenty four to be another full year of positive cash flow from operations.

We will continue to invest for growth, while taking a disciplined approach to capital allocation as we move through the U.

With that well now.

Now ready to open the call for questions.

We will now begin the question and answer session.

Nahum Truss: We expect an additional $10 million after 2024 for a total of... $30 million dollars of savings compared to full year 2023 results. We are still in the process of accepting bids to sublet portions of the Non-Cancer Beliefs Agreement. Associated with the Dotya Manufacturing Company, which will allow us to recognize additional cash inflows on top of the planned cost savings. At our Richmond Hill site, we are looking for the best alternative to monetize data, in regards to our outcome.

To ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question.

Please press Star then two.

At this time, we will pause momentarily to assemble roster.

The first question comes from.

Reuben Garner with.

With the benchmark company please.

Please go ahead.

Good afternoon.

Alright, thanks for taking my questions.

Good morning, good morning Goldstar.

Maybe just start you you referenced.

Stabilization or signs of stabilization I think.

Nahum Truss: Based on our significant restructuring initiatives underway..., our linear operations, and our focus on profitability, we have entered 2024 on a much stronger footing as compared to a year ago. We are seeing signs of stabilization in what has been a turbulent demand environment. Against this backdrop, I will provide color on our outlook for full year 2024. Revenues in the first quarter of 2024 are trending in line with the first quarter, so we expect both spirits to be roughly stable.

North America in particular.

Can you talk about what exactly you're seeing there.

Maybe.

It's changed dramatically on a year to date basis versus what you're seeing in the fourth quarter or is it just an assumption that the easing.

Great environment throughout the year will result in better results.

Hi, Robin it's known as <unk>.

So basically as a as we mentioned we.

We see we see first signs of stabilization, meaning Q1 is is trending in line.

Is it in line with Q4 and based on the you know the things that we that we analyze and read we expect.

To see a gradual improvement also in the macroeconomics.

Nahum Truss: We expect the first quarter to be our lowest revenue quarter for the year, with revenues to be stronger in the following quarters, based on our historical seasonality. This article considers several assumptions. In North America, we expect to begin seeing more favorable year-over-year comparisons as we move into the second quarter of the year. In Australia, we expect to perform roughly in line with the market for our products. We anticipate the regulatory decision to cause a temporary air pocket in sales, but we introduce alternative materials that comply with the regulations during the first half of 2024. In Israel...

As we as we progress during the year.

But in terms of Q1, we see we see the same dynamics as in Q4, not no deteriorating, let's say for them.

Okay, and then how about from a pricing versus the volume standpoint can you help us with what you what you saw in the fourth quarter and how to think about 2024, whether that's in North America or the whole.

Business altogether.

Okay.

So yes. So we are in North America, we saw down volumes, mainly mainly on the back of the macroeconomic the soft macroeconomic the higher inflation rate and it impacted mainly the residential channel. We saw some positive signs in the in the commercial channel also in the in the <unk>.

Books. This is basically the same dynamic globally in certain regions, we see the to a higher extent in other regions like Australia, and Canada. We saw the same dynamic but to a lesser extent.

Nahum Truss: Revenues are likely to remain depressed due to the war on terror, but we expect those pressures to ease as we move through 2021, based on our revenue outlook and restructuring actions. We believe fully-adjusted EBITDA will be positive. As mentioned, the closures of the two plants are poised to bring us realized P&L savings of approximately $20 million in 2024 compared to 2023. We expect adjusted EBITDA for the first quarter to be negative, to break even.

And again based on the things that we analyze we expect to see a certain relief.

Without a 2020 full the pricing that we mentioned that impacted negatively gross margin was not.

Was not a decline in there, but its selling price, but rather but rather.

The mix of channels in the mix of products that we sold during the quarter.

Okay and then a question on your your restructuring actions, what so it's $30 million total over the next two years what.

Portion of the expense.

Why is some of it out in 2025 bed facility closures have already taken place can you help us understand what portion of the savings kind of gets pushed out into next year.

Nahum Truss: Given the expected timing of spend on sales, marketing, and related expenses, and as the savings that are coming from Richmond Hill plans will become more significant in the second half of the year, we will remain focused on improving our bottom line as we move through the year. We believe the significant actions we have taken to restructure and stabilize the business have set the foundation to do so. In turn, we are prudently allocating resources to areas that we believe will allow us to capture profitable growth.

Yeah. So so the Richmond Hill was only closed in the beginning of January and we are still holding.

Inventory that was produced in that plant and still reflect.

The higher prices higher.

A higher cost.

These costs will be digested drilling 'twenty 'twenty full so.

The positive are the savings coming from Richmond Hill will will be reflected in full on in 2025 and 'twenty 'twenty four we will we will digest and eat the you know them.

Expensive inventory that came from each Monday.

Especially in the first half of 'twenty 'twenty four.

Okay, and I'm going to sneak one more in and then I'm done the cash flow from operations goal of being positive in 2023, you've got a big benefit from from working capital, obviously, reducing inventory.

Operator: Finally, based on all the improvements and actions that we are taking, we expect 2024 to be another full year of positive cash flow from operations. We will continue to invest for growth while taking a disciplined approach to capital allocation as we move through the year. We are now ready to open the call for questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.

Do you have more room to go there in 24 or how do we think about how you get to cash flow positive is it going to look differently. This year than it did last.

The positive cash flow D. C. You are definitely will be to a lesser extent on the back of our improvement in inventory, although we still have room for improvement in inventory days and just as a reminder, we reduced inventory days from the beginning of the year that it was around 100.

70 days to 120 days at the end of 2023 and as I said, we still have a we still have some room for improvement during 2020 full also on the back of closing the Richmond Hill manufacturing activity.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from... Reuben Garner with The Benchmark Company. Please go ahead.

In addition to that are we believe that our Julien.

During the year as our profitability will will increase and be more significant we will also benefit us.

Debt and not only from the improvements in working capital.

Okay.

Okay. Thank you and good luck guys.

Thanks.

Thank you.

The next question is from Stanley Elliott with Stifel. Please go ahead.

Reuben Garner: Thank you. Good afternoon. Thanks for taking my question, um, morning, good morning Reuben. Maybe to start you referenced, stabilization or signs of stabilization, I think in North America in particular. Can you talk about what exactly you're seeing there? Maybe things have changed dramatically on a year-to-date basis versus what you were seeing in the fourth quarter, or is it just an assumption that the easing rate environment throughout the year will result in better results? Hi Reuben, it's Nachum.

Yeah, there's no whom thank you guys for the question.

When we talk about the outlook can you give us some of the building blocks, you're looking at for sequential improvement.

On the revenue build and I say that in context.

After July 120% of your business is going to be under severe pressure.

But under this construct a sequential improvement we're actually looking at growth into the December quarter, and I'm, just curious how how we get to that that that buildup.

Stanley So.

Nahum Truss: So basically, as we mentioned, we see the first signs of stabilization, meaning Q1 is trending in line with Q4. And based on the things that we analyze and read, we expect to see a gradual improvement in macroeconomics as we progress during the year. But in terms of Q1, we see the same dynamics as in Q4, not deteriorating, let's say, further. Okay, and then how about from a pricing versus volume standpoint? Can you help us with what you saw in the fourth quarter and how to think about 2024, whether that's in North America or worldwide? Business Hall.

First of all as we mentioned Q1 is we expect Q1 to be our lowest quarter in terms of revenues and then we are and then we believe that the seasonality that we used to see in our results in previous years, I mean before the impact of COVID-19 than any.

And other external impact.

To be to be evident in 2020 full so we expect Q2 and Q3 to be to be higher in terms of revenues compared to Q1, and also Q4 compared to Q1. So basically we expect to see a gradual improvement.

In the coming quarters, while Q1, as we mentioned in the outlook section.

Is trending in line with Q4. So this is one of the reason and with regards to Australia.

We took a proactive approach.

To the to the new regulations that this game did were published during December and we are the and as we said we are preparing our.

Nahum Truss: In North America, we saw down volumes mainly on the back of the macroeconomic, the soft macroeconomic, the higher inflation rate, and it impacted mainly the residential channel. We saw some positive signs in the commercial channel and also in the big box. This is basically the same dynamic globally. In certain regions, we see it to a higher extent.

A collection that will meet the regulations in and it will be ready by the end of by the end of Q2, but by by middle of the year and expect to maintain our leading position in that market.

Any any guess what the Australia business is going to look like after July 1st I mean is it going to be like a.

Nahum Truss: In other regions like Australia and Canada, we saw the same dynamic but to a lesser extent. And again, based on the things that we analyzed, we expect to see a certain relief in 2024. The pricing that we mentioned that impacted gross margin negatively was not a decline in the average selling price but rather the mix of channels and the mix of products that we sold during the quarter. Okay, and then a question on your restructuring actions, what, so it's $30 million total over the next two years, what portion of the expense, you know, why is some of it out in 2025? The facility closures have already taken place.

$50 million run rate business is at 80 million just trying to get a sense for the.

The magnitude of change that we should expect there.

So sustaining high so so far.

The business in Australia continues.

Quite well and you know we're business as usual in terms of selling the products.

And these are expected to continue until the until July.

From July we don't know now exactly what are what would be the reaction in the market. What we are seeing is very positive sign for the products that we are we introduced.

And we will have to wait to wait and see those two things.

Things that needs to be cleared by the Australian government. So the signs are very good but we don't have as something which is a carved in stone as of yet.

Nahum Truss: Can you help us understand what portion of the savings kind of gets pushed out into next year? Richmond Hill was only closed at the beginning of January, and we are still holding inventory that was produced in that plant and still reflects the higher prices, the higher cost. This cost will be digested during 2024, so the savings coming from Richmond Hill will be reflected in full only in 2025. In 2024, we will digest and eat the more expensive inventory that came from Richmond Hill, especially in the first half of 2024. Okay, and I'm gonna sneak one more in, and then I'm done.

But overall it seems that the product that we have introduced.

By the way also some of our competitors are introducing a similar not similar but let's say local like products.

And the reaction from the government is positive.

And also we believe it's in accordance with the Australia and new regulations.

So as I said, we are definitely got some.

Positive response in the last few weeks.

And we are advancing with the production with the production.

And then we will have to wait and see what will be the exact revenue. We also have our lines of porcelain, which are relevant to the Australian market under the new regulations.

Reuben Garner: The cashflow from operations goal of being positive, in 2023, you got a big benefit from working capital, obviously, reducing inventory. Do you have more room to go there in 24? Or how do we think about how you get to cashflow positive? Is it gonna look differently this year than it did last? The positive cash flow this year definitely will be, to a lesser extent, on the back of improvement in inventory, although we still have room for improvement in inventory days. Just as a reminder, we reduced inventory days from the beginning of the year when it was around 170 days to 120 days at the end of 2023, and as I said, we still have some room for improvement in 2024, also on the back of closing the Richmond Hill manufacturing activity. In addition to that, we believe that during the year, as our profitability will increase and be more significant, we will also benefit from that, and not only from the improvements in working capital. For more information, visit www. FEMA.gov Okay, thank you, and good luck, guys.

So all in all we believe that we will continue to maintain our leading position in the market how much exactly when it would be we don't know at this stage yeah, That's fair and I guess, one last just kind of a point of clarification. So.

Maybe help us with the inventory days, how you see this model running now that youre going to be more on the import side and then lastly point of clarification. You mentioned positive operating cash or are you also expecting positive free cash flow and in 2024.

So in terms of the inventory days is not Hillman said, we went down from 170 days to 120 by the end of Q4, and we are aiming to be lower than 100. So there is still room for improvement there.

And in terms of the.

Free cash flow you know, we are reducing our capex. So we will see less capex for our parcel and a plant in India and also for our plant in Israel, mainly.

But it's a it will be less than what we used to have when we add all of the additional factory install January one deal of course.

So all in all we believe that we will still generate a positive cash flow of course, and we will of course have.

The free cash flow.

Got it.

Perfect guys. Thanks, so much and best of luck.

Thank you. Thank you.

Okay.

You.

This concludes our question and answer session.

Operator: Thanks, thanks. Thank you. The next question is from Stanley Elliott with Stifel. Please go ahead.

I would like to turn the conference back over to Yosef <unk> sees a stone chief Executive officer for any closing remarks.

Stanley Stoker Elliott: Thank you guys for the question. When we talk about the outlook, can you give us some of the building blocks you're looking at for sequential improvement in the revenue build? And I say that in context, you know, after July 1, 20% of your business is going to be under severe pressure. But under this construct of sequential improvement, we're actually looking at growth into the December quarter. And I'm just curious how we get to that build-up.

Yeah.

Thank you for your attention. This morning, and we look forward to updating you on our progress next quarter. Thank you very much bye. Thanks.

Yeah.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.

Okay.

[music].

Nahum Truss: Stanley, so first of all, as we mentioned, Q1 is, we expect Q1 to be our lowest quarter in terms of revenues. And then we, and then we believe that the seasonality that we used to see in our results in previous years will be evident in 2024 before the impact of COVID and other external impacts are evident in 2024. So we expect Q2 and Q3 to be higher in terms of revenues compared to Q1, and also Q4 compared to Q1. So basically, we expect to see a gradual improvement in the coming quarters, while Q1, as we mentioned in the outlook section, is trending in line with Q4. So this is one reason why.

Nahum Truss: And with regard to Australia, we took a proactive approach to the new regulations that came in, that were published during December. And we are, and as we said, preparing a collection that will meet the regulations, and it will be ready by the end of Q2, by the middle of the year. And we expect to maintain our leading position in that market. Any guess what the Australia business is going to look like after July 1st? I mean, is it going to be like a $50 million run rate business? Is it $80 million? Just trying to get a sense for the magnitude of change that we should expect there. So, Stanley, hi.

Yuval Dagim: So, so far, business in Australia continues quite well. And, you know, business as usual in terms of selling the product, and this is expected to continue until July. From July, we don't know exactly what the reaction in the market will be. But what we are seeing is a very positive sign for the product that we introduced. And we will have to wait and see; there are still things that need to be cleared by the Australian government. So the signs are very good, but we don't have anything carved in stone as yet.

Yuval Dagim: But overall, it seems that the product that we have introduced... By the way, also, some of our competitors are introducing similar, not similar, but let's say look alike products, and the reaction from the government is positive, and also we believe it's in accordance with the new Australian regulations. So, as I said, we definitely got some positive responses in the last few weeks, and we are advancing with the products and with the production, and we will have to wait and see what the exact revenue will be. We also have our lines of porcelain which are relevant to the Australian market under the new regulations.

Yeah.

Yeah.

[music].

Stanley Stoker Elliott: So, all in all, we believe that we will continue to maintain our leading position in the market. But how much exactly it will be, we don't know at this stage. That's fair.

Okay.

[music].

Nahum Truss: And I guess one last, just kind of a point of clarification. So, maybe help us with the inventory days, how you see this model running, now that you're going to be more on the import side. And then, lastly, a point of clarification. You mentioned positive operating cash. We're also expecting positive free cash flow in 2024. So in terms of inventory days, as Nahum said, we went down from 170 days to 120 by the end of Q4. We are aiming to be below 100, so there is still room for improvement there. And in terms of free cash flow, you know, we are reducing our CAPEX, so we will still have CAPEX for our porcelain plant in India and also for plants in Israel mainly. But it will be less than what we used to have when we had all the additional factories in the ATM enrichment deal, of course.

Okay.

[music].

Nahum Truss: So, all in all, we believe that we will still generate positive cash flow, of course, and we will, of course, have free cash flow after that. Perfect guys, thanks so much and best of luck. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Yos Shiran, Caesarstone's Chief Executive Officer, for any closing remarks. Thank you for your attention this morning, and we look forward to updating you on our progress next quarter. Thank you very much. Bye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Yeah.

[music].

Yeah.

Yeah.

Right.