Caesarstone Reports Third Quarter Results

• Record Quarterly Revenue of $154.7 million, up 7.2%; Grows 4.6% on a Constant Currency basis
• Quarterly diluted EPS of $0.19; Adjusted Diluted EPS of $0.37
• Updates guidance for Revenue to $580-$590 million and Adjusted EBITDA to $100-$105 million

Caesarstone Ltd. CSTE, a manufacturer of high quality engineered quartz surfaces, today reported financial results for its third quarter ended September 30, 2017.

Revenue in the third quarter of 2017 increased by 7.2% to a record level of $154.7 million as compared to $144.3 million in the same quarter of the prior year. On a constant currency basis, third quarter revenue growth was 4.6%. Growth in revenue was driven primarily by continued strong performances in the United States and Canada, which grew 6.0% and 14.2%, respectively, as well as from Europe, which grew 28.2%.

Raanan Zilberman, Chief Executive Officer, commented, "We are somewhat pleased with our top line results for the third quarter. However, challenges in manufacturing have yielded margins below our expectations. We believe we have already identified the main challenges and that they are addressable. We have commenced implementing countermeasures and we expect margin improvement over time. While focusing short term on increasing the throughput of our production, we will continue and leverage on our key strong assets: our differentiated and creative product, the brand that is the top of mind in the industry and our strong channels to the market."

Gross margin in the third quarter was 32.1% compared to 40.5% in the same period in the prior year. The decrease in margin was primarily attributable to a higher portion of total production coming from Richmond-Hill plant, which continues to require higher costs, lower throughput in Israel, increased polyester prices and the impact of Hurricane "Irma" and "Harvey" on sales and production in the United States.

Operating expenses in the third quarter were $38.7 million, or 25.0% of revenues, as compared to $30.3 million, or 21.0% of revenues, in the same quarter last year. The Company noted that legal settlements and loss contingency expenses were $5.7 million in third quarter of 2017 compared with $1.0 million in the same quarter last year. This quarter's expenses include a one-time reserve adjustment of $4.3 million related to recent developments in outstanding product liability claims. Excluding these costs, operating expenses were $33.0 million, or 21.3% of revenues, as compared to $29.3 million, or 20.3% of revenues, in the same quarter last year. Such increase in expenses was primarily due to planned investments in marketing and sales capabilities to support growth in the United States and the newly established direct distribution in the United Kingdom.

Operating income in the third quarter was $11.0 million, a margin of 7.1%, compared to $28.2 million, an operating margin of 19.5%, in the third quarter of 2016.

Adjusted EBITDA, which excludes share-based compensation expenses, legal settlements and loss contingencies expenses and non-recurring items, was $25.6 million in the third quarter of 2017, a margin of 16.5%. This compares to adjusted EBITDA of $37.5 million in the prior year's third quarter, a margin of 26.0%. This year-over-year margin comparison reflects the gross margin factors and the increased investment in marketing and sales described above.

Finance expenses in the third quarter were $1.6 million compared to $1.1 million during the same period in the prior year. The increase was mainly related to exchange rate fluctuations.

The Company reported net income attributable to controlling interest for the third quarter of 2017 of $6.9 million compared to $22.3 million in the same quarter in the prior year. Diluted net income per share for the third quarter was $0.19 compared to $0.65 per diluted share in the prior year's third quarter. Adjusted diluted net income per share for the third quarter was $0.37 compared to last year's third quarter level of $0.70, both on 34.5 million shares.

The Company's balance sheet as of September 30, 2017 remained strong with cash, cash equivalents and short-term bank deposits of $136.5 million, sequential net cash growth of $10.0 million compared to June 30, 2017.

Guidance

The Company today narrowed its full-year 2017 guidance for revenue to a range of $580 to $590 million and reduced its guidance for adjusted EBITDA to a range of $100 to $105 million.

Conference Call Details

Raanan Zilberman, the Company's chief executive officer, and Yair Averbuch, the Company's chief financial officer, will host a conference call today at 8:30 a.m. ET to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.caesarstone.com. To access the call, dial toll-free 1-877-407-4018 or +1-201-689-8471 (international). The toll-free Israeli number is 1 80 940 6247. Upon dialing in, please request to join the Caesarstone Third Quarter Earnings Call.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter pass code 13672095. The replay will be available beginning at 11:30 a.m. ET on Wednesday, November 1, 2017 and will last through 11:59 p.m. ET on Wednesday, November 8, 2017.

About Caesarstone

Caesarstone manufactures high quality engineered quartz surfaces, which are used in both residential and commercial buildings as countertops, vanities, wall cladding, floors and other interior surfaces. The wide variety of colors, styles, designs and textures of Caesarstone® products, along with Caesarstone's inherent characteristics such as hardness, non-porous, scratch and stain resistance and durability, provide consumers with excellent surfaces for their internal spaces which are highly competitive to granite, manufactured solid surfaces and laminate, as well as to other engineered quartz surfaces. Caesarstone's four collections of products — Classico, Supernatural, Motivo, and Concetto — are available in over 50 countries around the world. For more information about the Company, please visit our website www.caesarstone.com. (CSTE-E)

Non-GAAP Financial Measures

The non-GAAP measures presented by the Company should be considered in addition to, and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income attributable to controlling interest to adjusted net income attributable to controlling interest and net income to Adjusted EBITDA are provided in the schedules within this release. 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.

Forward-Looking Statements

Information provided in this press release 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 generally relate to the Company's plans, objectives and expectations for future operations, including its projected results of operations and the expected timing of expanding its manufacturing facilities. 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 strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices, particularly polymer resins and pigments; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and other claims; 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 the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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