Caesarstone Ltd. 2026 Q2 Earnings Call

Thank you, operator. 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-F 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 loss income, adjusted net loss income per share, adjusted gross profit, adjusted EBITDA, and constant currency.

The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's second quarter 2026 earnings release, which is posted on the company's investor relations website. On today's call, Yoav will discuss our business activity. Nahum will then cover additional details regarding financial results. Thank you. I would like to now turn the call over to Yoav.

Please go ahead. Thank you, Brad.

Good morning, everyone. The second quarter marked another step forward in our efforts to restore profitability. Gross margin improved meaningfully both year-over-year and sequentially, reaching 24% on low revenue. Our adjusted EBITDA loss narrowed significantly to $1 million from $6.4 million a year ago and $7.5 million in the first quarter. These results demonstrate that the structural actions we have taken are delivering the expected benefits. With our optimized manufacturing footprint and global production partner network now in place, we have created a leaner, more flexible operating model that is improving margins, enhancing customer service, and supporting our path to sustainable profitability. Global revenues totaled $96.6 million, down approximately 7.7% year-over-year on a constant currency basis, reflecting competitive dynamics and soft market conditions, mainly in North America.

While we are encouraged by the progress in profitability, restoring revenue growth remains our top priority. In North America, we continue to strengthen relationships with key customers and fabricators and expanding our presence in the big box channel, which grew year-over-year in the quarter. Australia delivered its fourth consecutive quarter of year-over-year growth, supported by our Zero Silica ICON collection, as we continue to regain our leading position in that market. At the same time, we continue to invest in our long-term growth drivers, our brand, our innovation, and our Porcelain offering. While the external environment remains challenging, we continue to focus on disciplined execution, delivering improved customer service through our production partner network, and maintaining a lean cost structure. Late last week, the U.S. administration announced a new tariff-rate quota on imports of quartz surface products effective August 15th.

We are still assessing the potential impact on our business. However, these developments do not change our strategic priorities, and we remain confident that our operating model positions us well to deliver long-term value. I will now turn the call over to Nahum.

Thank you, Yosef, and good morning, everyone. Looking at our second quarter results, global revenue was $96.6 million compared to $101.1 million in the prior year quarter. On a constant currency basis, revenues declined approximately 7.7% year-over-year, primarily reflecting competitive pressures and continued softness in global demand, mainly in North America. These factors were partially offset by strength in Australia. Breaking down our regional performance, in the U.S., revenue was approximately $42.7 million compared to $49.6 million in the prior year quarter, a decrease of 14.1%. The decline was driven by lower volumes in our core business, mainly reflecting soft conditions in the commercial channel, including new development and in our business through stone suppliers. Our big box business grew approximately 3% year-over-year, led by strong growth with IKEA.

Canada revenue decreased 17.5% on a constant currency basis, mainly reflecting fewer housing completions and slow market conditions. In Australia, revenue was $20.3 million compared to $16.6 million in the prior year quarter, an increase of approximately 10.1% on a constant currency basis. This marked the fourth consecutive quarter of year-over-year growth in Australia, reflecting the continued recovery of our market position following the introduction of our Zero Silica ICON products. EMEA sales were down 9.8% on a constant currency basis, primarily due to the timing of orders shipped to customers in the period. In Israel, revenue increased 32.4% on a constant currency basis, mainly reflecting a favorable comparison to the prior year period, which was impacted by the regional conflict.

Looking at our second quarter P&L performance, Gross margin was 24% compared to 19.6% in the prior year quarter, an improvement of 440 basis points and up 170 basis points sequentially from 22.3% in the first quarter. Adjusted gross margin was 26.5% compared to 19.7% in the prior year quarter. The improvement mainly reflects the realization of cost savings from the closure of our Bar Lev facility and the transition to our global network of production partners. The quarter also benefited from a refund of $2 million received on previously paid U.S. IEEPA tariffs. Operating expenses were $33.4 million, representing 34.6% of revenue, compared to $32.5 million or 32.1% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies and impairment and restructuring expenses, operating expenses improved to 29.6% of revenue from 30.1% in the prior year quarter.

The year-over-year increase in total operating expenses primarily reflects higher legal settlements and loss contingencies. Adjusted EBITDA in the second quarter of 2026 was a loss of $1 million, compared to a loss of $6.4 million in the prior year quarter and a loss of $7.5 million in the first quarter of 2026. The improvement primarily reflects the higher gross margin and the growing contribution of our cost savings initiatives. Finance expenses were $5 million compared to $5.7 million in the prior year quarter, resulting mainly from foreign currency exchange rate fluctuations. Adjusted diluted net loss per share for the second quarter was $0.10 on 34.6 million shares, compared to an adjusted diluted net loss per share of $0.33 in the prior year quarter on 34.7 million shares.

Turning to our cash flow and balance sheet, as of June 30th, 2026, the company had a net cash position of $51.8 million, compared with $50.4 million as of March 31st, 2026. During the quarter, the company repaid Leolis credit facility, leaving it with no outstanding debt to financial institutions. Let me provide important context on several items. With Quartz production fully transitioned to our global manufacturing partner network, our restructuring actions are contributing an increasing level of savings each quarter, and our second quarter gross margin reflects this progress. Once fully implemented, we expect the Bar Lev closure to generate annualized cash savings of approximately $22 million, bringing total expected annualized savings to more than $100 million by 2027 when compared to full year 2023.

Cash costs associated with the restructuring program in the second quarter of 2026 were $1.2 million. We expect to incur additional cash costs of approximately $3 million-$4 million during the remainder of the year. Turning to the U.S. tariff environment. Broad-based import tariffs remain in effect across a wide range of countries and product categories. The average tariff applicable to the products we import into the U.S. market is approximately 15%. Approximately 44% of our second quarter revenues were generated in the United States, served by our global production network. We continue to work with our production partners to optimize our supply chain. Our pricing actions in the U.S. market are helping to partially offset the higher cost of goods.

During the second quarter, we also received a refund of approximately $2 million on account of previously paid IEEPA tariffs, which benefited both our gross margin and our operating cash flow. I would also like to update you on a separate quartz-specific trade matter. On July 31st, the U.S. administration issued its final determination, imposing a four-year tariff-rate quota on imports of quartz surface products effective August 15th. During the first year, the industries covered imports within an annual quota of approximately 13 million square meters, assessed quarterly, will be subject to an additional 25% tariff, while imports above the quota will be subject to an additional 50% tariff. During the subsequent three years, the in-quota tariff will gradually decline to 19%, while the annual quota will increase to approximately 15.7 million square meters.