Caesarstone Ltd. Q4 FY2024 earnings call

• Throughout 2024, made progress on strategic transformation initiatives, optimizing operational framework and strengthening competitive position through R&D, marketing, and brand development.
• Optimized production footprint, sourcing over 70% of production from global manufacturing partners by end of 2024 (up from 22% in early 2023).
• Strengthened innovation capabilities, expanding crystalline silica-free offering globally, with full collection expected in Australia by end of Q1 2025.
• Invested in porcelain business, planning to acquire remaining equity interest in Lioli Ceramica by H1 2025.
• Restructuring initiatives on track to deliver cost savings, improving cash flow generation and working capital efficiency, ending 2024 with a net cash position of $101.8 million.

Fourth quarter revenue was $97.9 million. In the US, sales were $46.4 million, down 23.1% year-over-year. Canada sales were down 18.5% on a constant currency basis. Australia sales were off by approximately 37.5% on a constant currency basis. EMEA region saw a decline of 18.2% on a constant currency basis. Israel sales improved by 53.6% on a constant currency basis. Full year 2024 sales were $443.2 million, down from $565.2 million in 2023. Gross margin in the fourth quarter improved to 19.4% compared to 18.1% in the prior year quarter. Full year 2024 gross margin was 21.8% compared to 16.3% in 2023. Adjusted gross margin in Q4 2024 was 19.7% vs 18.9% prior year, and full year 2024 adjusted gross margin was 22.1% vs 17% prior year.

• Expect modest improvement in full year 2025 adjusted EBITDA compared to 2024.
• Q1 2025 adjusted EBITDA expected to be comparable to Q1 2024, with improvement as the year progresses.
• Anticipate incremental cost savings of approximately $10 million in 2025 compared to 2024.
• Expect continued year-over-year improvement in gross margin in 2025 driven by enhanced production footprint.

• Multiple silicosis claims in the US, Australia, and Israel. In the US, an adverse jury decision in August 2024 was appealed, and a claim was recently settled. A provision of $50 million was recorded as of December 31, 2024, for probable and estimable exposure. Insurance receivable for silicosis-related claims totaled $32.2 million. Some claims have possible losses with uncertain ranges, and changes in claim outcomes or insurance coverage could materially impact the business.

Q: Maybe to start just an update on how you're feeling about the end markets you're exposed to. Are there any signs of 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.

A: So we see basically in Q1, the same market dynamics that we saw in Q4. And based on our seasonality, which was more evident in previous years, we expect to see a gradual improvement in the -- as the year progresses in Q2 and Q3. So yes, this is in terms of the revenues. We are taking many steps in order to improve the revenues. We see -- we expect to introduce the full collection of our zero crystalline silica in Australia by the end of Q1, which should help us to get back to our leading position in that market 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.

Q: So just to be clear, your revenue has been declining in the mid-20s the last couple of quarters on a year-over-year basis. So are you saying that we're kind of starting off the year at that level of decline as well and then maybe less of a decline as the year moves on?

A: We expect Q1 to be -- to reflect the same dynamics that we saw in Q4. It reflects a tough comp compared to the first half of -- compared to 2024. But as I said, as we will progress we expect to see a gradual improvement.

Q: And then from a -- 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 declines?

A: We see some pricing pressure. We saw it more evident in Australia, for example. But we do see pricing pressure but this is not the most significant component. The slow market conditions, together with the higher interest rates and the inflation resulting in people or customers deferring projects or downgrading projects that they are completing during this period.

Q: 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?

A: So overall, our savings are more than $45 million compared to 2022. The incremental savings coming mainly from the closure of the Richmond Hill plant, the incremental savings in 2025 will be around $10 million.