Caesarstone reports third quarter 2012 results
Mp menashe, israel--(business wire)--caesarstone sdot-yam ltd. (cste), a manufacturer of high quality engineered quartz surfaces, today reported financial results for its third quarter ended september 30, 2012. revenues in the third quarter of 2012 increased by 4.6% to $77.6 million compared to $74.2 million in the same quarter in the prior year. growth in revenues was predominantly driven by continued increases in sales in the united states and canada, up 17.7% and 29.1% respectively, compared to the same period in the prior year. revenue growth was partially offset by the impact of a stronger us dollar and a challenging housing market in australia. on a constant currency basis, third quarter revenue growth was 8.5% compared to the same period last year. yosef shiran, chief executive officer, commented, “we are very pleased with our third quarter, which set a record for any quarter in our history for both sales and profitability. we are positioned as the highest quality quartz brand and are successfully executing our global growth strategy.” gross margin in the third quarter increased to 45.0% compared to 42.4% in the same period in the prior year. this improvement was driven primarily by economies of scale over fixed manufacturing expenses and favorable geographical revenue mix. while changes in foreign exchange rates impacted revenue negatively, they also reduced cost of goods sold equally, eliminating the impact on gross profit and thereby increasing gross margins. operating expenses in the third quarter were $18.2 million, or 23.5% of revenues. this compares to the prior year’s third quarter’s level of $17.8 million, or 24.1% of revenues. the company noted that the year-ago quarter contained a litigation credit of $1.8 million and adjusting for that, operating expenses were down approximately 7% compared to the prior year. this reduction was driven mainly by the elimination of management fees, and favorable foreign exchange rates. while overall expenses declined, the company noted that it had increased sales and marketing expenses by 11.6% compared to the same quarter in the prior year. operating income in the third quarter increased 22.8% to $16.7 million, or 21.5% of revenues, compared to $13.6 million, or 18.3% of revenues, in the same quarter in the prior year. adjusted ebitda, which excludes share-based compensation, the excess cost of acquired inventory and other non-recurring costs, was $21.3 million in the third quarter, a margin of 27.5%. this compares to adjusted ebitda of $18.0 million, a margin of 24.3% in the same quarter in the prior year. finance expenses in the third quarter were $2.0 million compared to $0.8 million during the same period in the prior year. $1.7 million of these expenses relate to losses on foreign exchange hedges. the company’s reported gaap net income attributable to controlling interest for the third quarter of $12.4 million, an increase of 22.8% compared to $10.1 million in the same quarter in the prior year. earnings per share were $0.36 on 34.4 million shares on a fully diluted basis versus $0.37 per share on a fully diluted basis of 19.6 million shares, which was prior to the company’s initial public offering. adjusted net income attributable to controlling interest for the third quarter was $13.4 million, an increase of 28.0%, compared to $10.4 million in the same quarter in the prior year. adjusted earnings per share for both periods were $0.39. the company’s balance sheet as of september 30, 2012 was solid with a cash balance of $62.1 million, reflecting both strong cash generation in the quarter and the proceeds of the sale and lease-back of the company’s bar-lev facility. capacity expansion plans the company also announced today that it planned to expand its existing production capabilities in israel to incorporate additional manufacturing equipment that constitutes a major part of a fifth line and to build a new production facility in the united states. mr. shiran commented, “we believe that expanding our manufacturing footprint into the united states will provide us with a number of competitive and strategic benefits that will serve our long-term growth plans, most significantly the related improvement in delivery times. at the same time, our expansion in israel will enable us to rapidly and efficiently expand our production capacity to meet the increasing demand for our products. we are excited about both of these projects, which are further steps in realizing our growth strategy and are expected to create value for our shareholders.” the expansion in israel is expected to increase total capacity by approximately 15%. this project is expected to have a capital cost of $13 million and to be completed by october of 2013. the us facility is planned to support two production lines with the ability to expand current production by 50%. the total capital cost of this facility is estimated to be $75 million, with roughly 60% necessary for the construction of the first line and infrastructure to be shared by both. the first line is expected to be operational in late 2014. the second line expansion will be implemented subject to actual growth. guidance the company noted today that for the full year 2012 it expects revenues at the lower end of its prior guidance of $292 million to $302 million. the company also maintains its adjusted ebitda guidance of $67 million to $70 million. conference call details yosef shiran, the company’s chief executive officer, and yair averbuch, the company’s chief financial officer, will host a conference call today, november 7th, 2012, at 8:30 a.m. est to discuss the results of the third quarter ended september 30, 2012, followed by a question and answer session for the investment community. a live webcast of the call can be accessed at ir.caesarstone.com or www.viavid.com in the events section. to access the call, dial toll-free 1-888-471-3843 or +1-719-325-2329 (international). israeli participants can dial in at 1-80-924-5906. the pass code is 6933247. to listen to a telephonic replay of the conference call, dial toll-free 1-877-870-5176 or +1-858-384-5517 (international) and enter pass code 6933247. the replay will be available beginning at 11:30 a.m. est on november 7, 2012 and will last through 11:59 pm est november 21, 2012. about caesarstone caesarstone manufactures high quality engineered quartz surfaces, which are used in both residential and commercial buildings as countertops, vanities, wall cladding, floors and other interior surfaces. the wide variety of colors, styles, designs and textures of caesarstone® products , along with caesarstone's inherent characteristics such as hardness, non-porous, scratch and stain resistance and durability, provide consumers with excellent surfaces for their internal spaces which are highly competitive to granite, manufactured solid surfaces and laminate, as well as to other engineered quartz surfaces. caesarstone's four collections of products – classico, supremo, motivo and concetto – are available in over 40 countries around the world. for more information about the company, please visit our website www.caesarstone.com. non-gaap financial measures the non-gaap measures presented by the company should be considered in addition to, and not as a substitute for, comparable gaap measures. a reconciliation of gaap net income to adjusted net income and adjusted ebitda to net income is provided below. the company provides these non-gaap financial measures because it believes that they present a better measure of the company’s core business and management uses the non-gaap measures internally to evaluate the company’s ongoing performance. accordingly, the company believes that they are useful to investors in enhancing an understanding of the company’s operating performance. forward-looking statements information provided in this press release may contain statements relating to current expectations, estimates, forecasts and projections about future events that are "forward-looking statements" as defined in the private securities litigation reform act of 1995. these forward-looking statements generally relate to the company's plans, objectives and expectations for future operations, including its projected results of operations and the expected timing of expanding its production facilities. these forward-looking statements are based upon management's current estimates and projections of future results or trends. actual results may differ materially from those projected as a result of certain risks and uncertainties. these factors include, but are not limited to: the strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices, particularly polymer resins and pigments; unpredictability of seasonal fluctuations in revenues; the outcome of silicosis claims and the claim by our former quartz processor; fluctuations in currency exchange rates; delays in manufacturing if our suppliers are unable to supply raw materials; and other factors discussed under the heading "risk factors" in the final prospectus for our initial public offering filed with the securities and exchange commission. these forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. u.s. dollars in thousands 2011 2012 cash and cash equivalents $ 11,950 $ 28,380 redeemable non-controlling interest commitments and contingent liabilities weighted average number of ordinary shares used in computing basic income per share weighted average number of ordinary shares used in computing diluted income per share cash flows from operating activities: adjustments required to reconcile net income to net cash provided by operating activities: increase in trade receivables including receivable from related party increase (decrease) in warranty provision decrease in accrued expenses and other liabilities including related parties cash flows from investing activities: cash flows from financing activities: repayment of contingent consideration related to u.s. quartz products, inc. acquisition non - cash investing and financing activities: three months ended september 30, nine months ended september 30, reconciliation of net income to adjusted ebitda: caesarstone usa’s inventory at the time of its acquisition and caesarstone australia's ("csa") inventory that was purchased from its distributor. in may 2011, the company acquired the remaining 75% equity interest in its u.s. distributor, caesarstone usa, in which it acquired a has reversed the liability connected to this litigation and the adjustment is presented net of the related litigation expenses incurred for the settlement process. three months ended september 30, nine months ended september 30, reconciliation of net income attributable to controlling interest to adjusted net income: caesarstone usa’s inventory at the time of its acquisition and caesarstone australia's ("csa") inventory that was purchased from its distributor. in may 2011, the company acquired the remaining 75% equity interest in its u.s. distributor, caesarstone usa, in which it acquired a
