of operations, adjusted EBITDA and gross profit. These ...€¦ · 2010 2016 2018 Quartz Countertop...

2

Information provided during this presentation and responses to various questions 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 relate to the Company's plans, objectives and expectations for future

operations, including expectations of the results of its business optimization initiative, projected results

of operations, adjusted EBITDA and gross profit. 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 ability of the company to realign aspects of its business based on the business

optimization initiative, the strength of the home renovation and construction sectors; intense competitive

pressures; the outcome of silicosis and other bodily injury claims; regulatory requirements relating to

hazards associated with exposure to silica dust; manufacturing of existing products and managing

required changes in production; economic conditions within any of our key existing markets changes in

raw material prices; fluctuations in currency exchange rates; the success of our expansion efforts in the

United States; unpredictability of seasonal fluctuations in revenues; delays in manufacturing and other

factors discussed under the heading "Risk Factors" in our most recent annual report on Form 20-F and

other documents filed with the Securities and Exchange Commission.

These forward-looking statements are made only as of the date hereof, and neither the Company, nor

any of its respective agents, employees or advisors intend, undertake or have any duty or obligation to

supplement, amend, update or revise any of the forward-looking statements contained in this

presentation, whether as a result of new information, future events or otherwise. The information and

opinions contained in this document are provided as at the date of this presentation and are subject to

change without notice.

This presentation includes certain non-GAAP measures, which should all be considered in addition to,

and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income to

adjusted EBITDA, reconciliation of GAAP gross profit to adjusted gross profit, and adjusted net income

are 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. However these measures should not be considered as substitutes for GAAP measures

and may be inconsistent with similar measures presented by other companies.

DISCLAIMER

3

• Leading designer and producer of high-end

engineered quartz surfaces used in

residential and commercial buildings

• Founded in 1987 and HQ in Israel

• Invented and pioneered quartz category

expansion via powerful Caesarstone® brand

• Customer-centered approach built on

culture of safety and high-quality reputation

• 3 production sites in Israel and the U.S.

• Sales of $576M and Adj. EBITDA1 of $75M

in 2018

• Attractive balance sheet and capital position

COMPANY OVERVIEWQuartz

Countertop Inventor

PowerfulBrand

High Quality

PremiumProducts

GlobalReach

StrongGrowthPlatform

3(1) A reconciliation of GAAP metrics to non-GAAP metrics is included at the end of this presentation.

4

Inspiring Design Lovers with Innovative

Products and Solutions Around the World

4

5

DRIVING GROWTH THROUGH INNOVATIVE DESIGN AND COLORS

TREND SETTER

COLOR LEADERSHIP

PROPIETARY

TECHNOLOGY

INNOVATIVE DESIGNS

5

6

PIONEERING INNOVATIVE DESIGNS & TECHNOLOGY

Classico MetropolitanSupernatural

PREMIUM POSTIONING

Wide range of evergreen colors and designs

Inspired by the industrial trend

Proprietary technology

Inspired by nature

Luxurious marble & granite designs

Proprietary technology

6Unrivaled breadth of premium products

7

SUPERIOR VALUE PROPOSITION

Caesarstone quartz products are superior to any other material

Impact Resistant

Scratch Resistant

Stain Resistant

Heat Resistant

Non Porous

Flexible

Easy Fabrication

Multi Functional

Versatile Designs

Food Safety - NSF Certified

7

8

ATTRACTIVE GLOBAL QUARTZ INDUSTRY LANDSCAPE

$105B2 Global Counter-top Market

2010 2016 2018

Quartz Countertop Global Share1

Granite 28% 27% 23%

Quartz 7% 16% 18%

Laminate 17% 10% 10%

8

82%

32%

9%5%

87%

45%

24%

14%

80%

46%

25% 22%

Israel Australia Canada U.S.

2010

2016

2018

Quartz Share of Total Countertop Market (By Volume)

³1

(1) Source: Freedonia July 2019 and February 2017 studies

(2) Source: Freedonia July 2019 study. Sales figures are based on retail price (end-user consumer installed price, which includes installation and other related costs)

(3) Company estimations

Material

Segmentation

(2018 sales)

Marble 9%

Laminate 10%

Other 19%

Solid Surfaces 22%

Engineered

Quartz 18%

Granite 23%

9

2018

Region

Split17% - Canada

7% - Israel

6% - Europe

5% - ROW

23% - Australia

42% - USA

A GLOBAL LEADER IN THE ATTRACTIVE QUARTZ SURFACE MARKET

#1 or #2 player in key regions served

A global market leader with ~7% global

market share (*) (1)

Diversified geographic revenue with

North America portion of ~59%

Focused on high-end residential and

commercial applications

Solid global distribution platform across

approximately 45 countries

2018 by Region

Premium brand, with superior

customer value proposition

70 models and 180 SKUs across

4 distinct product collections

Extensive manufacturing, R&D

and marketing capabilities

(*) By volume

(1) Source: Freedonia July 2019 study; company market share derived fromcompany volume sales data and Freedonia global market size 9

10

MANAGEMENTKEY INITIATIVES

10

11

OUR JOURNEY

Establishing Global

Leadership Team

Enhancing Global

Infrastructure,

Global DNAVision, Strategy, Values,

Organization

Global Growth

Acceleration Plan

Implementation

12

EXECUTING THE GLOBAL GROWTH ACCELERATION PLAN

Go-to-Market Branding

Product

Innovation

Business

Development

People and

Organizations

12

Production

Efficiency

Supply Chain

Excellence

Technology

TransformationProcesses

Re-engineering

Health & Safety

Infrastructure & Efficiency Growth & Innovation

Better allocate resources to reignite growth

13

FINANCIAL SUMMARY & OUTLOOK

13

14

REVENUE & PROFITABILITY

198.8

259.7296.6

356.6

447.4499.5

538.5588.1 575.9

2010 2011 2012 2013 2014 2015 2016 2017 2018

78.3104.3

127.4

162.1

189.7200.2

212.5197.2

165.5

39.4% 40.2%43.0% 45.5% 42.4%

40.1% 39.5%33.5%

28.7%

2010 2011 2012 2013 2014 2015 2016 2017 2018

50.558.8

69.4

91.7

116.6125.7 130.3

100.4

75.2

25.4%22.6% 23.4%

25.7% 26.1% 25.2% 24.2%

17.1%

13.1%

2010 2011 2012 2013 2014 2015 2016 2017 2018

29.834.8

44.0

64.0

82.583.7 81.2

49.8

36.1

15.0%13.4%

14.8%

17.9% 18.4% 16.8%15.1%

8.5%

6.3%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue ($M) Adjusted Gross Profit and % Margin1 ($M)

Adj. EBITDA and % Margin1 ($M) Adj. Net Income and % Margin ($M)


15

Q2 2019 FINANCIAL PERFORMANCE

$149.2M$141.1M

Q2'18 Q2'19

(2.9%) CCB

( 5.5%)

$48.3M

$38.5M

Q2'18 Q2'19

32.4% 27.3%% margin

(20.3%)

$24.6

$19.2M

Q2'18 Q2'19

16.5% 13.6%% margin

(22.1%)

(12.0%) 7.0% (11.6%) (3.5%)

• Increased manufacturing unit costs due

to lower fixed cost absorption

• Adverse currency exchange impact

• Favorable geographic and product mix

• Lower raw material costs and improved

supply chain efficiencies

$14.8M

$7.9M

Q2'18 Q2'19

$0.43 $0.23Adj. EPS

(46.6%)

Revenue Adj. Gross Profit1

Adj. EBITDA1 Adj. Net Income

CCB:


16

OUR MAIN MARKETS

Total Market

72.2M SQM (2.3%)

Marble 5%(1.8%)

Laminates 33%(-0.6%)

Other 17%(2.8%)

Solid

Surfaces 11%(1.6%)

Engineered

Quartz 22%(6.6%)

Granite 12%(1.5%)

Total Market

6.0M SQM (1.4%)

Marble 1%(3.7%)


Other 13%(1.7%) Solid

Surfaces 13%(1.0%)

Granite 12%

(1.1%)

Engineered

Quartz 25%(5.1%)

Total Market

4.4M SQM (1.1%)

Marble 1%(4.8%)


Other 7%(1.2%)

Solid

Surfaces 5%(0.8%)

Engineered

Quartz 46%(2.4%)

Granite 5%(0%)

(1) Source: Freedonia July 2019 study;

16

Countertop Demand by Material1 (By Volume)

(%) CAGR 2018-2023

17

CAPITALIZE ON STRONG NORTH AMERICA OPPORTUNITY

Combined

Canada and

U.S. into one

regionEnhanced

leadership and

synergies

Big box

penetrationU.S. tariffs

on Chinese

imports

17

Improve

channel

management

More

efficiently

streamline

operations

18

STRONG LIQUIDITY, CASH FLOW AND CAPITAL DEPLOYMENT

Disciplined Capital

Deployment

• 3-year avg. above 50%

operating cash flow of Adj. EBITDA

• Prudent management of

capital expenditures at ~4%

of sales since 2016

• Excess capacity to scale

up operations

• Global growth acceleration

plan–strong returns

• M&A flexibility

• Quarterly dividend policy

aligned with profits

(1) As of June 30, 2019

(2) Cash and cash equivalents and short-term

bank deposits as of June 30, 2019

• No bank debt1

• Cash of $99.4M2

18

Strong Capital

Position

Track Record of Cash

Generation

19

POSITIONED TO DELIVER LONG-TERM PROFITABLE GROWTH

Long

Term Target

Gross Margin

32-35%

Adj. EBITDA Margin

17-18%

2018

Performance

Adj. Gross Margin1

28.7%

Adj. EBITDA Margin1

13.1%

Technological

Transformation

North American

OpportunityGo-to-market

Strategy

Production &

Supply Chain

Efficiencies

Accretive

Investments

Leverage

Premium

Brand


20

THANK YOU

21

APPENDIX

21

22

ADJUSTED EBITDA RECONCILIATION

(1) Consists of legal settlements expenses and loss contingencies, net, in 2017 related primarily to Kfar Giladi arbitration, as well as to product liability claims and other adjustments to on-going legal claims.

(2) One time bonus paid by a shareholder to Company's employees.

(3) Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from

its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The

majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

(4) Share-based compensation includes expenses related to st

(5) ock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.

(6) Consists of direct expenses related to a follow-on offering that closed in June 2014.

(7) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel.

(8) Relates mainly to non-recurring import related expenses and relocation expenses of Caesarstone USA headquarters (Company's subsidiary).

22

23

ADJUSTED NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST RECONCILIATION

(1) Consists of legal settlements expenses and loss contingencies, net, in 2017 related primarily to Kfar Giladi arbitration, as well as to product liability claims and other One time bonus paid by a shareholder to Company's employees.

(2) Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its

distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority

of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

(3) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises.

(4) Consists of direct expenses related to a follow-on offering that closed in June 2014.

(5) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel.

(6) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israeli Tax Authority and with the National Insurance Intitute of Israel.

(7) Relates mainly to non-recurring import related expenses and relocation expenses of Caesarstone USA headquarters (Company's subsidiary).

(8) Tax adjustments for the three and twelve months ended December 31, 2017 and 2016 were based on the effective tax rates for these periods, respectively.

23

24

ADJUSTED GROSS PROFIT RECONCILIATION

USD (0,000) 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A

Gross profit $78,288 $104,294 $127,395 $162,118 $189,651 $200,225 $212,486 $197,223 $163,414

Non- recurring items (1) $0 $0 $0 $0 $0 $0 $0 $0 $2,104

Adjusted Gross profit $78,288 $104,294 $127,395 $162,118 $189,651 $200,225 $212,486 $197,223 $165,518

% of sale 39.4% 40.2% 43.0% 45.5% 42.4% 40.1% 39.5% 33.5% 28.7%

(1) Relates mainly to non-recurring import related expenses.

24

25

ADJUSTED EBITDA RECONCILIATION

25

Three months ended

June 30,

Six months ended June

30,

U.S. dollars in thousands 2019 2018 2019 2018

Reconciliation of Net Income to Adjusted EBITDA:

Net income $ 6,414 $ 11,041 $ 6,009 $ 12,497

Finance expenses (income), net 1,825 531 2,147 (9)

Taxes on income 2,364 1,703 3,091 2,214

Depreciation and amortization (*) 8,099 7,132 14,862 14,382

Legal settlements and loss contingencies, net (a) 1,729 2,676 3,305 5,173

Share-based compensation expense (b) 832 362 1,884 392

Non-recurring import related income (2,611) - (1,501) -

Other non-recurring items (c) 504 1,157 993 1,157

Adjusted EBITDA (Non-GAAP) $ 19,156 $ 24,602 $ 30,790 $ 35,806

(a) Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other

adjustments to on-going legal claims, including related legal fees.

(b) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

(c) Relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount,

and in 2018 also relocation expenses of Caesarstone USA headquarters (Company's subsidiary).

(*) Including one time amortization of machinnery equipment with no future alternative use.

(Unaudited)

Caesarstone Ltd. and its subsidiaries

(Unaudited)

26

v

ADJUSTED NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST RECONCILIATION

26

Six months ended

June 30,U.S. dollars in thousands (except per share data) 2019 2018 2019 2018

Reconciliation of net income attributable to controlling

interest to adjusted net income attributable to controlling

interest:

Net income attributable to controlling interest $ 6,414 $ 11,010 $ 6,009 $ 12,503

Legal settlements and loss contingencies, net (a) 1,729 2,676 3,305 5,173

Share-based compensation expense (b) 832 362 1,884 392


Other non-recurring items (c) 1,704 1,157 2,193 1,157

Total adjustments 1,654 4,195 5,881 6,722

Less tax on non-tax adjustments (d) 140 355 885 1,012

Total adjustments after tax 1,514 3,840 4,996 5,710

Adjusted net income attributable to controlling interest (Non-GAAP) $ 7,928 $ 14,850 $ 11,005 $ 18,213

Adjusted diluted EPS (e) $ 0.23 $ 0.43 $ 0.32 $ 0.53

Diluted No of shares used for Non GAAP EPS computation 34,514,863 34,449,731 34,511,541 34,434,588

(a) Consists of legal settlements expenses and loss contingencies, net, related to product liability claims and other

adjustments to on-going legal claims, including related legal fees.

(b) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the Company.

(c) Relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount,

one time amortization of machinnery equipment with no future alternative use, and in 2018 also relocation expenses of Caesarstone USA headquarters (Company's subsidiary).

(d) Tax adjustments for the three and six months ended June 30, 2018 was based on the effective tax rates for these periods.

For the three and six months ended June 30, 2019 the Company applied the effective tax rates used in the comparable figures as current

effective tax rate is not indicative for the on-going business.

(e) In calculating adjusted diluted (Non-GAAP) EPS, the diluted weighted average number of shares outstanding excludes the effects of

share-based compensation expense in accordance with FASB ASC 718.

(Unaudited)

Three months ended

June 30,

(Unaudited)

27

ADJUSTED GROSS PROFIT RECONCILIATION

27

Three months ended

June 30,

Six months ended June

30,

U.S. dollars in thousands 2019 2018 2019 2018

Reconciliation of Gross profit to Adjusted Gross profit:

Gross profit $ 39,763 $ 48,329 $ 71,032 $ 82,573


Other non-recurring items (*) 1,367 - 1,367 -

Adjusted Gross profit (Non-GAAP) $ 38,519 $ 48,329 $ 70,898 $ 82,573

(*) Including one time amortization of machinnery equipment with no future alternative use,

and one time charge related to reduction in headcount.

Caesarstone Ltd. and its subsidiaries

(Unaudited) (Unaudited)

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