Q2 2024 Caesarstone Ltd Earnings Call

Greetings and welcome to the Caesarstone second quarter 2024 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.

Operator: for 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 one on your touchstone phone. To if you are your question, please press star, than two. As a reminder, this conference call is being recorded.

Operator: 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 your touchtone phone. To withdraw your question, please press star then 2. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. Brad Cray of ICR. Please go ahead, sir.

To ask a question, you may press star then 1 on your touchtone phone.

Speaker Change: To withdraw your question, please press star then 2. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. Brad Cray of ICR. Please go ahead, sir.

Brad Cray: It is now my pleasure to introduce your host, Mr. Brad Cray of ICR.

Brad Cray: Please go ahead, sir.

Brad Cray: Thank you, operator, and good morning to everyone on the line. I am joined by Yosef Shiran, Caesarstone's Chief Executive Officer, and Nahum Trost, 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. In addition, on this call, the company will make reference to certain non-GAAP financial measures, including adjusted net income loss, adjusted net loss, income per share, adjusted gross profit, adjusted EBITDA, and constant currency.

Brad Cray: Thank you operator and good morning to everyone on the line. I am joined by Yosef Shiran, Caesarstone's Chief Executive Officer, and Nahum Trost, Caesarstone's Chief Financial Officer.

Brad Cray: 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. In addition, on this call, the company will make reference to certain non-GAAP financial measures. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's second quarter 2024 earnings release, which is posted on the company's investor relations website.

Speaker Change: 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.

Brad Cray: The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's second quarter 2024 earnings release, which is posted on the company's Investor Relations website.

Brad Cray: On today's call, Yosef will discuss our business activity and the whom 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 Yosef.

Brad Cray: Thank you. I would now like to turn the call over to Yosef. Please go ahead.

Yosef Shiran: Thank you, Brad. Good day, everyone, and thank you for joining us to discuss our second quarter 2024 results. The closure of our Stote-Yam and Richmond Hill facilities remains on track to deliver annual cost savings of approximately $20 million in 2024 and $30 million annually by next year compared to 2023 savings, in line with our previous expectations. Second, we continue to focus on sales and marketing, mainly on developing differentiated products to improve our sales mix and help mitigate pricing pressures. Third, we continue to strengthen our porcelain business. We expect this transaction to close by the end of Q3 2024. We are making significant progress in transforming our business.

Yosef Shiran: Thank you, Brad. Good day, everyone, and thank you for joining us to discuss our second quarter 2024 results. Our second quarter performance demonstrates the ongoing positive impact of our strategic structure and initiatives. The improvement in our gross margin compared to last year is a clear indicator that our efforts to optimize our production footprint and enhance our relationships with manufacturing partners are bearing fruit and assisting us in overcoming slow market conditions across the globe. Current conditions are negatively affecting our revenues in the territories in which we operate, primarily in the residential channel. Nevertheless, we continue to make progress on several key strategic initiatives.

Yosef Shiran: The improvement in our gross margin compared to last year is a clear indicator that our efforts to optimize our production footprint and enhance our relationships with manufacturing partners are bearing fruit and assisting us in overcoming slow market conditions across the globe.

Yosef Shiran: Current conditions are negatively affecting our revenues in the territories in which we operate, primarily in the residential channel.

Yosef Shiran: Nevertheless, we continue to make progress on several key strategic initiatives.

Yosef Shiran: First, we are driving cost efficiency across our operations. The closure of our cost.iam and Richmond Hill facilities remain on track to deliver annual cost saving of approximately $20 million in 2024 and $30 million annually by next year compared to 2023 savings, in line with our previous expectations. Additionally, we are now sourcing over 60% of our production from our global network of manufacturing partners, driving margin improvements and allowing us to better align production to demand.

Yosef Shiran: The closure of our Stotiam and Richmond Hill facilities remain on track to deliver annual cost savings of approximately $20 million in 2024.

Yosef Shiran: Second, we continue to focus on sales and marketing, million developing differentiated products to improve our sales mix and help mitigate pricing pressures. Third, we continue to strengthen our post-align business. During July, we increased our stake in our Indian post-align facility, Laoli Ceramica, from 60% to 81%. This move underscores our commitment to strengthening our position in the post-align market, which we see as a key growth driver for our business.

Yosef Shiran: Second, we continue to focus on sales and marketing, mainly on developing differentiated products to improve our sales mix and help mitigate pricing pressures.

Yosef Shiran: Third, we continue to strengthen our porcelain business.

Yosef Shiran: During July , we increased our stake in our Indian porcelain facility, Loyoli Ceramica, from 60% to 81%.

Yosef Shiran: This move underscores our commitment to strengthening our position in the porcelain market, which we see as a key growth driver for our business.

Yosef Shiran: Fourth, we are investing in our Indian innovation. We've already developed and launched a number of new zero crystalline silica product lines. We expect to more than double our zero crystalline silica offering in Australia by the end of 2024. This is particularly important as we adapt to the regulatory ban on quartz products that went into effect as of July 1st in the Australian market.

Yosef Shiran: We expect to more than double our zero-crystalline silica offering in Australia by the end of 2024. This is particularly important as we adapt to the regulatory ban on quartz products.

Yosef Shiran: that went into effect as of July 1st in the Australian market. Lastly, we continue to explore ways to maximize value for our non-operational assets.

Yosef Shiran: Lastly, we continue to explore ways to maximize value for our non-operational assets. We recently entered into an agreement to sell 69 acres of undeveloped land at our Richmond Hill property for approximately 10 million dollars. We expect this transaction to close by the end of Q3 2024. We continue to evaluate opportunities to monetize the remainder of the property, which consists of 51 acres of higher value developed land and buildings.

Yosef Shiran: We expect this transaction to close by the end of Q3 2024.

Yosef Shiran: We continue to evaluate opportunities to monetize the remainder of the property which consists of 51 acres

Yosef Shiran: We are also finalizing the subletting of available areas within the Stocia Manufacturing Facility. This will enable us to generate additional cash flows during 2025.

Yosef Shiran: of higher value developed land and buildings.

Yosef Shiran: We are also finalizing the subletting of available areas within the Stottia Manufacturing Facility. This will enable us to generate additional cash flows during 2025.

Yosef Shiran: In conclusion, despite the persistent macroeconomic challenges in the global market and the specific hurdles in the residential remodeling and renovation sectors to which our business is particularly exposed, we are making significant progress in transforming our business. Through the remainder of the year, we will focus on further reducing costs to align our expenses to the current business environment. We will continue to make strategic investments and innovate to drive improved profitability and long-term growth as the market recovers.

Yosef Shiran: In conclusion, despite the persistent macroeconomic challenges,

Nahum Trost: I will now turn the call over to Nahum to review our financial results in more detail.

Yosef Shiran: I will now turn the call over to Nahum to review our financial results in more detail. Thank you Yosef and good morning everyone.

Nahum Trost: Thank you, Yoss, and good morning, everyone. Looking at our second quarter results. Global revenue for the second quarter was 119.4 million dollars, down 16.9 percent year over year, or 16.3 percent on a constant currency basis. The decrease was primarily driven by lower volumes, which were impacted by global economic headwinds, particularly in residential renovation and remodeling channels across our main regions. This resulted in lower demand accompanied by competitive pressures. In the US, sales were down 13.8 percent to 59.8 million dollars. This decline was mainly driven by softer residential and markets and less favorable product mix. However, we did see some bright spots in our commercial business in Big Box.

Nahum Trost: Looking at our second quarter results.

Nahum Trost: Global Revenue for the second quarter was $119.4 million

Yosef Shiran: down 16.9% year over year, particularly in residential renovation and remodeling channels across our main region. This resulted in lower demand accompanied by competitive pressures. Our EMEA region saw a decline of 14.9% on a constant currency basis when looking at our second quarter P&L performance.

Nahum Trost: The decrease was primarily driven by lower volumes.

Nahum Trost: which were impacted by global economic headwinds, particularly in residential renovation and remodeling channels across our main regions.

Nahum Trost: However, we did see some bright spots in our commercial business and big box.

Nahum Trost: Kennedy sales were down 15.9% on a constant currency basis, experiencing similar market dynamics as the US. Australia sales were off by approximately 20.8% on a constant currency basis, mainly reflecting slower market conditions and the transition of alternative materials that comply with new regulations in Australia. Our EMEA region saw a decline of 14.9% on a constant currency basis due to slow market conditions in the UK, Sweden, and our indirect EMEA business. In Israel, sales were off by 38.9% on a constant currency basis in the second quarter, mainly as a result of the war on terror, which has significantly reduced activity in the region.

Nahum Trost: Canada's sales were down 15.9% on a constant currency basis, experiencing similar market dynamics as the U.S.

Nahum Trost: Our EMEA region saw a decline of 14.9% on a constant currency basis.

Nahum Trost: In Israel, sales were off by 38.9% on a constant currency basis in the second quarter, mainly as a result of the war on terror, which has significantly reduced activity in the region.

Nahum Trost: Looking at our second quarter PNL performance, gross margin in the second quarter improved significantly to 22.9% compared to 8.3% in the prior year quarter. Adjusted gross margin was 23.8% compared to 9.6% in the prior year quarter. The increasing gross margin was primarily driven by the benefits of import production footprint, partially offset by unfavorable product mix. It was noting that the gross margin in the second quarter of 2023 included number of transitory factors that were mainly associated with Totium facility closure, lower utilization in our Richmond Hill plant and operational investments related to the Australian market. On a normalized basis, taken into account those transitory factors, our gross margin increased by nearly 800 basis points, mainly due to enhanced efficiency of our production footprint, a result of our previous restructuring efforts.

Yosef Shiran: Adjusted gross margin was 23.8% compared to 9.6% in the prior year quarter. On a normalized basis, taking into account those transitory factors, operating expenses in the second quarter were $36.6 million, or 30.6% of revenue, compared to $58.8 million, or 40.9% of revenue, in the prior year quarter. Excluding legal settlements, lost contingencies, and restructuring expenses, operating expenses were 28.2% of revenue, compared to 24.3% in the prior year quarter. In absolute dollars, these expenses were lower by $1.3 million compared to last year, but they were higher as a percentage due to lower revenue. Operating loss in the second quarter was $9.3 million compared to $46.9 million in the prior year quarter. Now I'd like to provide some additional color on a few items.

Nahum Trost: Looking at our second quarter P&L performance.

Nahum Trost: It's worth noting that the gross margin in the second quarter of 2023 included a number of transitory factors that were mainly associated with Zot Yam facility closure, lower utilization in our Richmond Hill plant, and operational investments related to the Australian market.

Nahum Trost: On a normalized basis, taking into account those transitory factors,

Nahum Trost: Our gross margin increased by nearly 800 basis points, mainly due to enhanced efficiency of our production footprint, a result of our previous restructuring efforts.

Nahum Trost: Operating expenses in the second quarter were 36.6 million dollars or 30.6% of revenue compared to 58.8 million dollars or 40.9% of revenue in the prior year quarter. The lower percentage is mainly due to the reduction in intermittent restructuring-related expenses recorded during the second quarter of 2023 in connection with totium facility closure. Excluding legal settlements, loss contingencies, and restructuring expenses, operating expenses were 28.2% of revenue compared to 24.3% in the prior year quarter. In absolute dollars, these expenses were lower by 1.3 million dollars compared to last year but were higher as a percentage due to lower revenues.

Nahum Trost: Excluding legal settlements, lost contingencies, and restructuring expenses, operating expenses were 28.2% of revenue, compared to 24.3% in the prior year quarter.

Nahum Trost: Operating loss in the second quarter was 9.3 million dollars compared to 46.9 million dollars in the prior year quarter. With the improvement mainly due to the higher gross margin this quarter and the intermittent restructuring-related expenses recorded during the second quarter of 2023 in connection with Totium facility closure. Adjusted EBD in the second quarter was a loss of 0.1 million dollars compared to a loss of 13.4 million dollars in the prior year quarter. This improvement primarily reflects the progress we've made in our restructuring efforts and cost optimization initiatives, turning to our balance sheet. We ended the quota with a strongly-quitted deposition. We generated positive cash law form operations of $10 million in the quota, mainly driven by inventory reductions and other working capital improvement.

Nahum Trost: with improvements mainly due to the higher gross margin this quarter and the impairment and restructuring related expenses recorded during the second quarter of 2023 in connection with the Dot Yam facility closure.

Nahum Trost: Adjusted EBITDA in the second quarter was a loss of $0.1 million compared to a loss of $13.4 million in the prior year quarter.

Nahum Trost: Turning to our balance sheet.

Nahum Trost: As of June 30, 2024, cash, cash equivalents, and short-term bank deposits total to $103.6 million, with a total debt to financial institutions of $5.9 million. Our net cash position as of June 30, 2024, was $97.7 million compared to $83.5 million as of December 31, 2023.

Nahum Trost: Now, I'd like to provide some additional color on a few items. Regarding the closure of our Richmond Hill plant, we continue to expect this closure to contribute to EBDI improvement in 2024, compared to 2023, mainly benefiting the second half of the year, as the majority of inventories from that plant were sold already. As offset to that benefit, we are affected by two geopolitical developments: the impact of our input costs. First, we have seen an impact from inclusive rate fees, which we estimate will add roughly $3 to $4 million per quota. This will impact our P&L more towards Q4 of this year, as the more expensive inventory is sold.

Nahum Trost: Now I'd like to provide some additional color on few items.

Yosef Shiran: As an offset to that benefit, we are affected by two geopolitical developments that impact our input costs. We expect the higher material costs and seafreight expenses will negatively impact our operations and results. As of June 30, 2024, we are named as co-defendants among other manufacturers, distributors, and fabricators in 43 individual lawsuits filed by fabricators or their employees. We also reiterate our expectation to realize restructuring-related cost savings of approximately $20 million in the full year of 2024 and $30 million thereafter compared to a full year of 2023, mainly due to increased shipping and material costs.

Nahum Trost: As offset to that benefit, we are affected by two geopolitical developments that impact our input costs.

Nahum Trost: We are seeing an impact from increased SEIF rate fees, which we estimate will add roughly $3-4 million per quarter.

Nahum Trost: This will impact our P&L more towards Q4 of this year.

Nahum Trost: Second, earlier this year, Turkey imposed restrictions on the export of certain materials to Israel. These trade restrictions have increased our bar-left plant production cost in the short term, specifically for quotes and polyester. While we have successfully acquired alternative sources for imports, the economic terms are less favorable. We expect the higher material cost and seafood expenses will negatively impact our operations and results, as I will expand upon momentarily in our financial outlook.

Nahum Trost: Second, earlier this year Turkey imposed restrictions on the export of certain materials to Israel.

Nahum Trost: These trade restrictions have increased our Barlev plant production costs in the short term, specifically for quartz and polyester.

Nahum Trost: While we have successfully acquired alternative sources for imports, the economic terms are less favorable.

Nahum Trost: as I will expand upon momentarily in our financial outlook.

Nahum Trost: Lastly, I would like to provide an update on the silicosis-related claims we are facing in the U.S. As of June 30, 2024, we are named as co-defendants among other manufacturers, distributors, and fabricators in 43 individual lawsuits filed by fabricators or their employees. Plaintees knowledge they contracted illnesses, including silicosis during the cutting and polishing of our products. The first case is counted in trial, with a verdict expected in the coming days. So we believe in our defense it is difficult to predict the outcome of this case. While we believe an adverse verdict is only reasonably possible, such a verdict on its own would not have a material adverse impact on our financial position or results of operation.

Nahum Trost: Lastly, I would like to provide an update on the silicosis related claims we are facing in the U.S.

Nahum Trost: We believe in our defense. It is difficult to predict the outcome of this case.

Nahum Trost: While we believe an adverse verdict is only reasonably possible, such a verdict, on its own, would not have a material adverse impact on our financial position or results of operation.

Nahum Trost: The remaining 42 outstanding claims are at an early stage. While we plan to vigorously defend all these claims, we are unable to provide an estimate of their potential exposure, if any. With all this in mind, we are reaffirming our expectation to deliver a positive operating cash flow for the full year of 2024, with the majority of positive cash flow weighted towards the first half of the year. We also reiterate our expectation to realize restructuring related cost savings of approximately 20 million dollars in full year of 2024 and 30 million dollars thereafter compared to a full year of 2023.

Nahum Trost: The remaining 42 outstanding claims are at an early stage. While we plan to vigorously defend all these claims, we are unable to provide an estimate of their potential exposure, if any, at this time.

Nahum Trost: With all this in mind, we are reaffirming our expectation to deliver a positive operating cash flow for the full year of 2024, with the majority of positive cash flow weighted towards the first half of the year.

Nahum Trost: We also reiterate our expectation to realize restructuring-related cost savings of approximately $20 million in full year of 2024 and $30 million thereafter compared to a full year of 2023.

Nahum Trost: In the second half, we will face cost increases that I discussed earlier. Therefore, we are moderating our full year 2024 just a little bit outlook to be a loss in the mid-single-digit million dollar range, mainly due to the increased shipping and material costs expected in the second half of 2024. This outlook also assumes similar market conditions and demand in the second half of 2024 as compared to the first half.

Nahum Trost: to be a loss in the mid-single-digit million-dollar range, mainly due to the increased shipping and material costs expected in the second half of 2024.

Yosef Shiran: This outlook also assumes similar market conditions and demand in the second half of 2024 as compared to the first. In conclusion, while we continue to navigate global market headwinds, our focus on cost efficiencies, optimizing our production footprint, and strategic investments in sales, marketing, and R&D position us well to drive improved profitability as market conditions stabilize. With that, we are now ready to open the call to questions.

Nahum Trost: In conclusion, while we continue to navigate global market headwinds, we believe we are making significant progress in our strategic transformation. Our focused on cost efficiencies, optimizing our production footprint and strategic investments in sales, marketing, and R&D positions where the driving post-postability is market conditions stabilized.

Nahum Trost: In conclusion, while we continue to navigate global market headwinds,

Nahum Trost: We believe we are making significant progress in our strategic transformation.

Nahum Trost: With that, we are now ready to open the call for questions. Thank you.

Speaker Change: With that, we are now ready to open the call for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change: Thank you.

Speaker Change: Thank you. We will now begin the question and answer session.

Operator: To ask a question, you may press star then 1 on your touchtone phone. If you're 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. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Reuben Garner with The Benchmark Company. Please go ahead.

Speaker Change: To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

Operator: If 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 a symbol roster.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time we will pause momentarily to assemble our roster.

Reuben Garner: The first question will come from Ruben Garner with the Benchmark Company.

Speaker Change: And the first question will come from Reuben Garner with The Benchmark Company. Please go ahead.

Reuben Garner: Please go ahead. Thanks.

Reuben Garner: Thanks. Good afternoon, guys. Good morning.

Yosef Shiran: Good afternoon, guys. Good morning. I guess let's start with the change in the guidance in whom you mentioned shipping costs. Can you give us a little more detail there? Do you plan to take any additional pricing actions to help? It's just a lag, or is that not appropriate? Are they kind of one time and you expect them to retrace going in next year?

Reuben Garner: I guess let's start with the change in guidance. Nahum, you mentioned shipping costs. Can you give us a little more detail there? Do you plan to take any additional pricing actions to help? And is it just lag time, or is that not appropriate? Are they kind of one-time only, and you expect them to, I guess, retrace going into next year?

Reuben Garner: Thanks. Good afternoon, guys.

Nahum Trost: Hi Reuben, so the increase in shipping costs we expected in the second half to impact the results at an area of, you know, as we mentioned, three to four million dollars per quarter, and in addition to that, we also have the negative impact from sourcing raw materials, so those two items.

Yosef Shiran: Hi, Ruben. The increase in shipping costs we expected in the second half to impact the results of the second half of the year. On the other hand, there are additional savings that are coming from the previous extraction actions that we took. Specifically, the more expensive inventory from Richmond Hill, which was sold almost in full by mid-year. We expect to generate more savings, and this will partially offset the higher expenses from the shipping and the raw materials that we've mentioned. Yeah, but also to add maybe that the shipping costs at this stage are very high, and one could expect that at some stage it will go down in significant amounts.

Speaker Change: to impact the results at an area of, you know, as we mentioned, three to four million dollars per quarter. And and in addition to that, we have the also the negative impact from sourcing of raw materials. So those two items.

Speaker Change: are going to impact our second half.

Speaker Change: You know, it was sold almost in full by mid-year, so we expect to generate more savings and this will partially offset the higher expenses from the shipping and the raw materials that we've mentioned.

Nahum Trost: Yeah, but also to add that the shipping cost at this stage is very high, and you know, one could expect that at some stage, it will go down.

Speaker Change: Yeah, but also to add maybe that the shipping cost at this stage is very high and one could expect that at some stage it will go down.

Yosef Shiran: We don't know exactly how much and when, but it's today; it's about the normal normalize levels. Okay, and then you mentioned the assumptions of the second half is a similar demand environment to the first. Does that mean similar revenue dollar amounts in the second half compared to the first half? Or was that a year-over-year comparison comment? No, the comment was compared to the market dynamics that we saw in the first and second quarter. So this is the assumption also commonly the assumption that we are using for the second half.

Speaker Change: Okay, and then you mentioned the assumption for the second half is a similar demand environment to the first. Does that mean similar revenue dollar amounts in the second half compared to the first half or was that a year over year?

Speaker Change: Comparison comments.

Yosef Shiran: Okay, and if things do deteriorate and there have been some signs, at least here in the States, that things may be softened over the course of the summer, if things do deteriorate globally, you've already undergone a restructuring. Do you have more that you could do to take out costs? Where does your utilization kind of rates stand today? And I guess what would those future actions look like if they were needed? Yes, one of the biggest advantages of the new setup, which makes us more agile, is the ability to reduce costs. We have less fixed costs, so we can better control the ongoing costs.

Nahum Trost: Okay, and if things do deteriorate, and there have been some signs, at least here in the States, that things may soften over the course of the summer, if things do deteriorate globally, you've already undergone a restructuring. Do you have more that you could do to take out costs? Where does your utilization kind of rate stand today? And I guess, you know, what would those future actions look like if they were needed?

Speaker Change: okay and if if things do deteriorate and there have been

Speaker Change: Costs, where does your utilization kind of rate stand today, and I guess, you know, what would those future actions look like if they were needed?

Nahum Trost: Yes, one of the biggest advantages of the new setup, which makes us more agile, is the ability to reduce costs we have left, a fixed cost so we can better control the ongoing costs. And in addition, if things turn out to be more positive than we expect, we can relatively ramp up the capacity quite fast, without the necessity of deploying money. So yeah, we are more agile, and we can adjust.

Speaker Change: Yes, one of the biggest advantages of the new setup, which makes us more agile, is the ability to reduce costs. We have less.

Speaker Change: Fixed costs so we can better control the ongoing costs.

Yosef Shiran: And in addition, if things turn out to be more positive than we expect, we can relatively ramp up the capacity quite fast without the necessity of deploying money. So yeah, we are more agile, and we can adjust.

Speaker Change: And in addition, if things turn out to be more positive than we expect, we can relatively ramp up the capacity quite fast.

Yosef Shiran: So is there a way to think about what Jack Romano margins would look like from here if you see another, I don't know, 10 percent decline in volume? What kind of impact that has on profitability? No, we are not providing information on sensitivity or sensitivity of the growth margin. But you can look at previous quarters, and you can see, on one hand, the improvement in margins after the restructuring actions that we took, compared to the level of revenues that we generated in those quarters. Just maybe to add up to that, the growth margin this quarter, you know, compared to the second quarter of last year was higher. Part of it relates to transitory factors that we, you know, that we had last year associated with the closure of the production hearings dot young facility.

Speaker Change: So, is there a way to think about what...

Nahum Trost: I don't know, 10% decline in volume, what kind of impact that has on profitability.

Speaker Change: But you can look at previous quarters, and you can see on one hand the improvement in margins after the restructuring actions that we took, compared to the level of revenues that we generated in March.

Nahum Trost: The gross margin this quarter, you know, compared to the second quarter of last year, was higher. Part of it relates to transitory factors that we had last year associated with the closure of the production here at Dot Yam. So if you exclude it, we were last year at a rate of around 15% of gross margin. And this year, under the current volume, we generated almost 23% of gross margin. The majority of it relates to the restructuring actions that we took during the year. So you can, I believe it can, you know, it can help you to calculate the sensitivity.

Speaker Change: The gross margin this quarter, you know, compared to the second quarter of last year

Speaker Change: was hired. Part of it relates to...

Speaker Change: transitory factors that we, you know, that we had last year.

Nahum Trost: So if you exclude it, we were last year at a rate of around 15 percent of growth margin. And this year, under the current volume, we generated almost 23 percent of growth margin. The majority of it relates to the restructuring actions that we took during the year. So you can, I believe it can, you know, it can help you to calculate the sensitivity.

Reuben Garner: Great, that's helpful. Thank you guys. Good luck going forward.

Nahum Trost: Andrew Maser, Brad Cray, Nahum Trost, Yosef, Brad Cray, Nahum Trost, Yosef Shiran, Brad Cray, Nahum Trost, Yosef, Brad Cray, Brad Cray, Yes, and is there any update you can provide on the monetization of the Israel facility? Yes, as you also mentioned in this past, so we basically are a specialist, the majority of the available areas here in Dot Yum Plant, and we will start to benefit for me, not on the PNL site, but we will start to benefit for me from a cash flow point of view, comments in 2025. It will be in the area of several millions of dollars compared to this one.

Andrew Mazer: Hey guys, this is Andrew Maser on for Stanley. Thank you for taking my question. I just had a quick one about the other portion of the Richmond Hill plot of land. I'm wondering if you had any best guess on what you could maybe receive for that portion of it?

Nahum Trost: So, as we mentioned in previous calls, we believe it's in the area of several tens of millions of dollars. As we mentioned in the call, we sold the undeveloped part of our site.

Andrew Mazer: Yes, as Yosef mentioned in his part, we basically subleased the majority of the available areas here in the DotYam plant and we will start to benefit from it.

Speaker Change: Not on the P&L side, but we will start to benefit from it on from a cash flow point of view commencing 2025

Speaker Change: It will be in the area of several millions of dollars compared to this year.

Nahum Trost: And then lastly, I was wondering if you could expand on your decision to increase your stake in the Lioli Ceramica business. Just any more details you could provide on that.

Yosef Shiran: Lastly, I was wondering if you could expand on your decision to increase your stake in the Leoly ceramic cut business, just any more details you could provide on timing or anything, really. Thanks. So porcelain is a very important part of our growth plans, and our plant in India is a good plant, and we believe we can get a lot out of it. So far we haven't seen a lot, but we believe with the initiative that we are taking during this year and also continue next year, we will start to see profits from this site and sales.

Speaker Change: And then lastly, I was wondering if you could expand on your decision to increase your stake in the Leoli ceramic business. Just any more details you could provide on that.

Speaker Change: Timing or

Speaker Change: Anything really. Thanks.

Nahum Trost: So porcelain, as you know, is a very important part of our growth plans, and our plant in India is a good plant, and we believe we can get a lot out of it. So far, we haven't seen much. Which brings us, as I said, to 81%. Yeah, so this is what I can say about Loyola. If you have any more questions about it, I will be happy to answer.

Speaker Change: and our plant in India is a good plant and we believe we can we can get a lot out of it. So far we haven't seen a lot.

Yosef Shiran: So far we see sales, but it's relatively low, and we had 60% of the venture. We decided to increase it to 81% and to buy one of the partners, which brings us, as I said, to 81%. So we are very happy with this move. It was a tough negotiation, and once we see that our expectations are starting to mature, we will report more. So far, it's not so significant, but it's very significant strategic way. Yes, so this is what I can say about Loyoli.

Speaker Change: and we had 60% of the venture we decided to increase it to to 81% and to buy one of the partners

Speaker Change: which brings us, as I said, to 81%.

Speaker Change: So, we are very happy with this move. It was a tough negotiation.

Speaker Change: Once we see that our expectations are starting to mature, we will report more.

Speaker Change: So far, it's not so significant, but it's very significant strategic-wise.

Speaker Change: Yeah, so this is what I can say about Loyola. If you have any more questions around it, I will be happy to answer.

Yosef Shiran: If you have any more questions around it, I would be happy to answer.

Nahum Trost: Any, I guess from a margin standpoint, is there anything investors should think about as far as margin mix related to that increased stake and then the porcelain rollout every time? Thanks. I don't think that this stage, I don't think it would be material. So, yeah, you will not see it. You will not see a lot of it in the PNL in the short term. Gotcha.

Speaker Change: Thank you. Bye. Bye.

Reuben Garner: I guess from a margin standpoint, is there anything investors should think about as far as...

Speaker Change: margin mix related to that increased stake and then the porcelain rollout every time.

Nahum Trost: I don't think that at this stage, I don't think it will be material, so yeah, you will not see it. You won't see a lot of it in the P&L.

Reuben Garner: Gotcha. Well, that's all from me, so thank you.

Reuben Garner: That's all from me, sir. Thank you. Thank you very much.

Nahum Trost: Thank you. Thank you very much.

Yosef Shiran: This concludes our question and answer session. I would like to turn the conference back over to Mr. Yosef Shiran for any closing remarks.

Yosef Shiran: Please go ahead, sir.

Yosef Shiran: So, thank you everybody for your attention this morning, and we look forward to updating you on our progress and exporter.

Yosef Shiran: So thank you everybody for your attention this morning, and we look forward to updating you on our progress next quarter. Goodbye.

Speaker Change: Thank you everybody for your attention this morning and we look forward to updating you on our progress next quarter. Goodbye. Thank you.

Operator: Goodbye. Thank you.

Operator: Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Thank you for attending today's presentation. You may now disconnect.