Q4 2024 Caesarstone Ltd Earnings Call
Greetings, and welcome to the Caesarstone 4th quarter of 2024 in Conference Call. At this time, all participants are named as the only mode. A brief question and answer session will follow the formal presentation.
To join the question queue, please press star then one on your telephone keypad, and to withdraw your question, please press star then two. If at any point you need assistance, please single an operator by pressing star then zero.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Brad Cray, with Investor Relations.
Speaker Change: Thank you, you may be good. Thank you operator and good morning to everyone on the line.
Speaker Change: I am joined by Yosef Shiran, Caesarstone's Chief Executive Officer, and Nahum Trost, Caesarstone's Chief Financial Officer.
Speaker Change: Certain statements in today's conference call and responses to various questions may constitute for looking statements. We caution you that such statements reflect only the company's current expectations and that actual events or results may differ materially.
Speaker Change: For more information, please refer to the risk factors contained in the company's most recent annual report on Form 20F in subsequent filings with the SEC.
Speaker Change: 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.
Speaker Change: The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's fourth quarter, 2024 earnings release, which is posted on the company's investor relations website.
Speaker Change: On today's call, Yosef will discuss our business activity into 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, please go ahead.
Yosef: Thank you, Brad, and good morning everyone. Thank you for joining us to discuss our fourth quarter and full year 2024 results.
Yosef: Our fourth quarter results demonstrated continued progress on a strategic transformation initiatives despite ongoing challenges in the global market environment.
Yosef: Throughout 2024, we made meaningful progress optimizing our operational framework and strengthening our competitive position through targeted investment in R&D marketing and brand development.
Yosef: The strategic actions we've taken to enhance our operations have driven meaningful improvements in cash flow generation and working capital efficiency.
Yosef: We ended the year with a strong balance sheet and net cash position of $101.8 million demonstrating our continued focus on maintaining financial flexibility.
Yosef: Importantly, our restructuring initiatives are on track to deliver the anticipated cost savings positioning us to achieve substantially higher profitability as Reuben used recover.
During 2024, we successfully executed on several key strategic priorities.
Yosef: First, we optimized our production footprint, now sourcing over 70% of our production from our global network of manufacturing partners compared to just 22% at the beginning of 2023.
Yosef: This transformation has enhanced our operations flexibility and ability to align production with demand while maintaining resilient EBITDA and gross margins, even as our revenue reflects persistent global market headwinds.
Yosef: Second, we strengthened our innovation capabilities, particularly in expanding our crystalline silica free offering globally.
Yosef: Third, we continue to invest in our post-align business which we view as an important growth driver.
Yosef: Given our strong conviction in the future growth potential of the porcelain market, we plan to acquire the remaining equity interest in Loyoli Ceramica in the first half of 2025, increasing our ownership to 100%.
Yosef: Looking more closely at our fourth quarter results, Revenue was $97.9 million reflecting competition and softness across our main markets.
Yosef: The benefits of our enhanced operational framework were evident in our gross margin performance, which improved 130 basis points year over year to 19.4%.
Yosef: This improvement reflects the positive impact of our restructuring actions and optimized production footprints.
Yosef: As we look ahead to 2025, while need to market conditions remain dynamic, we are confident that our strategic initiatives and disciplined execution have created a more agile and efficient organization ready to capitalize on market opportunities.
Yosef: I will now turn the call over to Nahum to review our financial results in more detail.
Thank you, Yosef, and good morning, everyone.
Look in the tower, four quarter results [inaudible]
Yosef: Global Revenue was $97.9 million, compared to $128.5 million in the prior year quarter.
Yosef: Fourth quarter revenue declined by 23.8% year-over-year on a constant currency basis.
Reflecting Glowerselves Volume Across Our Markets
Yosef: Reuben you decline reflected, softer market conditions and ongoing macroeconomic challenges across our global markets.
For more information visit www.FEMA.gov
Yosef: In the US, sales were down 23.1% to 46.4 million dollars by merely reflecting softer market conditions and the more competitive environment.
Yosef: Kennedy itself would down 18.5% on a constant council basis, experiencing similar market dynamics as the US.
Yosef: Australia's cells were also by approximately 37.5% on a constant currency basis, mainly reflecting slower market conditions and the transition to alternative materials that comply with new regulations.
Yosef: Our EMEA region saw a decline of 18.2% on a constant council basis due to slow market conditions in the UK and our indirect EMEA business.
Yosef: In Israel, self-improved by 53.6% on a constant council basis in the fourth quarter, mainly as a result of improved market conditions and favorable year-of-year comparisons as Q4 2023 marked the beginning of the war on terrorism, which significantly reduced activity in the region.
Looking at our four-quarter PNL performance.
Yosef: Gross margin in the first quarter improved to 19.4% compared to 18.1% in the prior year quarter.
Yosef: Adjusted gross margin improved to 19.7% compared to 18.9% in the prior year court.
Yosef: The improvement in growth margin was mainly due to the benefits of an improved production footprint, partially offset by the unfavorable product mix and lower production resulting in lower fixed cost absorption.
Yosef: Operating expenses in the fourth quarter were $41.9 million or $42.9% of revenue, this compared to $56.5 million or $43.9% of revenue in the prior year quarter.
Yosef: During the quarter we recorded a 7.8 million non-cash pre-tax, impairment and restructuring charges related to intangible assets and the Dothiam and Richmond Hill manufacturing facility
Yosef: Excluding legal settlements and lost contingencies, and the impermanent restructuring expenses.
Yosef: Operating expenses were 33.3% of revenue compared to 24.3% in the prior year quarter, primarily due to lower revenues.
Yosef: Adjusted EBDA in the fourth quarter was a loss of $8 million compared to a gain of $1.4 million in the prior year quarter.
Now looking at our full-year financial performance highlights.
Yosef: Sales for the full year of 2024 were $443.2 million compared to $565.2 million in 2023.
Yosef: On a constant currency basis, sales were down 21.5% mainly due to lower volumes.
Yosef: Gross margin for the full year 2024 improved to 21.8% compared to 16.3% in 2023.
Yosef: Adjusted gross margin in 2024 was 22.1% compared to 17% in the prior year.
Yosef: The improvement in gross margin was driven by the benefits of an impulse production footprint partially offset by unfavorable product mix and lower production which resulted in lower fixed cost absorption.
For more information visit www.FEMA.gov
Yosef: Excluding legal settlements, lost contingencies, and impairment and restructuring charges adjusted operating expenses were 29.4% of revenue compared to 24.2% in the prior year.
with the difference primarily at ribetobel to lower revenues.
Yosef: Our full year 2020 for adjusted EBDA was a loss of 11.5 million dollars compared to a loss of 9.4 million dollars in the prior year.
Yosef: The Euroverear Difference primarily reflects the impact of lower revenues, partially offset by improved gross margins from our restructuring and operational enhancement initiatives.
Yosef: Turning to our cash flow in balance sheet, we were pleased to report a second straight year of positive free cash flow by merely driven by strong cash flow from operations.
Yosef: We generated positive operating cashflow of $31.9 million for the full year of 2024.
Yosef: This compared to $66.5 million of positive operating cash flow in the prior year.
Yosef: As an important point, Cashello in 2023 was entirely driven by drastic reduction in our inventory balances.
Yosef: In 2024, our cash flow was also driven by improvements in other working capital items.
Yosef: Our cash discipline allowed us to maintain a healthy financial position at the end with a total cash and short and bank deposits of $106.3 million and a total debt of $4.5 million as of December 31st.
2024
Yosef: This resulted in a year-end net cash position of $101.8 million, compared to $83.5 million as of December 31, 2020.
Yosef: We remain a party to multiple silicosis claims that we are defending in the US, Australia and Israel relating to 296 injured persons.
Yosef: In the US, we were subject to an adverse jury decision in August 2024, which we are repealing and we settled another claim recently.
Yosef: As of December 31, 2024, we recorded the provision of $50 million, representing our assessment of exposure that is probable and estimable with respect to pending claims in Israel, in the United States and Australia.
Yosef: As of December 31st, 2024, we also recorded insurance receivable for silicosis related claims
Yosef: We estimate the loss for 18 of the remaining 120 claims in the US is only reasonably possible.
Yosef: with a range between half a million dollars to 13 million dollars per claim.
Yosef: with the other 102 claims at an early stage in which the amount of the possible loss cannot be reasonably estimated at this time.
Yosef: given the preliminary stages complexity of the claims and the uncertainty as to our ability and the scope of insurance coverage.
However...
Yosef: If there is a change in the assessment of the outcome of the claims or the insurance coverage through the course of the trial processes.
Yosef: That changes could lead to a material and adverse impact on our business, financial position, result of operations or cash flows.
Now turning to our Outlook for 2020-25 [inaudible]
Yosef: We remain focused on driving improved performance through our restructuring and strategic initiatives.
Yosef: We expect to see a modest improvement in full year 2025 adjusted EBDA compared to full year 2024 as we realize the full benefits of our cost optimization.
Yosef: In Q1, we expected just the EBDA to be comparable to the 4th quarter of 2024, with the improvement expected as the year progresses.
Our extraction of initiatives remain on track.
Yosef: and we expect to realize incremental cost savings of approximately $10 million in 2025 compared to the full year of 2024. These savings reflect the successful execution of our plant closures and manufacturing optimization strategy.
Yosef: Looking at our Gross Margin, we expect continued year-of-a-rear improvement in 2025, driven by our enhanced production footprint.
Yosef: We remain focused on maintaining discipline working capital management to maximize cash flow.
Yosef: As we enter 2025, we are encouraged by the substantial progress we have made transforming our operational framework and optimizing our cost structure.
Yosef: The anticipated cost savings, combined with our strong balance sheet and enhanced production flexibility
Yosef: Provides us with a solid foundation to capitalize on market opportunities as conditions improve.
Yosef: We believe these structural improvements to our business model will enable us to achieve higher levels of profitability as Reuben is recovered.
Yosef: With that, we are now ready to open the call for questions.
Speaker Change: Thank you. We will now begin the question of the intercession.
Yosef: To ask a question, you may first start at the one on your telephone keypad.
Remove yourself from Q, please press star then two [inaudible]
Speaker Change: Today's first question comes from Reuben Garner at The That's More Company. Please go ahead.
Thank you, good evening guys.
Morning. Hi, Reuben.
Speaker Change: Maybe to start just an update on how you're feeling about the end markets you're exposed to or are there any signs of...
Speaker Change: Stabilization, how should we think about the first quarter from a revenue perspective and then just maybe any color on the full year would be helpful.
Speaker Change: Hi Reuben, so we see basically in Q1 the same market dynamics that we saw in Q4, and you know based on our seasonality which was more evident in previous years.
We expect to see a gradual improvement in the-
You know, as the year progresses in Q2 and Q3, so...
We see...
Speaker Change: You know, we expect to introduce the full collection of our zero crystalline silica.
Speaker Change: Min Australia by the end of Q1, which should help us to get back to our leading position in that market over the next.
Speaker Change: Over the next two years we see some positive signs from the local market here in Israel now that the war on terror has ended so basically those are the main you know the main things in terms of revenue.
Speaker Change: So, just to be clear, your Reuben has been declining in the mid-twenties the last couple of quarters, on a year-over-year basis are you saying that we're kind of starting off the year at that level of decline as well and then...
Speaker Change: that's it for today's talk. If you have any further questions, please mentions regarding the webinarlets, any Q and A questions, or anything that got asynchronous. Thanks for joining us. Have a good evening, and I'll see you all the next time. Peace.
Less of a decline as the year moves on.
Speaker Change: We expect Q1 to reflect the same dynamics that we saw in Q4. It reflects task comp, compared to the first half of 2024, but as I said, as we will progress, we expect to see gradual improvement.
Speaker Change: Okay, and then from what are you seeing from a pricing standpoint like in the down 24% number from the fourth quarter how much of that was price versus volume decline?
We see some, we see some surprising questions.
Speaker Change: We saw it more, you know, we saw it more evident in Australia for example, but we do see pricing pressures, but this is not the most significant component, the slow market conditions.
Speaker Change: together with the higher interest rates and the inflation, you know, resolving in people or customers deferring projects or downgrading projects that they are completing during this
Speaker Change: Okay, and then what's the dollar, can you remind us what the dollar amount of savings that we'll see this year from some of the initiatives you put in place over the last year?
Speaker Change: Overall, our savings are more than 45 million compared to 2022. The incremental savings come mainly from the closure of the Richmond Hill plant. The incremental savings in 2025 will be around 10 million dollars.
Okay, thanks guys. I will pass it on.
Thank you Reuben, thanks.
Speaker Change: Thank you. And ladies and gentlemen, it concludes the question and answer session. I'd like to turn the conference back over to Yosef Shiran for closing remarks.
Yosef Shiran: Thank you, and thank you for your attention this morning, and we look forward to updating you on our progress next water. Thank you.
Yosef Shiran: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Reuben Garner,