Caesarstone (NASDAQ:CSTE) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

Caesarstone's Q1 2026 results show a 15% year-over-year revenue decline to $88.7 million, with macroeconomic headwinds and competitive pressures impacting North American sales.

Gross margin improved by 100 basis points to 22.3% due to the transition to a third-party manufacturing model, with expected annualized savings of $22 million by 2027.

Australia delivered strong revenue growth, while geopolitical issues in Israel and increased product costs affected results.

The company is investing in brand development, R&D, and enhancing customer value propositions, with porcelain as a key growth area.

Restructuring actions are expected to save over $100 million by 2027, with a focus on cost reduction and supply chain optimization amidst U.S. tariff changes.

Adjusted EBITDA showed stability despite lower volumes, and the company maintains a net cash position of $50.4 million.

Caesarstone aims for positive adjusted EBITDA by Q3 2026, assuming stable economic and geopolitical conditions.

Full Transcript

OPERATOR

Greetings and welcome to the Caesarstone first quarter 2026 earnings conference call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cray of ICR. Thank you. You may begin.

Brad Cray (Moderator)

Thank you, operator. And good morning to everyone on the line. I am joined by Yo Charan, 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 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 first quarter 2026 earnings release which is posted on the Company's investor relations website. On today's call, Yo Charan will discuss our business activity and Nahum will then cover additional details regarding financial results. Thank you. And I would now like to turn the call over to Yo. Please go ahead.

Yo Charan (Chief Executive Officer)

Thank you, Brad. And good morning everyone. Our first quarter results reflected meaningful structural progress in our transformation. Gross margin expanded by 100 basis points despite lower revenue supported by our transition to a third party manufacturing model and a more optimized production footprint. This provides further evidence that our restructuring actions are reshaping the company's earnings profile. With the closure of Ballet Porcelain, production is now fully transitioned to our global manufacturing partner network, excluding porcelain, which continues to be produced at our Loyola facility in India. We continue to expect these actions to generate annualized cash savings of approximately $22 million by 2027, bringing total savings since 2023 to more than $100 million. Global revenues were approximately $89 million, down 15% year over year on a constant currency basis, reflecting macroeconomic headwinds and competitive pressures, particularly in North America. In North America, we are taking targeted commercial actions to improve channel productivity and strengthen key customer relationships. Australia continued to be a strong performing region, delivering solid revenue growth as we recapture our leading market position following the introduction of our zero silica Icon products. This reinforces that our brand and innovation can drive renewed commercial momentum when aligned with market needs. The regional conflict in the Middle east, which began at the end of February, impacted demand in Israel. In addition, geopolitical volatility has increased product costs and sieve freights which we expect will affect our results mainly in the second half of 2026. Across the business, we are investing in our brand, strengthening R and D capabilities and enhancing our value proposition for customers and channel partners. Porcelain remains an important long term growth category. With full ownership of Loyola Ceramica, we are focused on improving execution and commercial alignment. Looking ahead, the external environment remains uncertain with evolving trade policies, macroeconomic pressures and competitive dynamics continuing to impact demand across global surface categories, we continue to focus on disciplined restructuring, execution, stronger production partnerships and sustainable profitability. We are committed to building a stronger, more resilient and more profitable Caesarstone. I will now turn the call over to Nahum.

Nahum Trost (Chief Financial Officer)

Thank you Jos and good morning everyone. Looking at our first quarter results, global revenue was $88.7 million compared to $99.6 million million in the prior year quarter. On a constant currency basis, revenue declined approximately 14.9% year over year, primarily reflecting continued softness in global demand and competitive dynamics, mainly in North America. These factors were partially offset by the ongoing recovery in Australia. Breaking down our regional performance in the U.S. revenue was approximately $40 million compared to $49.1 million in the prior year quarter. The change reflected persistent market softness and competitive pressures. Canadian revenue decreased 23.8% on a constant currency basis due to similar market Dynamics as the US. In Australia, revenue was approximately $17.1 million compared to $13.8 million in the prior year quarter, an increase of approximately 11.2% on a constant currency basis. This marked the third consecutive quarter of year over year growth in Australia. The improvement reflects the growing acceptance of our icon products in the market. We remain focused on building on this progress and further strengthening our competitive standing. In Australia. EMEA revenue were down 10.3% on a constant currency basis, primarily driven by timing of shipments in our indirect distributor channel which we expect to normalize as we move into the second quarter. Our direct business in Sweden and our UK operations were relatively stable in the period in Israel. First quarter revenue was $4.2 million compared to $5 million in the prior year quarter mainly as a result of the impact of the conflict in the area. Looking at our first quarter P&L performance, gross margin was 22.3% compared to 21.3% in the prior year quarter, an improvement of 100 basis points even on lower revenues. Adjusted Gross margin was 23.9% compared to 21.2% in the prior year quarter. The improvement in gross margin reflects the benefit of our improved production footprint. With quartz production now fully transitioned to our global manufacturing partner network, we are beginning to capture the intended benefits of a more flexible asset light production model. Operating expenses were $39.2 million representing 44.1% of revenue compared to $35.9 million or 36.1% of revenue in the prior year quarter. Excluding legal settlements, loss contingencies and impairment and restructuring expenses, operating expenses were approximately 34.5% of revenue in the first quarter compared to 32.6% in the prior year quarter. The year over year difference is primarily a function of lower revenues. Adjusted EBITDA in the first quarter of 2026 was the loss of $7.5 million compared to a loss of $7.1 million in the prior year quarter. This relatively stable performance despite lower revenue underscores the benefit of our strategic initiative. Finance expense was $1.2 million compared to finance income of $2.5 million in the prior year quarter primarily due to foreign currency exchange rate fluctuations. Adjusted diluted net loss per share for the first quarter was $0.32 on 34.6 million shares compared to adjusted diluted net loss per share of $0.29 in the prior quarter on 34.7 million shares. Now turning to our cash flow and balance sheet. As of March 31, 2026, cash cash equivalents and short term bank deposits total to $52.3 million. Total debt to financial institutions was $1.8 million, resulting in a net cash position of $50.4 million. This compares to a net cash position of $57.5 million as of December 31, 2025. Now let me provide important contents on several items. Our restructuring plan has reached a significant milestone with the transition of our quartz production from our Ballet facility to our global manufacturing partner network. We are now capturing an increasing contribution of cost savings from this action. Based on restructuring actions completed to date, we expect to realize the annual cost savings of more than $100 million by 2027 when compared to full year of 2023. There remains potential for additional savings as subleases are executed on non cancellable long term lease agreements associated with our former facilities. Cash costs associated with restructuring program in the first quarter of 2026 were $0.4 million and for the remainder of 2026 we expect to incur additional cash costs of approximately $3 to $5 million related to ongoing restructuring activities beyond the facility closures. Our restructuring plan will continue to focus on identifying additional actions that can improve profitability and cash flow. This includes the evaluation of distribution center consolidation and other fixed cost reduction opportunities. These incremental actions are designed to reinforce our path to profitability driven by the increasing run rate contribution from completed restructuring actions, additional fixed cost reductions, seasonal revenue improvement and continued progress in Australia, partially offset by tariff, freight and geopolitical cost pressures. Turning to the US Tariff environment, the US Government has implemented road based import tariffs across wide range of countries product categories as it stands today, the average tariff applicable to the products we import into the US market is approximately 15%. Approximately 45% of our revenues are generated in the United States and served by our global manufacture partner network. We have been in active dialogue with our production partners to optimize our supply chain in response to the increased cost of goods and we have implemented a price increase in the US Market to partially offset higher costs. We will continue to monitor the situation and take proactive steps to protect our margin profile as the tariff landscape evolves. I would like also to comment on the ITC investigation which is a separate court-based trade matter. The ITC has voted affirmatively on injury during the first quarter of 2026. On May 5, 2026, the Commission issued its recommended remedies including a proposed four year tariff rate quota structure applicable on an aggregated basis across imports with in quarter tariff of 25% at valor M and out of quarter tariff of 40% at valorm. The proposed quota levels would increase annually while tariff rates would gradually decline over the proposed remedy period. the President is expected to issue a final determination within 60 days. We are assessing all potential outcomes and remain actively engaged in the process. We would seek to mitigate this impact through further supply chain optimization and appropriate pricing actions on legal proceedings. As of March 31, 2026, we had 711 lawsuits alleging silica related injuries. This includes 36 in Israel, 156 in Australia and 509 claims in the U.S. we have recorded a $48.8 million provision representing our best estimate of probable losses with $11.6 million in insurance receivables. In May, a jury in Colorado ruled in favor of Caesarstone, assigning no liability to the company. Also, during the first quarter of 2026 we settled four additional claims in California. These matters remain complex and at the different stages of development and we will continue to evaluate our reserves and insurance recoveries as facts and circumstances evolve. We and certain insurance carriers initiated proceedings in July of 2025 regarding interpretation of our insurance coverage. These proceedings are still in early stages. We also want to mention that a bill titled the Protection of Lawful Commerce in Stone Slip Products act was introduced in the US House of Representatives in 2025. The bill aims to ensure that manufacturers and distributors of stone slab products are not held liable for injuries caused by unsafe fabrication and alteration performed by third party fabricators. The bill remains at an early legislative stage with no material progress beyond the initial subcommittee hearing in January 2026. The timing and the ultimate outcome remain uncertain, but we view the underlying intent of the legislation as a constructive step for our industry. In conclusion, the quarter showed that our restructuring actions are beginning to flow through the P and L Revenue remains pressured, but gross margin improved adjusted EBITDA was relatively stable year over year despite lower volume and our net cash position gives us the flexibility to continue executing as consumer confidence and housing market activity normalize. We believe Caesarstone is well positioned to benefit from a recovery in countertop demand with a stronger cost structure and improved brand positioning than we had entering this period. Based on our current operating plan and assuming no material deterioration in global economic and geopolitical conditions, we remain on track to achieve positive adjusted ebitda in the third quarter of 2026. Thank you for your attention this morning. We appreciate your continued support and look forward to updating you on our progress next quarter.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.