Greetings, and welcome to the Caesarstone Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Brad Cray, Investor Relations. Thank you. You may begin.

Thank you, Operator, and good morning to everyone. I am joined by Yuval Dagim, Caesarstone's Chief Executive Officer; Ophir Yakovian, Caesarstone's Chief Financial Officer; and Nahum Trost, Director of Finance, who will succeed Ophir as Chief Financial Officer on September 1, 2021. 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 income/loss, adjusted net income/loss 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 2021 earnings release, which is posted on the company's Investor Relations Web site. Thank you. And I would now like to turn the call over to Yuval. Please go ahead.

Thank you, Brad, and good morning everyone. As we move further into 2021, I'm very pleased with the pace of recovery we've seen across our business since the unprecedented year of 2020 as demonstrated by our robust financial results this quarter. During the second quarter, we achieved record quarterly revenue of $163 million, mainly driven by the focused execution of our Global Growth Acceleration Plan and our ability to capitalize on the continued recovery in the U.S., where we continue to see the greatest potential for growth. We also saw broad-based improvements in demand across our majority of our other global regions as economies around the world continue to recover from the pandemic. We drove top line improvement in the U.S. through a combination of core business improvement, big box channel growth and the encouraging contribution from our previously announced accretive acquisition of Omicron, a premier stone supplier in Florida and Ohio Valley. It is also important to remember that one of our main strategic pillars is to focus on improving customer experience and customer engagement; a theme that is managed under the several projects in the Global Growth Acceleration Plan. In relation to this pillar, and as we have previously discussed, CS Connect is a transformative digital platform that introduces a technological leap in the way we communicate and connect with our customers and consumers to effectively manage the consumer purchase journey. We recently started implementing CS Connect in several of our key U.S. markets as planned, and we are happy with the initial feedback and progress we have made. This follows the successful pilot program in Australia during early 2021. In the coming quarters, we expect to expand the rollout of this platform across the U.S. and Canada. However, the initial U.S. launch is already opening new doors…

Thank you, Yuval, and good morning, everyone. It has been an exceptionally rewarding experience to work with Yuval and the entire team at Caesarstone. I am proud of the accomplishments and milestones we have achieved together, and I'm working closely with Nahum and the entire leadership team to ensure a smooth transition. I will now discuss our second quarter 2021 results. For the second quarter of 2021, global revenue increased to a record of $163.5 million, representing 65.1% growth compared to the prior year period. On a constant currency basis, second quarter revenue was higher by 55.5% compared to the same period last year, primarily due to improved demand in most of the regions across our global footprint as economies around the world continue to recover from the pandemic. Revenue for the period also included approximately $21 million in contribution from the acquisitions of Omicron and Lioli. Now looking at our regions, in the Americas, constant currency sales were up 74.2%, mainly due to growth in the U.S. In the U.S., sales were up 86.6% driven by the acquisition of Omicron, core business improvement, and solid growth in the big box channel. Our sales in Home Depot stores more than doubled year-on-year for the second consecutive quarter, and we also experienced a benefit from a recovery in sales to IKEA stores in the U.S. In Canada, on a constant currency basis, sales were up 35.1%, driven by stronger core business performance, which was partially offset by a decline in our IKEA sales due to COVID-related restrictions. In the APAC region, constant currency sales grew 35.1%. In Australia, which accounts for the majority of our sales in the region, growth was driven by improved demand. Contributions from Lioli sales were also additive to the APAC region sales in the second quarter.…

Thank you, Ophir. In conclusion, our second quarter results reflect positive momentum in our business, and we are encouraged by our performance in the first-half of 2021. Caesarstone is becoming a more efficient and technology-oriented organization with a great brand and strong potential to transform the market. I would like to express my sincere gratitude to our team members around the globe who continue to drive our progress and accomplishments. Thank you. And we are now ready to open the call for questions.

Thank you. [Operator Instructions] Our first question comes from Stanley Elliott with Stifel. Please proceed with your question.

Hello, everybody. Hope you're doing well. Congratulations on the nice quarter. Starting off on the top line, is there a way to break out kind of the revenue on a like-for-like basis kind of what you're doing on the core business versus what you're doing from additional product placements or additional slots at Home Depot and recovery in IKEA, et cetera?

Yes, hi, Stanley, good to have you in the call. I believe that the background we can provide is mostly between the contribution from the M&A deals that we had, Omicron and Lioli, and the core business. And for the M&A contribution together, Omicron and Lioli, you can take something like $21 million as contribution for the second quarter revenue.

But I think, Stanley, that if you look -- this is Ophir, compared to last year, we've seen a very strong recovery in all channels, both in the core business, IKEA, Home Depot. So, it was an easy comp in Q2 last year. So, the recovery was meaningful in all channels.

And you mentioned higher cost in the back-half of the year, but kind of full-year expectations for gross margins really not changed. Help us with the pricing mechanisms here. How quickly can you get pricing into the market to offset this, just curious how you're thinking about that?

I think it's quite obvious this year that with the fluctuation of shipping costs and raw material costs, we need to act with fast and to go to the market and see what we can improve, what it can do in the marketplace. And it's going to be probably second price increase for the year that we are issuing. And at the moment, we are looking forward; we believe that we can offset most, if not all, the dollar impact of the inflation cost increase that we are experiencing in the second-half.

And then, in terms of the commentary around Israel, you mentioned kind of down 20-ish percent, more competitive market conditions. Could you shed a little more color on what's happening in that market?

The Israeli market is going through a change in consumer flavor in a way, and the porcelain penetration to the Israeli market is happening quite fast. On that, I'm very happy to say that we are part of this penetration as well. As we move to the multi-material strategy two years ago, and last year with the acquisition of Lioli, we are now growing our porcelain business in Israel, in line with the market. Yes, it's still -- it's happening -- some happened years ago. So, all in all, I believe that we do see a change in the Israeli market. We are now piloting in Israel, the first six colors coming from the Lioli plant of ours under the Caesarstone brand in Israel, and so far, with a very good feedbacks from customers and consumers.

Perfect. I will pass along. Thanks for the time, and best of luck.

Thank you very much, Stanley.

Thank you. Our next question comes from Reuben Garner with The Benchmark Company. Please proceed with your question.

Thank you. Good afternoon, guys. So, maybe just to start, can you quantify what the price/cost drag that you experienced in the second quarter was, whether it's in dollars or gross margin percentage? And then what your expectation is for the second-half? I just want to clarify, Yuval I think you just said that the price -- you expect the price increases to offset the inflation that you're seeing, but if that's what you said, maybe it's after the second-half. Is that the right way to think about it?

Yes. For the second quarter, we've started to experience the impact of inflation in raw material prices and in shipping costs. We expect to see a more impactful impact in in the second-half of the year as there is a lag between the time that you manufacture and the time that we sell. Having said that, we have implemented a price increase that, for example, in the U.S., it take place starting July 1. So, we expect, as you well mentioned, to offset the inflation, at least partially or in full by increasing prices starting second-half of the year.

So, your full-year guidance would imply a lower gross margin in the second-half relative to the first and relative to a year ago. How much price/cost drag are you expecting in that outlook?

First, Reuben, we do expect -- we are expecting some decrease in gross margin in the second-half. Although, year-on-year, for the full-year impact, we mentioned at the beginning of the year, and it's still the case, that we are expecting a flat position between 2020 and 2021. So, pretty much similar to last year, although we started in a higher position, higher place in gross margin, we believe that for the full-year, it's going to be quite similar to a year ago.

Okay. And then seasonality-wise, Q2 revenue is normally the high point for the year. Is that something that might be different this year and revenue could be higher than Q2 as we move into Q3 and Q4 because you're kind of ramping and you've got a lot of initiatives going on? Or would that be too aggressive?

It could be the case. Normally, in terms of seasonality, both Q2 and Q3 have been recognized as the strong quarters in the year. But it's true that some of our growth engines are kicking in, and there might be a chance that we'll see some upside in Q3; all in all, similar quarters.

Okay. And then, Home Depot, you mentioned a couple of times. I think you said that business has doubled. How big is it now as a percentage of your business in either overall or in the U.S.? And how big of an opportunity is that, or how big do you think it can get in the next couple of years?

So, the specific number, we are not providing. It's less -- not a practice that we are doing. Yes, it's true that the business is been doubled quarter-on-quarter. And indeed, we do see the big box and Home Depot as part of big box as a major player, is a great opportunity for us. And we will be focusing more and more on the big box channel in the U.S. with more sources, more attention. And we do believe that there is a great potential for Caesarstone in the big box channel.

Got it. And last one for me is the marketing and selling expense, I think it was about $23.6 million in the second quarter. I know you expect it to remain elevted. Is that the kind of number we should look for as we move into the back-half and into next year, or was there anything sort of onetime or specific to the second quarter that made that number higher than it will be?

I think that number reflects the reality that we are facing. We mentioned at the beginning of the year that we'll be bringing our spend to a more normalized level, and it's happening in line with our plan. We are investing exactly -- or we're spending exactly in line with our plan. No deviation from the plan. And we think it will be contributing to an ongoing Caesarstone growth journey for this year and for the coming years.

Got it. Thank you, guys, and congrats on the results, and good luck Ophir moving forward.

Thank you very much, Reuben.

Thank you.

Thank You. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I will now turn the call over to Yuval Dagim for closing remarks.

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

This does conclude today's conference. And you may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.