Caesarstone Ltd.

Greetings and welcome to Caesar Stone, second quarter 2025 earnings conference call. At this time, all participants are in a listen or limo. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Kray of ICR. Thank you, you may begin.

Thank you, operator, and good morning to everyone on the line. I am joined by Yosha Rahn, Caesar Stone's chief executive officer, and Nahum Trost, Caesar Stone'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 20F 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, 2025, earnings release, which is posted on the company's investor relations website. On today's call, Yosha will discuss our business activity and Nahum 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 Yosha. Please go ahead.

Thank you, Brad, and good morning, everyone. Thank you for joining us to discuss our second quarter 2025 results. Our second quarter results reflect persistent softness, mainly in repair and remodel activity across the industry. We are taking decisive actions to align our cost structure and improve profitability. To that point, during the quarter, we initiated incremental cost reductions that are expected to bring an additional $10 million of annualized savings, commencing in the second half of 2025. This adds to the approximately $10 million in incremental cost savings we are already on track to realize in 2025 compared to 2024. Combined, this brings our total annualized cost savings since initiating our transformation to over $55 million compared to 2022. These measures add to the benefits we are attaining from our improved production footprint. We have shifted over 70% of our production to our global manufacturing network, which provides us with enhanced operational flexibility. We continue to expand our production partnerships to further reinforce our competitiveness. Regarding our porcelain business, we are accelerating product development and expanding our porcelain portfolio to capture growing market opportunities in this attractive product category. In Australia, we continue to make solid progress with our zero-crystal and silica products, ensuring our compliance with regulatory requirements while strengthening our competitive position. During the quarter, we completed development and launch of the full zero-crystal and silica collection. In our other markets and in Australia, we expect to launch additional innovative products during the remainder of the year, as well as for the next year. As we move forward, we remain focused on investing in our strategic transformation initiatives to better position ScissorsTone to scale efficiently. The structural improvements we've made, including cost reductions and operational enhancements, position us well to achieve higher levels of profitability as volumes improve. I'll now turn the call over to Nahum to review our financial results in more detail.

Thank you, Yos, and good morning, everyone. Looking at our second quarter results, global revenue was $101.1 million compared to $119.4 million in the prior year quarter. On a constant currency basis, second quarter revenue was down .6% year over year due to lower volumes resulting from continued global economic headwinds, affecting activity across all channels in addition to competitive pressures. In the US, sales declined by 17% to $49.6 million, mainly reflecting softer market conditions in the residential channel, including business through Stone Suppliers, as well as challenges in the commercial segment. Our business with lows remained a bright spot, increasing in double-digit percentages compared to the second quarter of 2024. Australia sales were down .2% on a constant currency basis, reflecting the continued shifts in that region following the government's silica ban that became effective on July 1st, 2024, combined with slower demand due to high interest rate and fewer new home completions. Canada sales decreased by .5% on a constant currency basis, with softer performance in our core business, mainly due to market conditions, partially offset by higher levels of big box activity. EMEA sales remained relatively stable, increasing by .7% on a constant currency basis. This reflects solid performance across both our direct and indirect channels, driven by stronger volumes and favorable order timing. Our expanded direct presence in Germany also contributed positively to the EMEA results. Israel sales declined by .6% on a constant currency basis, mainly given the impact of the regional conflict during the quarter. Looking at our second quarter P&L performance. Gross margin was .6% compared to .9% in the prior quarter. Adjusted gross margin was .7% compared to .8% in the prior quarter. The difference in gross margin was mainly driven by lower volumes and production, which resulted in lower fixed cost absorption and unfavorable product mix. These factors were partially offset by the ongoing benefits from our improved production footprint and continued cost optimization initiative. Operating expenses in the second quarter were $32.5 million or .1% of revenue compared to $36.6 million or .6% of revenue in the prior year quarter. Excluding legal settlements and loss contingencies and restructuring and impairment expenses, operating expenses were .1% of revenue compared to .2% in the prior year quarter. The increases percentage of revenue primarily reflects the impact of lower revenues against our relatively fixed cost base. Though we have made progress in absolute cost reduction and continue to closely monitor controllable expenses. Adjusted EBITDA in the second quarter was a loss of $6.4 million compared to a loss of 0.1 million in the prior year quarter. The year over year decline in adjusted EBITDA primarily reflects lower revenues and gross margins. Adjusted diluted net loss per share for the second quarter was 33 cents on 34.7 million shares compared to adjusted diluted net loss per share of 14 cents in the prior year quarter on 35 million shares. Now turning to our cash flow and balance sheet. We ended the quarter with a solid financial position. As of June 30th, 2025, our balance sheet included total cash of $75.6 million and total debt to financial institutions of $3.2 million. Our net cash position was $72.4 million as of June 30th, 2025. We continue to see the benefits of sublisting the majority of available land and building at our Zdot Yam facility and reiterate our expectation to generate cash savings of approximately $3 million during 2025. With regard to our Richmond Hill site, we have granted the potential buyer the right to acquire the site at a price approximating its book's value. The potential buyer has commenced due diligence. Now I'd like to update you on few matters. Regarding the multitude of US tariffs announced since April, we continue to actively assess the potential impact. As of August 1st, based on our mix of sources, we estimate a tariff impact in the range of 15 to 25% on products sold in the US. The US represents approximately half of our total revenue. Based on our current inventory levels, we expect the impact of these tariffs to be more pronounced as we move through the year. We are evaluating pricing actions in the US to balance market competitiveness with margin protection. Regarding bodily injury claims, as of June 30th, 2025, we were subject to lawsuits involving 423 injured persons alleging injuries associated with exposure to respirable crystalline silica dust. These cases are spread across Israel, Australia, and the United States. We have recorded a provision of $44.9 million representing our assessment of probable and estimable exposure, with insurance receivable for silicosis-related claims totalling to $25.6 million. During the quarter, one US silicosis claim was litigated and the jury found in favor of the defendants, including Sizzlestone. We are encouraged by this outcome, pending post-trial motions and potential appeal. So for accounting purposes, we estimate the loss for 25 of the remaining US cases as only reasonably possible with a range between $0.5 to $13 million per claim. The other claims are at an early stage in which the amount of the possible loss cannot be reasonably estimated this time, given the preliminary stages, complexity of the claims and the uncertainty as to our liability and the scope of the insurance coverage. In addition, California state courts are now acting to coordinate between certain aspects of the silicosis cases in the state and are awaiting the appointment of a coordination judge. So this process could change the timing of the future litigation. Looking ahead, we are confident that the structural improvements we have made to our business model will enable us to achieve higher levels of profitability on current sales levels. We remain focused on disciplined execution of our transformation strategy with the additional cost reduction measures we initiated during the quarter expected to contribute to further improvement in our cost structure. Our balance sheet provides us with the financial flexibility to navigate near term headwinds while continuing to invest in our strategic priorities. We believe these investments, combined with our enhanced operational framework, position us well to capitalize on our creative opportunities as we move forward.

With that, we are now ready to open the call for questions.

Thank you. We will now begin the question and answer session.

To ask a question, you may press star, then one, on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will

pause momentarily to assemble our roster. The first question comes from Ruben

Garner with Benchmark. Please go ahead.

Thank you. Good morning, everyone. Hi, good morning. Morning.

Just want to start with a question on the revenue in the US. Any signs that the silica cases in Australia are impacting demand in the States? I know it's a softer market. It's just tough to see other industries that are related, not kind of seeing the level of declines. Is there something specific about the category or your products or your markets that's leading to more pressure than others?

No. Hi, Ruben. It's yours. No, I don't think there is a connection. Between the Australian cases to the US, we have enough cases in the US today. In any way, I don't think that it has any impact on demand. We are suffering because of other reasons, but not because of this reason. Okay.

And then on the gross margin line, can you talk about, it looks like there was a little bit, maybe the top line was comparable to a little bit up Q1 to Q2, but the gross margin fell 150 basis points. That was a little surprising. Can you talk about what changed quarter over quarter there? What cost pressures, incremental cost pressures did you see on the cost of goods front?

Yes, Ruben. It's Nahum. Hi.

So the small decline compared to Q1 relates partially to the production level that we had in our Barlev plant here in Israel. Partially also as a result of the conflict that we experienced here during June, the production levels in our plant here in Barlev were lower, which resulted in lower fixed cost absorption, which impacted negatively the overall gross margin. In addition to that, we are adjusting prices to remain competitive in the market.

So this also impacted the second quarter gross margin.

And how much were prices of the 15 or 16% revenue decline? How much was price year over year versus volume?

Year over year, prices were 6.5%,

650 basis points. So this was one major impact compared to last year. The other impact, as I said, was the lower production utilization, 250 basis points. On the positive side, our improved production source mix, we reached to a 17.5%. So the 20% level improved gross margin by 450 basis points. And also lower inventory charges improved the gross margin compared to last year by 320 basis points.

So those were the main items.

Okay, and then you implemented some cost saving actions. The second quarter SG&A came in really low. I mean, did it already start happening there in Q2, or was that from previous actions? And we could see SG&A move lower sequentially through the year as some of the actions you've had to take hold?

I think you're right. It's a combination between actions that we took in

previous quarters plus a very tight control over those expenses that are within our control. And we have been doing that in recent quarters, and we continue to plan, and we continue to do that also in future quarters to closely monitor those expenses. Yeah, so it's a combination. We still did not see the incremental, the impact of the incremental $10 million of savings. Those actions that we took will impact Q3

and Q4 and down the road.

Great, that's it for me, guys. Thank you so much and good luck going forward. Thank you.

Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back to your share on for any closing remarks.

Thank you for your attention. Thank you for your attention this morning. We look forward to updating you on our progress also next

quarter. Thanks a lot.

Thank you. The conference now has concluded.

Thank

you for attending

today's presentation. You may now disconnect.