Caesarstone Ltd. [CSTE] Filings

20-F 1 zk2431067.htm 20-F CAESARSTONE LTD. - 1504379 - 2024

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report.

Commission File Number 001-35464

CAESARSTONE LTD.
(Exact name of Registrant as specified in its charter)

ISRAEL
(Jurisdiction of incorporation or organization)

Kibbutz Sdot-Yam
MP Menashe, 3780400
Israel
(Address of principal executive offices)

Yosef (Yos) Shiran
Chief Executive Officer
Caesarstone Ltd.
MP Menashe, 3780400
Israel
Telephone: +972 (4) 636-4555
Facsimile: +972 (4) 636-4400
(Name, telephone, email and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Securities Act of 1933:

Title of each class	Trading Symbol	Name of each exchange on which registered
Ordinary shares, par value NIS 0.04 per share	CSTE	The Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2023: 34,532,452 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐
		Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒

International Financial Reporting Standards as issued by

the International Accounting Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No ☒

PRELIMINARY NOTES

Introduction

As used herein, and unless the context suggests otherwise, the terms “Caesarstone,” “Company,” “we,” “us” or “ours” refer to Caesarstone Ltd. and its consolidated subsidiaries. In this document, references to “NIS” or “shekels” are to New Israeli Shekels, and references to “dollars,” “USD” or “$” refer to U.S. dollars.

Our reporting currency is the United States (“U.S.”) dollar. The functional currency of each of our non-U.S. subsidiaries is the local currency in which it operates. These subsidiaries’ financial statements are translated into the U.S. dollar, the parent company’s functional currency, using the current rate method.

Other financial data appearing in this annual report that is not included in our consolidated financial statements and that relate to transactions that occurred prior to December 31, 2023 are reflected using the exchange rate on the relevant transaction date. With respect to all future transactions, U.S. dollar translations of NIS amounts presented in this annual report are translated at the rate of $1.00 = NIS 3.627, the representative exchange rate published by the Bank of Israel as of December 29, 2023.

Market and Industry Data and Forecasts

This annual report includes data, forecasts and information obtained from industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Forecasts and other metrics included in this annual report to describe the countertop industry are inherently uncertain and speculative in nature and actual results for any period may materially differ. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying assumptions relied upon therein. While we are not aware of any misstatements regarding the industry data presented herein, estimates and forecasts involve uncertainties and risks and are subject to change based on various factors, including those discussed under the headings “—Forward-Looking Statements” and “ITEM 3: Key Information—Risk Factors” in this annual report.

Unless otherwise noted in this annual report, Freedonia Custom Research, a division of MarketResearch.com, Inc. (“Freedonia”) is the source for third-party industry data and forecasts. The Freedonia report, dated March 8, 2023 (“Freedonia Report”), represents data, research opinion or viewpoints developed independently by Freedonia and does not constitute a specific guide to action. In preparing the report, Freedonia used various sources, including publicly available third-party financial statements; government statistical reports; press releases; industry magazines; and interviews with manufacturers of related products (including us), manufacturers of competitive products, distributors of related products, and government and trade associations. Growth rates in the Freedonia Report are based on many variables, such as currency exchange rates, raw material costs and pricing of competitive products, and such variables are subject to wide fluctuations over time. The Freedonia Report speaks as of its final publication date (and not as of the date of this filing), and the opinions and forecasts expressed in the Freedonia Report are subject to change by Freedonia without notice. Management believes this third-party report to be reputable, but has not independently verified the underlying data sources, methodologies, or assumptions. The report and other publications referenced are generally available to the public and were not commissioned by the Company.

Special Note Regarding Forward-Looking Statements and Risk Factor Summary

This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms. These statements may be found in several sections of this annual report, including, but not limited to “ITEM 3: Key Information—Risk Factors,” “ITEM 4: Information on the Company,” “ITEM 5: Operating and Financial Review and Prospects,” “ITEM 10: Additional Information—Taxation—United States Federal Income Taxation—Passive foreign investment company considerations.” Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including those described in “ITEM 3.D. Key Information—Risk Factors.” Important factors that could affect our actual results and cause them to differ materially from those expressed in forward-looking statements include, but are not limited to, the items in the following list, which also summarizes some of our principal risks.

•

Downturns in the home renovation, remodeling and residential construction sectors or the economy generally;

•

Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively impact our financial results;

•

The outcome of litigations including those regarding silicosis, other bodily injury claims or other legal proceedings in which we are involved, and our ability to use our insurance policy to cover damages;

•

Laws and regulations relating to our production operations, or to hazards associated with crystalline silica containing surfaces, changes to such laws and regulations and their impact on us or on our value chain may adversely and materially affect our business;

•

Our ability to effectively manage changes to our production and supply chain and effectively collaborate with production business partners (“PBP”) suppliers;

•

Changes in the availability, prices, or suppliers of our raw materials, as well as constraints in the global supply, prices, and availability of transportation for raw materials, finished goods, and other essential products, can significantly impact our operations;

•

Our success in further expanding our product offering includes the introduction of new products and materials, along with exploring new applications;

•

Disruptions to our information technology systems globally, including by deliberate cyber-attacks;

•

Fluctuations in currency exchange rates, and we may not have adequately hedged against them;

•

Competitive pressures from other manufacturers of engineered stone and other surface materials as well as increased competition from lower-priced alternatives;

•

Our ability to maintain our relationships with our large retailers in North America;

•

Risks associated with changes in global trade policies or the imposition of tariffs;

•

Our ability to successfully consummate business combinations or acquisitions and our success in integrating previously consummated acquisitions, such as Lioli Ceramica private limited (“Lioli”) and omicron granite and tile (“omicron”), into our operations;

•

Our ability to protect our brand, technology and intellectual property;

•

The impacts of conditions in Israel, such as military conflict (including Israel’s current war with Hamas in the Gaza strip), political developments, negative economic conditions or labor unrest;

•

Disturbances to our operations, the operations of our equipment and raw material suppliers, distributors, customers, consumers or other third parties;

•

Impacts on revenue from sales disruptions in our geographic concentrations or key markets;

•

Our tax position, including meeting certain conditions required to receive certain tax benefits, our exposure to U.S. Tax liabilities and related consequences under the U.S. Internal Revenue Code, and the continued availability of certain tax benefits granted by the Israeli government;

•

Our ability to execute our strategy to expand sales in certain markets;

•

Our reliance on third-party distributors, re-sellers, and a limited number of large retailers;

•

Our ability to effectively manage our inventory and successfully pursue a wider product offering;

•

Quarterly fluctuations in our results of operations as a result of seasonal factors and building construction cycles;

•

The failure to meet or achieve our ESG goals, expectations or standards that could adversely affect our business, results of operations, financial condition, or stock price;

•

Our ability to retain our senior management team and other skilled and experienced personnel;

•

Our ability to manage or resolve conflicts of interest arising from employee affiliations with kibbutz Sdot-Yam (the “Kibbutz”) and with Tene investment in projects 2016 limited partnership (“Tene”);

•

The effect of the share ownership by the Kibbutz and Tene;

•

The effects of enforcements against us, our officers and directors in the U.S.;

•

Coverage by equity research analysts, publicly announced financial guidance, investor perceptions and our ability to meet other expectations (such as environmental social and governance);

•

Differences in the governance of shareholders’ rights under Israeli law;

•

The amount and timing of our dividend payments;

•

Price volatility of, and effects of future sales on, our ordinary shares;

•

Our ability to raise funds to finance our current and future capital needs;

•

Our ability to pass rising costs to our customers;

•

The impact of global pandemics, such as covid-19 on global economy and our business and results of operations;

•

Our status as a foreign private issuer and related exemptions with respect thereto; and

•

Our expectations regarding regulatory matters applicable to us.

The preceding list is not intended to be an exhaustive list of all our forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including those described in “ITEM 3.D. Key Information—Risk Factors.”

You should not put undue reliance on any forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements because of various factors described in this annual report, including factors beyond our ability to control or predict. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Any forward-looking statement made in this annual report speaks only as of the date hereof. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this annual report, to confirm these statements to actual results or to changes in our expectations.

TABLE OF CONTENTS

PART I		1
ITEM 1:	Identity of Directors, Senior Management and Advisers	1
ITEM 2:	Offer Statistics and Expected Timetable	1
ITEM 3:	Key Information	1
A.	[Reserved]	1
B.	Capitalization and Indebtedness	1
C.	Reasons for the Offer and Use of Proceeds	1
D.	Risk Factors	1
ITEM 4:	Information on the Company	32
A.	History and Development of the Company	33
B.	Business Overview	44
C.	Organizational Structure	44
D.	Property, Plants and Equipment	45
ITEM 4A:	Unresolved Staff Comments	46
ITEM 5:	Operating and Financial Review and Prospects	47
A.	Operating Results	47
B.	Liquidity and Capital Resources	55
C.	Research and Development, Patents and Licenses	57
D.	Trend Information	58
E.	Critical Accounting Estimates	58
ITEM 6:	Directors, Senior Management and Employees	63
A.	Directors and Senior Management	63
B.	Compensation	67
C.	Board Practices	71
ITEM 7:	Major Shareholders and Related Party Transactions	85
A.	Major Shareholders	85
B.	Related Party Transactions	87
C.	Interests of Experts and Counsel	92
ITEM 8:	Financial Information	93
A.	Consolidated Financial Statements and Other Financial Information	93
B.	Significant Changes	94
ITEM 9:	The Offer and Listing	95
A.	Offer and Listing Details	95
B.	Plan of Distribution	95
C.	Markets	95
D.	Selling Shareholders	95
E.	Dilution	95
F.	Expenses of the Issue	95
ITEM 10:	Additional Information	95
A.	Share Capital	95
B.	Memorandum and Articles of Association	95
C.	Material Contracts	95
D.	Exchange Controls	96
E.	Taxation	96
F.	Dividends and Paying Agents	105
G.	Statements by Experts	105
H.	Documents on Display	105
I.	Subsidiary Information	105
J.	Annual Report to Security Holders	105

(i)

ITEM 11:	Quantitative and Qualitative Disclosures About Market Risk	106
ITEM 12:	Description of Securities Other Than Equity Securities	107
PART II		108
ITEM 13:	Defaults, Dividend Arrearages and Delinquencies	108
ITEM 14:	Material Modifications to the Rights of Security Holders and Use of Proceeds	108
ITEM 15:	Controls and Procedures	108
ITEM 16:	Reserved	109
ITEM 16A:	Audit Committee Financial Expert	109
ITEM 16B:	Code of Ethics	109
ITEM 16C:	Principal Accountant Fees and Services	109
ITEM 16D:	Exemptions from the Listing Standards for Audit Committees	109
ITEM 16E:	Purchases of Equity Securities by the Company and Affiliated Purchasers	109
ITEM 16F:	Change in Registrant’s Certifying Accountant	110
ITEM 16G:	Corporate Governance	110
ITEM 16H:	Mine Safety Disclosures	110
ITEM 16I:	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	110
ITEM 16J:	Insider Trading Policies	110
ITEM 16K:	Cybersecurity	110
PART III		112
ITEM 17:	Financial Statements	112
ITEM 18:	Financial Statements	112
ITEM 19:	Exhibits	112

(ii)

PART I

ITEM 1: Identity of Directors, Senior Management and Advisers

Not applicable.

ITEM 2: Offer Statistics and Expected Timetable

Not applicable.

ITEM 3: Key Information

A.	[Reserved]

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Our business faces significant risks and uncertainties. You should carefully consider all the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission (the “SEC”). Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. In that event, the trading price of our ordinary shares would likely decline, and you might lose all or part of your investment. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See also “Special Note Regarding Forward-Looking Statements and Risk Factor Summary”.

Risk Factors Summary

The following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial condition, all of which are more fully described below. This summary should be read in conjunction with the other information discussed in this Item 3.D, and should not be relied upon as an exhaustive summary of the material risks facing our business. Please carefully consider all of the information discussed in this Item 3.D. “Risk Factors” and elsewhere in this annual report for a more thorough description of these and other risks. Such risks include, but are not limited to:

•

Downturns in the home renovation, remodeling and residential construction sectors or the economy generally;

•

Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively impact our financial results;

•

Our ability to effectively manage changes to our production and supply chain and effectively collaborate with PBP suppliers;

•

Our success in further expanding our product offering includes the introduction of new products and materials, along with exploring new applications;

•

Disruptions to our information technology systems globally, including by deliberate cyber-attacks;

•

Fluctuations in currency exchange rates, and we may not have adequately hedged against them;

•

Competitive pressures from other manufacturers of engineered stone and other surface materials as well as increased competition from lower-priced alternatives;

•

Our ability to maintain our relationships with our large retailers in North America;

•

Risks associated with changes in global trade policies or the imposition of tariffs;

•

Our ability to successfully consummate business combinations or acquisitions and our success in integrating previously consummated acquisitions, such as Lioli and omicron, into our operations;

•

Our ability to protect our brand, technology and intellectual property;

•

The impacts of conditions in Israel, such as military conflict (including Israel’s current war with Hamas in the Gaza strip), political developments, negative economic conditions or labor unrest;

•

Disturbances to our operations, the operations of our equipment and raw material suppliers, distributors, customers, consumers or other third parties;

•

Impacts on revenue from sales disruptions in our geographic concentrations or key markets;

•

Our tax position, including meeting certain conditions required to receive certain tax benefits, our exposure to U.S. Tax liabilities and related consequences under the U.S. Internal revenue code, and the continued availability of certain tax benefits granted by the Israeli government;

•

Our ability to execute our strategy to expand sales in certain markets;

•

Our reliance on third-party distributors, re-sellers, and a limited number of large retailers;

•

Our ability to effectively manage our inventory and successfully pursue a wider product offering;

•

Quarterly fluctuations in our results of operations as a result of seasonal factors and building construction cycles;

•

The failure to meet or achieve our ESG goals, expectations or standards that could adversely affect our business, results of operations, financial condition, or stock price;

•

Our ability to retain our senior management team and other skilled and experienced personnel;

•

Our ability to manage or resolve conflicts of interest arising from employee affiliations with The Kibbutz and with Tene;

•

The effect of the share ownership by the Kibbutz and Tene;

•

The effects of enforcements against us, our officers and directors in the U.S.;

•

Coverage by equity research analysts, publicly announced financial guidance, investor perceptions and our ability to meet other expectations (such as environmental social and governance);

•

Differences in the governance of shareholders’ rights under Israeli law;

•

The amount and timing of our dividend payments;

•

Price volatility of, and effects of future sales on, our ordinary shares;

•

Our ability to raise funds to finance our current and future capital needs;

•

Our ability to pass rising costs to our customers;

•

The impact of global pandemics, such as Covid-19 on global economy and our business and results of operations;

•

Our status as a foreign private issuer and related exemptions with respect thereto; and

•

Our expectations regarding regulatory matters applicable to us.

Risks Related to our Business

Economic and External Risks

Downturns in the home renovation and remodeling and new residential construction sectors or the economy generally and a lack of availability of consumer credit could materially and adversely impact end-consumers and lower demand for our products, which could cause our revenues and net income to decrease.

Our products are primarily used as countertops in residential kitchens. As a result, our sales depend significantly on home renovation and remodeling spending, as well as new residential construction spending, primarily in the United States, Australia (unless stated otherwise, reference to Australia in this report includes Australia and New Zealand), Canada and Israel. We estimate (supported also by the Freedonia Report), that approximately 60%-70% of our revenue in our principal markets (U.S., Australia, Canada) is related to residential renovations and remodeling activities, while 30%-40% is related to new construction.

Recent economic downturns, high inflation and increased interest rates have had a major effect on the housing markets that, during 2023, lead to oversupply of both new and resale home inventory, an increase in foreclosures, and reduced levels of consumer demand for new homes as well as levels of construction, and renovation. Such a period may continue longer than expected or return in the future. During such periods, consumer confidence is eroded, and people and business choose to reduce their discretionary spending and, as a result, delay or cancel their home renovation or remodeling projects and therefore could decrease demand and adversely impact our businesses.

As many of our customers are homebuyers or homeowners depending on financing for their purchases (construction and renovation), lack of availability of consumer credit or increased interest rates may hinder their ability to continue their purchases. Recent interest hikes in the U.S. and around the world, have and may further increase the cost of financing for consumers who in turn limit their renovation and remodeling expenditures or home purchases. The current slowdown in the housing market has impacted on the demand for our product, and in combination with increases in prices of raw materials these factors have eroded our margins. If these trends persist, they may materially and adversely affect our ability to grow or sustain our business, our revenues and net income. See also “—Global health risks and future pandemics could further impact end-consumers and the global economy in general, lower demand for our products, disrupt our operations and materially and adversely affect our business and financial results” and “—Disturbances to our operations or the operations of our suppliers, distributors, customers, consumers or other third parties could materially adversely affect our business.”

Adverse global conditions, including macroeconomic slowdowns and recessions, and geopolitical instability, may negatively impact our financial results.

Global conditions, dislocations in the financial markets, inflation and increasing interest rates could adversely impact our business. The global macroeconomic environment has been and may continue to be negatively affected by, among other things, instability in global economic markets, increased trade tariffs and trade disputes, instability in the global credit markets, interest rates or even availability of credit, supply chain weaknesses, instability in the geopolitical environment as a result of the Russian Ukraine conflict, the withdrawal of the United Kingdom from the European Union, and other political tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability in local economies and in global financial markets, which may adversely affect our business. For example, higher interest rates and inflation during 2023, negatively impacted consumer spend by avoiding or down-grading purchases, and we believe adversely affected our business.

Additionally, economic downturns and geopolitical challenges in regions of the world that are critical to our operations have in the past and could in the future cause supply chain and other disruptions that impact our business. For example, Russia’s and Ukraine’s conflict, and the possibility of retaliatory measures taken by the U.S. and NATO and the Houthi’s disruption to the movement of goods in the Red Sea have created global security concerns that could have a lasting adverse impact on regional and global economies.

Our results of operations may be materially and adversely affected by fluctuations in currency exchange rates, and we may not have adequately hedged against them.

We conduct business in multiple countries, which exposes us to risks associated with fluctuations in currency exchange rates between the U.S. dollar (our functional currency) and other currencies in which we conduct business. In 2023, 49.3% of our revenues were denominated in U.S. dollars, 18.8% in Australian dollars, 13.4% in Canadian dollars, 6.4% in Euros and 3.9% in NIS and a smaller portion in other currencies. In 2023, the majority of our expenses were denominated in U.S. dollars, NIS and Euros, and a smaller proportion in Canadian and Australian dollars and other currencies. As a result, devaluations of the Australian dollars, and to a lesser extent, the Canadian dollar relative to the U.S. dollar may unfavorably impact our profitability. Our expenses are largely denominated in U.S. dollars, NIS and Euro, with a smaller portion in Australian dollars and Canadian dollars. As a result, appreciation of the NIS, and to a lesser extent, the Euro relative to the U.S. dollar may unfavorably affect our profitability. We attempt to limit our exposure to foreign currency fluctuations through forward contracts, which, except for U.S. dollar/NIS forward contracts, are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. We currently engage in derivatives transactions, such as forward contracts, to hedge against the risks associated with our foreign currency exposure. Our strategy to hedge our cash flow exposures involves consistent hedging of exchange rate risk in variable ratios up to 100% of the exposure over rolling 12 months. As of December 31, 2023, our average hedging ratio was approximately 9% out of our expected currencies exposure for 2023. As of December 31, 2023, we had total outstanding forward contracts with a notional amount of $21.2 million. These forward contracts were for a period of up to 12 months. The fair value of these foreign currency derivative contracts was positive $0.5 million, which is included in our current assets and current liabilities, as of December 31, 2023. Hedging results are charged to finance expenses, net, and therefore, do not offset the impact of currency fluctuations on our operating income. Our U.S. dollar/NIS forward contracts are charged to operating expenses as designated hedge instruments, partially offsetting the impact of the U.S. dollar/NIS currency fluctuations on our operating income (loss). While we may decide to enter into additional hedging transactions in the future, the availability and effectiveness of these transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations. For further discussion of our foreign currency derivative contracts, see “ITEM 11: Quantitative and Qualitative Disclosures About Market Risk.”

We face intense competitive pressures from manufacturers of other surface materials, which could materially and adversely affect our results of operations and financial condition.

We have invested considerable resources to position our engineered stone surface products as premium branded products. Our surface products compete with several surface materials such as granite, laminate, marble, manufactured solid surface, concrete, stainless steel, wood, porcelain and other engineered stone surfaces. We compete with manufacturers of these surface materials with respect to a range of factors. These factors include, among other things, brand awareness and brand position, product quality, product differentiation, design and breadth of product offerings, slab dimensions, new product development and time to market, availability and supply time, technological innovation, popular home interior design trends, pricing, availability of inventory on demand, distribution coverage, customer service and versatility in products portfolio.

Due to our products’ high quality and positioning, we generally set our prices—especially for our differentiated products—at a higher level than alternate surfaces and engineered stone surfaces provided by other manufacturers. Some competitors can produce similar surface products at a lower cost, which imitate our products and designs. Further penetration of these products into our active markets may further reduce our market share, limit our ability to increase prices and have a material adverse effect on our financial condition and results of operations.

Should our competitors be able to produce products more efficiently, due to various factors, such as raw material location and availability, and offer products at lower prices, while adapting more quickly to changes in consumer preferences and demands, we may lose market share and our financial results may suffer.

Global trade is affected by governmental involvement including through antidumping and countervailing duties and these may cause unforeseeable market changes that could adversely impact our financial results.

Antidumping and countervailing duty orders are designed to provide relief from imports sold at unfairly low or subsidized prices by imposing special duties on such imports. Such orders normally benefit domestic suppliers in the country in which the duty orders are in place and foreign suppliers not covered by the orders. During 2018 and 2019, antidumping and countervailing duty (“AD/CVD”) petitions were filed with the U.S. Department of Commerce (“DOC”) and the International Trade Commission (“ITC”). The petitions, which were filed by a U.S. quartz manufacturer, alleged that Chinese, and subsequently Indian and Turkish, manufacturers injured the U.S. domestic quartz industry and therefore duties were required to offset such unfair trade practices. Ultimately, the DOC and ITC imposed AD/CVD duties ranging approximately between 265% and 340% for Chinese produced quartz engineered stone, and between 3.81% and 80.79% for Indian and Turkish quartz engineered stone.

The imposition of AD/CVD orders have driven some of the affected manufacturers to direct their products into other markets in which we operate (including markets in which we hold a higher market share than in the U.S., such as Australia) thereby adversely impacting our operations and financial results. Finally, any duties and tariffs imposed by the U.S. or other regulators may not succeed in remediation of any impact caused by the relevant imports. Chinese, Indian and Turkish exporters may shift their focus to other, competing materials, to circumvent the duties. As a result, our non-U.S. markets have faced increased competitive pressures. Changes in the AD/CVD tariffs may increase uncertainty and our financial results may be adversely and materially impacted.

On October 29, 2021, the European Ceramic Tile Manufacturers’ Federation, filed a complaint with the European Commission (“Commission”) in which it requested that the Commission initiate an anti-dumping investigation concerning imports to the EU of ceramic tiles originating in India and Turkey between July 2020 and June 2021. The Commission eventually decided to introduce a tariff of 7.9% applicable to on Indian and Turkish producers including the products we produce at our Indian facility.

We may need to raise funds to finance our current and future capital needs, which may dilute the value of our outstanding ordinary shares, increase our financial expenses or limit our business activities.

We may need to raise funds to finance our existing and future capital needs, including to fund ongoing working capital requirements. If we raise funds through the sale of equity securities, these transactions may dilute the value of our outstanding ordinary shares. Any debt financing would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations and may also prove expensive in light of the increasing interest rates. We may be unable to raise additional funds on terms favorable to us or at all. If financing is not available or is not available on acceptable terms, we may be unable to fund our future needs. This may prevent us from increasing our market share, capitalizing on new business opportunities or remaining competitive in our industry, which could materially and adversely affect our business, prospects, financial condition and results of operations.

If we are unable to pass rising costs to our customers, it could have a material adverse effect on our business.

The prices of our raw materials, shipping and energy-related costs have in the past and may in the future experience volatility that could materially impact our business and financial results. We also rely on shipping raw materials and finished goods. While we attempt to pass on such increased costs to our customers, our ability to do so depends on many factors including competition in our markets, availability of credit and the housing market. If we are unable to mitigate the increase in these costs, particularly raw material and shipping, our financial condition and results of operations could be materially and adversely affected. A slowdown in our markets may result in decreased demand for our products and limit our ability to raise prices.

Global health risks and future pandemics could further impact end-consumers and the global economy in general, lower demand for our products, disrupt our operations and materially and adversely affect our business and financial results.

In the past, the COVID-19 pandemic resulted in a widespread public health crisis, governmental authorities implemented numerous measures in an attempt to contain and mitigate its effects. The combined effect adversely impacted global economies, market uncertainty and volatility, and significantly affected consumer and businesses behaviors. Future pandemics may further challenge our ability to conduct our operations and, as a result, may materially and adversely affect our financial results.

Operational Risks

Problems inherent in the use of PBP suppliers, such as a failure to effectively collaborate or diversify our relationships with various PBPs, could materially adversely affect our competitive position or profitability.

The recent closure of our production facilities in Sdot-Yam, Israel and Richmond-Hill, Georgia, have increased the portion of our products produced by our third-party production partners. Since 2021, we have accelerated our strategy to acquire certain product models from third-party engineered stone and Porcelain PBP producers, and this trend continued since we transitioned to more elaborate models and to our PBP resulting in a higher portions of our goods sold produced by them. Our PBP producers are located in Asia and Europe. We expect this trend to continue during 2024 and further increase our reliance on third party manufacturers. Our ability to serve our markets with the right product offering at competitive prices depends on our ability to successfully manage these sourcing partnerships. Failure to meet challenges such as IP retention, maintaining quality in raw-materials and finished goods, coordinating logistics, inventory and supply chain challenges and maintaining compliance not only with applicable laws but with market expectations in fields such as ESG as well as our ability to keep favorable commercial terms, may have an adverse effect on our business and results of operations.

Moreover, our failure to effectively manage our PBP supplier-partnerships could require us to locate alternative manufacturers or invest further in our facilities, which could cause substantial delays in manufacturing, increase our costs, negatively impact our brand, reputation, and the quality of our products in case we rely on new vendors, and require us to adjust our products and our manufacturing processes. Even if we do effectively manage such relationships, they may not help us to successfully optimize our operations and reduce costs.

If we fail to effectively manage the required changes in our production and supply chain, we may be unable to serve the market or suffer additional inefficiencies.

Our production and supply chain processes are complex, and they rely on our estimates and forecasts in terms of volume, product mix, and delivery times. These processes involve independent and interdependent suppliers, owned and leased locations, external manufacturing partners, distribution networks, delivery centers and information systems, each of which supports our ability to provide our products to our customers. A failure to accurately forecast consumer preference and market trends or manage necessary inventories, disruptions to our production and supply chain processes, including managing our PBP product production and deliveries, all may hinder the availability of our products in the market, result in loss of sales, increase shipping costs and harm our relationships with our suppliers and customers, damage our brand and reputation and have a material adverse effect on our results of operations.

Changes in the prices of our raw materials may increase our costs and decrease our margins and net income (loss).

The principal raw materials used for our products are polyester and various combinations of minerals (such as quartz and pigments). In 2023, raw materials used in our manufacturing processes accounted for approximately 30% of our cost of goods sold. The cost of raw materials consists of the purchase prices of such materials and costs related to the logistics of delivering the materials to our manufacturing facilities. The raw materials we use for our products are subject to price volatility caused by weather, supply conditions, government regulations, economic and political climate, labor costs, and other unpredictable factors. During 2023, our raw materials costs were also impacted by changes in foreign currency exchange rates, mainly the Euro as it relates to polyester and other raw materials purchased from Europe. Any increase in raw material prices increases our cost of sales and can decrease our margins and net income (loss). Furthermore, we may face market conditions that will make it impossible to pass all or some of the increased costs to our customers. If we are unable to recover these costs it may have a material adverse effect on our financial results. For cost of our raw materials in 2023 and prior years, see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results—Cost of revenues and gross profit margin.”

Dry minerals used in the production of our products, such as quartz, quartzite and other minerals are the main raw material component used in our engineered stone products. These minerals accounted for approximately 38.2% of our raw materials cost in 2023. Our cost of sales and overall results of operations may be impacted significantly by fluctuations in their prices. For example, if their cost rose by 10% in 2023, we would have experienced a decrease of approximately 0.7% in our gross profit margin for our manufactured products in such a year. In 2023, our average cost of such minerals decreased by 7.7%, following an increase of 17.9% during 2022, mainly due to decrease in maritime shipping and freight handling, partially offset by the mix of minerals purchased. Any future increases in quartz or other mineral prices could also materially and adversely impact our margins and net income.

Polyester, which acts as a binding agent in our products, accounted for approximately 31.6% of our raw materials costs in 2023. Accordingly, our cost of sales and overall results of operations may be impacted significantly by fluctuations in polyester prices. For example, if the cost of polyester rose 10% in 2023, we would have experienced a decrease of approximately 0.6% in our gross profit margin of our manufactured products for such a year. The cost of polyester we incur is a function of, among other things, manufacturing capacity, demand and the price of crude oil and more specifically benzene. Our cost of polyester fluctuated significantly over the years. In 2023, our average polyester cost decreased by approximately 31% following an increase of approximately 23% during 2022. We acquire polyester on an annual framework basis, or a purchase order basis based on our projected needs for the subsequent one to three months. Going forward, we may face price pressures from our polyester suppliers as our overall quantities will decrease with the closure of our Sdot-Yam and Richmond-Hill facilities.

Pigments are also used to manufacture our products. Although pigments account for a significantly lower percentage of our raw material costs than polyester, we encountered in the past and may experience in the future fluctuations in pigment prices. For example, the cost of titanium dioxide, our principal white pigmentation agent, decreased by approximately 27.8% in 2023 following an increase by approximately 10.5% in 2022, respectively. Such prices fluctuations may also have a materially adverse impact on our margins and net income (loss).

As a result of recent global economic conditions (as discussed in the risk factor entitled “Adverse global conditions, including macroeconomic and geopolitical uncertainty, may negatively impact our financial results”), the prices of raw materials used for our products has been particularly volatile and decreased during 2023, and hedging mechanisms and strategies used to mitigate this price volatility have been limited. If we are unable to increase the price of our products to cover increased costs, to offset operating cost increases, then commodity and raw material price volatility or increases could materially and adversely affect our profitability, financial condition and results of operations. If we are unable to source raw materials, that could limit our ability to utilize our manufacturing facilities, in addition, increases in the prices of these raw materials may have a material adverse effect on our financial results.

For cost of our raw materials in 2022 and prior years, see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results—Cost of revenues and gross profit margin.”

We rely on our suppliers to deliver parts, components, manufacturing equipment, and raw materials to our facilities, and our ability to manufacture efficiently and without disruption depends on the availability, transportability and prices of such goods.

We currently manufacture our products at our facilities in Israel, and India. In addition, we source a growing portion of our products from PBPs which are also subject to similar risks. We actively manage our global supply chain and production facilities in Israel and India.

We rely on the producers of our production lines, primarily Breton, for the availability of certain spare parts and for their support and know-how required to resolve specific technical problems in their manufacturing equipment. If such producers were to become insolvent or cease their business, or otherwise experienced an inability or delay in providing specialty machine components and spare parts, know-how or technical support to us, we would be unable to obtain such components or expertise for an indeterminate amount of time. As a result, the output of our products to our distributors and customers could be prevented or delayed.

Other supply chain risks include but are not limited to disruptions in shipping logistics; shutdowns or reduced operations at our suppliers’ facilities; changes in the market prices for minerals, clay, and styrene and other parts and materials used in our production processes, including those performed by our PBP. Shortages of raw materials or parts, or the increase in their cost or the cost of their transportation would have a material adverse effect on our business and consolidated results of operations.

For example, since 2021, we experienced disruptions and volatility in our supply chain that we expect to continue through 2024. Supply chain issues have occurred on a global scale, which have been triggered by various factors, including among other reasons, the COVID-19 pandemic that effected many factors such as transportation prices, weather conditions and other geopolitical events, such as Russia-Ukraine war (effecting the availability of Ukrainian clay and energy prices) and the war in southern Israel, and have caused delays in the arrival of or otherwise constrained our supply of raw materials, particularly minerals and porcelain, which are essential and non-fungible components in the manufacture of our countertops and surface products.

There can be no assurance that we will be able to effectively manage our global supply chain and manufacturing operations in the future. Price increases imposed by our suppliers for raw materials and goods and transportation price increases may all have a material adverse effect on our business and consolidated results of operations.

In addition to our traditional engineered quartz offering, we are expanding our offering to include other mineral based engineered stones, engineered porcelain large slabs, natural stone and other ancillary materials. We may pursue a further expansion of our product offering, including introducing new products and materials as well as new applications, which may be unsuccessful, and may divert management’s attention and negatively affect our margins and results of operations.

Our competitive advantage is due, in part, to our ability to design, develop and introduce innovative new and improved products and to strengthen our brand. To maintain such an advantage, we may produce or procure the production of such products from manufacturers that are also competing with ours. Such new products may include new designs, new and alternative materials (including replacing the composition of traditional quartz-based slabs) and complementary products. Introducing new products involves uncertainties, such as predicting changing consumer preferences, developing, manufacturing challenges, marketing and selling new technologies, products and materials, and entering new market segments. Despite our efforts to expand our offering, we may not be successful due to such uncertainties and challenges which may result in higher-than-expected expenses, lower than expected dales and have a material adverse effect on our margins and results of operation.

For example, as a result of the Lioli Acquisition in 2020, we commenced manufacturing and sales of porcelain slabs for different applications, including countertops as well as facades, flooring and cladding. As a result of the Omicron Acquisition (as defined below), we added natural stone and ancillary products for kitchen installation and fabrication to our list of products. In addition, during the second quarter of 2023, we incurred significant costs associated with the necessary R&D activities for the introduction of a new offering based on alternative materials. Although we believe that the expansion into new products, materials and, in some cases, other business models such as the Omicron business may pose an opportunity to leverage our existing business, no guarantee can be given as to customer demand for the new products. Moreover, in the future we may decide to introduce additional new products and enter new markets, whether through cooperation with third-party manufacturers or manufacturing at our own facilities.

Addressing these markets entails additional risks and liabilities that should they materialize may have a material adverse effect on our financial results.

A sizable proportion of our sales in North America is attributable to a limited number of large retailers; any deterioration of our relationships with such retailers or deterioration in their business performance (in fields relevant to the sale of our products) could adversely impact our results of operations.

We supply our products to retailers or directly to their customers in a manner that may include fabrication and installation services of the countertops, primarily from our engineered stone surfaces. Such services are performed by select third party contractors (engaged by either us or by the retailer). While we expect that these retailers will continue to offer our products, there is no assurance that such current agreements will be renewed at all or on similar terms. In case these collaborations are terminated or not renewed, our revenue could significantly decrease.

Our sales via retailers may be affected, among other things, by their focus, material preferences, reaction to the occupational safety issues, sales and promotional events: their timing, scope and other terms that are determined exclusively by such retailers, all of which may impact our sales volume. Accordingly, we may not be able to maintain or increase such sales or its current profitability level. See also “—Disturbances to our operations or the operations of our suppliers, distributors, customers, consumers or other third parties could materially adversely affect our business”. See also “—Results of bodily injury claims may have a material adverse effect on our business, operating results, and financial condition”.

In addition, we have entered into arrangements with third parties that fabricate and install finished countertops. Their performance may impact our relationships with retailers or other business partners, our quality and service level, ESG performance, and ability to manage the installation and fabrication of countertops to meet the end consumers’ demands at reasonable prices. If we are unable to successfully manage the installation and fabrication services performed for us by these third-party fabricators and installers, we may experience relatively high waste of our products used by fabricators for such works, and complaints from end-consumers with respect to supply time, quality and service level of the fabrication and installation, including defects and damages. Such risks could expose us to warranty-related damages, which, if not covered back-to-back by the fabricators engaged by us, could have a materially adverse effect on our financial results, reputation and brand position, and could lead to the termination of our agreements with retailers and end customers.

Our ability to fully integrate acquisitions, joint ventures and/or investments, including our previously announced acquisitions of Lioli, Omicron and Caesarstone Scandinavia, could be more difficult, costly and time-consuming than we expect and therefore disrupt our business and adversely affect our financial results.

Our success will depend, in part, on our ability to expand our product offerings and grow our business in response to customer demands, competitive pressures and industry trends in the home renovation and construction sectors. We pursue our growth strategy by acquiring complementary businesses across the globe, including our previously announced acquisitions of Lioli, an India-based porcelain countertop slab producer, in October 2020 (the “Lioli Acquisition”), Omicron, a stone supplier based in Pompano Beach, Florida, in December 2020 (the “Omicron Acquisition”) and Caesarstone Scandinavia (formerly named Magrab), a leading distributor in Sweden in July 2022 (the “Magrab Acquisition”).

The combination of independent businesses is a complex, costly and time-consuming process. While our management continues to make progress in integrating Lioli’s and Omicron’s businesses with ours, such efforts are still underway and are expected to continue through 2024. During this time, we and our management have encountered, and are likely to continue to encounter, ongoing challenges with respect to achieving anticipated synergies. For example, high turnover rates of key employees at Lioli, which we attribute to challenges assimilating Lioli employees into our workplace culture and maintaining consistent operational standards and processes. We seek to manage these transitions carefully, such as by establishing employee training and development programs. However, any continued retention issues at our acquired companies will result in a loss of institutional knowledge about those businesses. Failure to address integration risks may strain our relationship with out Lioli joint-venture partners and negatively impact our financial results.

In addition, we may be exposed to unforeseen or undisclosed claims and liabilities arising from the operations of Lioli, Omicron and Magrab from periods prior to the dates we acquired them. For example, although we believe that we have a good and marketable title to the Lioli manufacturing facility in Morbi, Gujarat, India, there are certain historic discrepancies between records of different local and regional authorities in Gujarat, India, including records of titles to physically non-existing plots, that might result in our ownership to the facility or its parts being challenged, including by title holders of existing and non-existing adjacent plots. Our ability to seek indemnification from the former owners for these and any other claims or liabilities could be significant and limited by various factors, including the specific limitations contained in the respective acquisition agreements and the financial ability of the former owners. If we are unable to enforce any indemnification rights we may have, or if we do not have any right to indemnification, we could be held liable for the costs or obligations associated with such claims or liabilities, which could adversely affect our operating performance.

In addition, as a result of the Lioli, Omicron and Magrab Acquisitions we carried a significant amount of intangible assets (including goodwill) on our balance sheet. As of December 31, 2022, and 2023, our goodwill and other intangible assets (including Lioli and Omicron acquisitions), amounted to $8.8 million and $6.3 million, respectively.

We rely on select suppliers in specific regions for the raw materials used in the production of our products, and we may encounter significant manufacturing delays if we experience disruptions in these supply arrangements and/or are required to change suppliers.

Our principal raw materials for engineered stone products are minerals (such as quartz), polyester and pigments. We acquire minerals from Turkey, India, U.S., Israel and several European countries. We typically transact business with our raw-material suppliers on a periodical framework basis, under which we execute purchase orders from time to time. In 2023, approximately 69% of our minerals used were imported from several suppliers in Turkey.

We acquire polyester from several suppliers, mainly from Europe, on a periodic basis, or on a purchase order basis based on our projected needs. The supply of pigments required for the production of our engineered stone products is also limited and we currently rely on a mainly single supplier for the processing of such pigments. We cannot be certain that any of our current suppliers will continue to provide us with the quantities of raw materials that we require or will be able to satisfy our anticipated specifications and quality requirements. We may also experience a shortage of such materials if, for example, demand for our products increases.

In addition, we may lose our supply contracts or arrangements, or the ability to effectively enforce our rights thereunder, if our supplier relationships are disrupted as a result of factors beyond our control, including, for example, effects of political and geo-political factors in the regions where our supplies are located. For instance, in previous years, rising tensions between Turkey and Israel have increased the risk that our commercial arrangements with Turkish suppliers may be adversely and materially impacted. If political tensions between Turkey and Israel worsen again, and our Turkish suppliers fail to perform in accordance with our arrangements, we may not be able to successfully enforce them.

If our supply of raw materials is adversely impacted to a material extent or if, for any reason, any of our suppliers does not perform in accordance with our expectations, for any reason, we would need to locate alternate suppliers. Securing replacement suppliers could result in substantial delays in manufacturing, increase our costs, negatively impact the quality of our products, or require us to adjust our products and our manufacturing processes. Any such delays in or disruptions to the manufacturing process could materially and adversely impact our reputation, revenues and results of operations as well as other business aspects, such as our ability to serve our customers and meet their order requests.

For more information with regards to suppliers of raw materials used in our products, see “ITEM 4.B: Information on the Company—Business Overview—Raw materials and Service Provider Relationships.”

Our revenues are subject to significant geographic concentration and any disruption to sales within one of our key existing markets, or to sales to a major customer therein, could materially and adversely impact our results of operations and prospects.

Our sales are subject to significant geographic concentration, with the four largest markets accounting for 84.2% of revenues. In 2023, sales in the United States, Australia (including New Zealand), Canada and Israel accounted for 48.1%, 18.8%, 13.4% and 4% of our revenues, respectively. Our results of operations could be materially and adversely impacted by a range of factors, including spending on home renovation and remodeling and new residential construction in the region (as discussed above), local competitive changes, changes in consumers’ preference regarding engineered stone surfaces, particularly quartz-based surfaces or countertop preferences in general, and regulatory changes that specifically impact these markets. For example, as recently published Australian regulators have resolved to ban crystalline silica containing engineered stones during 2024, and while we offer alternative products, the introduction of such alternative products in our active markets remains subject to uncertainties and challenges. Since the Australian market is our second largest, loss of any such market share and corresponding revenues would materially and adversely affect our results of operations. In addition, other states and jurisdiction may follow suit and adopt similar legislation adversely impacting our business, and if such occurs in one of our principal markets, the impact may be major. Likewise, our principal markets may also be impacted by other general economic conditions, including in a global or local recession, depression, high inflation or other sustained adverse market events and increases in imports of cheaper engineered stone surfaces from low-cost countries manufacturers into such markets, especially the United States, Australia and Canada. Stronger local currencies could make lower-priced imported goods more competitive than our products. Although we face different challenges and risks in each of the markets in which we operate, due to the existence of a high level of geographic concentration, should an adverse event occur in any of these jurisdictions, our results of operations and prospects could be impacted disproportionately.

A key element of our strategy is to expand our sales in certain markets, such as the United States and segments, such as services. Failure to expand such sales would have a material adverse effect on our future growth and prospects

A key element of our strategy is to expand sales of our products in certain of our key existing markets, as well as additional new markets and offerings that we believe have high growth potential. In line with our strategic restructuring plan, we are making efforts to optimize our distribution network in the United States, including through the expansion of our brand into the South, Southeast and Ohio Valley markets via the Omicron Acquisition. In addition, a growing portion of our revenues is attributable to installation and fabrication services.

We estimate we can continue to expand our brand and the sales of our engineered stone and porcelain products in the United States where, according to Freedonia, engineered surfaces represented 21% of the total countertops by volume installed in 2022.

We face several challenges in generating demand for our products in the United States or other markets for various reasons. If the market for our products in these regions does not develop as we expect, our future growth, business, prospects, financial condition, and operating results will be adversely affected. In addition, changes to trade environments, including imposition of import tariffs or withdrawal from or revisions to international trade policies or agreements, may affect our growth potential globally, and further impact other markets in which we operate. See “—We face intense competitive pressures from manufacturers of other surface materials, which could materially and adversely affect our results of operations and financial condition.”

Even if we are able to increase our brand awareness and the demand for our products in these and other regions, which we consider to be viable markets, we may face certain challenges in supplying materials to large retailers in these regions. For more information, see “—A sizable proportion of our sales in North America is attributable to a limited number of large retailers; any deterioration of our relationships with such retailers or deterioration in their business performance (in fields relevant to the sale of our products) could adversely impact our results of operations” Additionally, our reliance on third-party suppliers to provide installation and fabrication services to large retailers could impair our relationship with our customers, which could also materially harm our business and results of operations. Our success will depend, in large part, upon consumer acceptance and adoption of our products and brand in these markets, on the level of our execution, our go-to market strategy and its implementation and the timely availability of our products across regions, and if we do not effectively expand into these markets, there could be an adverse impact on our sales and financial condition.

Our distributors’ actions may have a materially adverse effect on our business and the results of operations. Our results of operations may be further impacted by the actions of our re-sellers.

Sales to third-party distributors accounted for approximately 11% of our revenues in 2023. In our indirect markets, we depend on the success of the selling and marketing efforts of our third-party distributors, and any disruption in our distribution network could materially impair our ability to sell our products or market our brand, which could materially and adversely affect our business and results of operations. As we have limited control over these distributors, their actions could also materially harm our brand and company reputation in the marketplace.

In the majority of our distribution arrangements, we operate based on an initial agreement or general terms of sale or, in certain cases, without any agreement, in writing or at all. The lack of a written agreement with many of our distributors may lead to ambiguities, costs and challenges in enforcing the terms of such arrangements, including where we wish to terminate early due to the distributor’s failure to meet annual sales targets. We have experienced difficulties, including litigation, in connection with the termination of certain of our distributors due to disputes regarding their terms of engagement. See “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial Information—Legal proceedings.” Additionally, we may be unable to distribute our products through another distributor within the territory during the period in which we must give prior termination notice, or to identify and retain new distributors upon termination, which may materially and adversely impact our market share, results of operations, relationships with our customers and end-consumers and brand reputation. Because some of our distributors operate on nonexclusive terms, distributors may also distribute competitors’ countertop surfaces or other surface materials, which may cause us to lose market share. If we opt to distribute our products directly upon termination of existing arrangements with our distributors, ramping up our logistics and shipping capabilities could require significant time and financial commitments, which could materially and adversely impact our market share and results of operations. We cannot assure you that we will be able to successfully transition to direct distribution in a timely or profitable manner.

In the United States, we supply our products in part to sellers who in turn re-sell them to fabricators, contractors, developers and builders. Certain actions by such third parties may also materially harm our brand and reputation. The failure of one or more of our re-sellers or retailers to effectively promote our products, or changes in the financial or business condition of these re-sellers or retailers could adversely affect results of our operations.

The termination of arrangements with distributors and re-sellers may lead to litigation, resulting in significant legal fees for us and detracting from our management’s effort, time and resources. In addition, our distributors and re-sellers generally disclose to us sales volumes and other information on a monthly or quarterly basis. Inaccurate sales forecasts, on which we have already relied on in our production planning or our failure to understand correctly the information in a sales report could cause significant, unexpected volatility in our sales and may impact our ability to make plans regarding our supply chain. Any of these events could materially and adversely affect or cause unexpected fluctuations in the results of operations.

Our business is subject to disruptions and quarterly fluctuations in revenues and net income (loss) as a result of seasonal factors, weather-related conditions, natural disasters, building construction cycles and actions by third parties over which we have no control, which are hard to predict with certainty.

Our results of operations have in the past and may in the future be impacted by seasonal factors, weather-related conditions, and construction and renovation cycles. The levels of manufacturing, fabrication, distribution, and installation of our products generally follow activity in the construction and renovation industries. Severe weather conditions, such as unusually prolonged cold conditions, hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events could reduce, delay or halt the construction and renovation industries in the markets in which we operate, and our businesses may be adversely affected. Markets in which we operate that are impacted by winter weather, such as snowstorms and extended periods of rain, may experience a slowdown in construction activity during the beginning and the end of each calendar year, and this winter slowdown contributes to lower sales in our first and fourth quarters. Natural disasters including tornados, hurricanes, floods and earthquakes may damage our facilities, the launch facilities we use or those of our suppliers, which could have a material adverse effect on our business, financial condition and results of operations. Traditionally, the second and third quarters of the year exhibit higher sales than the first and fourth quarters. For more information, see “ITEM 5.A: Operating and Financial Review and Prospects—Operating Results—Factors impacting our results of operations”. Adverse weather in a particular quarter or a prolonged winter period can also impact our quarterly results. Our future results of operations may experience substantial fluctuations from period to period as a consequence of such adverse weather. Increased or unexpected quarterly fluctuations in our results of operations may increase the volatility of our share price and cause declines in our share price even if they do not reflect a change in the overall performance of our business.

Furthermore, our ability, and that of our suppliers, PBP suppliers, distributors, customers and other third parties, to develop, manufacture, transport, distribute, sell, install, and use our products is critical to our success. Damage or disruption to our or their operations could occur due to various factors, some of which cannot be foreseen, including, among others, telecommunications failures; power, fuel, or water shortages; strikes, labor disputes or lack of availability of qualified personnel; or other reasons beyond our control or the control of such third parties. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could continue to result in adverse effects on our business, financial condition or results of operations.

Legal, Regulatory, Safety and Security Risks

Results of bodily injury claims may have a material adverse effect on our business, operating results, and financial condition.

Since 2008, we have been named, either directly or as a third party defendant, in numerous lawsuits alleging damages caused by exposure to respirable crystalline silica, or RCS related to our products filed primarily by individuals (including fabricators and their employees, and our former employees), their successors, dependents, employers, and in subrogation claims by workers compensation or insurance bodies, such as the Israeli National Insurance Institute (the “NII”) and Australian’s state workover bodies.

Inhalation of dust containing fine particles (including respirable crystalline silica, or RCS) may occur if safety measures are not implemented while performing certain tasks, including among others, cutting polishing and otherwise fabricating materials, including crystalline silica. Such exposure may in turn cause silicosis and other health issues. Silicosis is a potentially fatal progressive occupational lung disease and is characterized by scarring of the lungs and damage to the breathing function.

As of December 31, 2023, we were subject to such lawsuits with respect to 172 injured persons globally (of which 74 were in Israel, 76 in Australia and 22 in the United States) and had received pre-litigation demand letters with respect to an additional nine persons. Traditionally, claims asserted against us do not specify the total damages sought, and the plaintiffs’ damages, if any, are determined at trial or settlement discussions.

While we may settle some of these claims, we intend to vigorously defend others, and believe our arguments have strong merit, however we cannot provide any assurance that we will be successful. We estimated that our total exposure with respect to claims pending as of December 31, 2023, in Israel and Australia was approximately $ 25.7 million (which we made a provision for, based on the current legal conditions and estimates), however, the actual outcome of such lawsuits may vary greatly from our estimate. We have past product liability insurance that partially covers said exposure. We believe that with respect to such cases we have $8.4 million of coverage under existing & past product liability insurance and, accordingly, our net exposure with respect to such pending claims is estimated to be $17.3 million. Given the early stages of litigation in the U.S., we are unable to estimate their outcome.

Results of any pending or future litigation are subject to significant uncertainty. Our estimated total net exposure with respect to pending claims is subject to change for a variety of reasons, including an unpredictable adverse developments or rulings, such as the Australian ban on silica containing engineered stone products. We cannot estimate the number of potential claimants that may file claims against us, the jurisdiction in which such claims may be filed, who the claimants are or the nature of the claims. Consistent with the experience of other companies, there may be an increase in the number of asserted claims against us. In addition, punitive damages may be awarded in certain jurisdictions. We may be also subject to class action lawsuits, and we cannot be certain whether such claims will succeed in being certified or on their merits. An actual outcome which is higher than our estimate could have a material adverse effect on our financial results and cash flow.

Any uninsured damages to which we are subject in existing or future potential litigation, the cost of defending any uninsured claims, compliance costs, and the loss of business from fabricators who no longer find it practical to fabricate our products, may have a material adverse impact on our revenues and profits. Moreover, even if we are found only partially liable to a plaintiff’s damages, in some jurisdictions the plaintiff may seek to collect all their damages from us, requiring us to collect separately from our co-defendants their allocated portion of the damages and there can be no assurance that we will succeed in such collection.

If we cannot obtain insurance on as favorable terms as previously, or if our insurance is terminated early, decreased, provides inadequate coverage or if we are subject to hazardous dust-related claims excluded by our product liability insurance policy or by our employer liability insurance policy we may incur significant legal expenses and become liable for damages, in each case, that are not covered by insurance. For example, as of September 2020 our Australian product liability insurance ceased coverage of newly diagnosed silicosis related claims. Such events might have a material adverse effect on our business and the results of operations. As of December 31, 2023, our insurance receivables for silicosis-related claims totaled $8.4 million. Although we believe that it is probable that such receivables will be paid to us when such payments are due, if our insurers become insolvent in the future or for other reason do not pay such amounts in full or on a timely basis, such failure could have a material adverse effect on our financial results and cash flow.

Media coverage regarding these claims, governmental actions and the hazards associated with exposure to RCS in the engineered stone (primarily quartz surfaces), may adversely affect consumer perception of our products, damage our brand and reputation, and in turn lead to loss of sales and a material adverse effect to our revenues and financial results.

Any of the risks described above relating to claims regarding silicosis and other bodily injury claims may have a material adverse effect on our business, operating results and financial condition. For more information, see “ITEM 8.A: Financial Information—Legal Proceedings—Claims related to alleged silicosis and other injuries.” See also Note 11 to the financial statements included elsewhere in this report.

Changes in laws and regulations relating to hazards associated with engineered stone surfaces or with the crystalline silica in stone surfaces may adversely and materially affect our business.

Our global markets are subject to evolving legislation and regulation aimed at protecting workers from exposure to RCS. While we certainly support initiatives aimed at improving health and safety, some of these may have an adverse effect on our business and financial performance.

For example: in Australia, federal governments’ group of work safe ministers resolved to ban the use, supply and manufacture of engineered stone slabs containing crystalline silica (including quartz-based products, that constituted a major part of our Australian offering). Subject to the formal adoption of the relevant legislation and/or regulation the ban is expected to enter effect July 1, 2024. Our efforts to comply with the Australian proposed laws and regulations, and to address the expected turmoil in the Australian market, may not be optimal or even successful and that may have a materially adversely impact the company’s financial results. With this precedent in place, other jurisdictions may follow the path of imposing new laws and regulations that may limit our ability to effectively compete in markets we currently operate in thus having a material adverse effect on our performance and financial results.

By way of further example: in California, the state’s occupational safety and health standards board has approved an emergency temporary standard aimed to protect workers in the stone fabrication industry from exposure to RCS and committed to continue and develop permanent rules to that end.

Prior to that, during February 2020, the U.S. Occupational Safety and Health Administration published a National Emphasis Program addressing the hazards of silica, supplemented recently during September 2023, announcing a new initiative to conduct enhanced enforcement and compliance efforts (RCS focused inspection initiative in the engineered stone fabrication and installation industries). Further regulatory changes regarding the ability to use, process or sell stone countertops, particularly engineered stone, the safety measures required in such activities may materially adversely affect our business.

We may be required to incur additional expenses associated with exposure to RCS in the silica containing surfaces industry to enhance our compliance with current and future laws, regulations, or standards. Failure to comply regulatory requirements may expose us to regulatory actions (as detailed below in “—The extent of our liability for environmental, health and safety, product liability and other matters may be difficult or impossible to estimate and could negatively impact our financial condition and results of operations”) as well as to lawsuits. Greater regulatory scrutiny and action may also lead to greater propensity for litigation against us or ultimately result in a government ban of our products.

Disruptions to or our failure to upgrade and adjust our information technology systems globally may materially impair our operations, hinder our growth, and materially and adversely affect our business and results of operations.

We believe that an appropriate information technology (“IT”) infrastructure is important to support our daily operations and the growth of our business. To this end, we are implementing a digital transformation within the Company to better streamline processes and support our business strategy. Our technological and digital investments are geared towards operational enhancements in supply chain management and production, along with improvement of our go-to-market tools.

If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information systems or respond to changes in our business needs, we may not be able to effectively manage and grow our business, and we may fail to meet our reporting obligations. Additionally, if our current back-up storage arrangements and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely affect our business and results of operations.

In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in frequency and sophistication in recent years. Although we take steps designed to secure our IT infrastructure and sensitive data and enhance our business continuity and disaster recovery capabilities, we can provide no assurance that our current IT system or any updates or upgrades thereto, the current or future IT systems of our distributors or re-sellers or the IT systems of online paying agents that we use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar risks. We carry data protection liability insurance against cyber-attacks, however the potential magnitude of cyber events and the exception to these policies means that we may not be able to recover our damages from such an event.

We have experienced and expect to continue to experience actual and attempted cyber-attacks of our IT networks, such as through phishing scams and ransomware. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future. Furthermore, a cyber-attack that bypasses our IT security systems or those of our distributors, re-sellers, online paying agents or other third party contractors, causing an IT security breach, could lead to a material disruption of our information systems, the loss of business information and loss of service to our customers, which could, among other things, disrupt our business, force us to incur costs or cause reputational damage. There is no assurance that we will be insulated from claims relating to cyber-attacks or withstand legal challenges in relation to our agreements with third parties. Additionally, we have access to sensitive information relating to our employees as well as business partners and customers in the ordinary course of business. Any failure or perceived failure by us, or our third-party contractors on our behalf, to comply with local and foreign laws regarding privacy and data security, as well as contractual commitments in this respect, may result in governmental enforcement actions, fines, or litigation, which could have an adverse effect on our reputation and business. If a significant data breach occurred, our reputation could be materially and adversely affected, confidence among our customers may be diminished, or we may be subject to legal claims, any of which may contribute to the loss of customers and have a material adverse effect on us. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, or in theft, destruction, loss, misappropriation or release of our confidential data or our intellectual property, our business and results of operations could be materially and adversely affected.

These risks will increase as we increase our cooperation with and reliance on third party contractors that provide cloud solutions and store increasingly large amounts of data, as part of our digital focus and enhancement of go to market tools.

Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems or to manage the IT systems of third parties to accommodate these changes. Increasing regulatory focus on information security and data privacy issues and expanding laws in these areas may result in increased compliance costs and expose us to increased liability. Globally, new, and emerging laws, such as the General Data Protection Regulation (“GDPR”) in Europe and state laws in the U.S. on privacy, data and related technologies, such as the California Consumer Privacy Act (“CCPA”) and California Privacy Rights Act ("CPRA"), create new compliance obligations, create new private rights of action and expand the scope of potential liability, either jointly or severally with our customers and suppliers. The GDPR, which became effective on May 25, 2018, imposed new compliance obligations for the collection, use, retention, security, processing, transfer and deletion of personally identifiable information of individuals and created enhanced rights for individuals. The CCPA, which grants expanded rights to access and delete personal information, and the right to opt out of the sale of personal information, among other things, became effective on January 1, 2020. The CPRA significantly amended and expanded the CCPA and grants consumers more control over personal data, enabling rights like access, deletion, and correction. Businesses must establish processes for effective handling of requests and compliance with these rights, became effective on December 16, 2020. These and any other new and emerging laws and regulations may force us to bear the burden of more onerous obligations in our contracts or otherwise increase our potential liability to customers, regulators, or other third parties.

Cybersecurity and complying with personal data rights pose economic, operational, and reputational risks. If we are unable to implement the technological and digital projects required to support our future growth and profitability in compliance with applicable rules and regulations, our business and results of operations will be materially adversely affected. In addition, the devotion of additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact our financial results.

Since the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our IT systems and networks remotely, which may further increase our vulnerability to cybercrimes and cyberattacks and increase the stress on our technology infrastructure and systems. Although we maintain data protection liability insurance, exclusions from coverage are added into these policies and coverage may not be sufficient to cover all our losses from any future breaches or failures of our IT systems, networks and services.

The steps that we have taken to protect our brand, technology and other intellectual property may not be adequate, and we may not succeed in preventing others from appropriating our intellectual property.

We believe that our trademarks (registered and unregistered) are important to our brand, success, and competitive position. We anticipate that, as the countertop market becomes increasingly competitive, maintaining and enhancing our brand, proprietary technology and other intellectual property may become more important, difficult, and expensive. In the past, some of our trademark applications for certain classes of applications, our products, have been rejected or opposed in certain markets. We have in the past, are currently, and may in the future be, subject to opposition proceedings with respect to applications for registration of our intellectual property, such as our trademarks. As with all intellectual property rights, such application may be rejected entirely or awarded subject to certain limitations such as territories, any current or future markets or applications. These limitations to registering our brand names and trademarks in various countries and applications may restrict our ability to promote and maintain a cohesive brand throughout our key markets, which could materially harm our competitive position and materially and adversely impact our results of operations. Additionally, if we are unsuccessful in challenging a third party’s products based on trademark infringement, continued sales of such products could materially and adversely affect our sales and our brand and result in the shift of consumer preference away from our products.

There can be no assurance that new or pending patent applications for our technologies and products will be approved in a timely manner or at all, or that, if granted, such patents will effectively protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we have chosen and may further choose not to pursue patents for innovations that are material to our business.

While we continue to make significant investments in innovating the design of our products and register design patents on selected models, it may not be adequate to prevent our competitors from imitating our designs and copying our innovative ideas.

We also retain significant trade secrets & know how, that for various reasons we are not pursuing their formal registration but rely on retaining their confidentiality through confidentiality agreements with our consultants, suppliers, customers, employees and managers, our know-how and trade secrets could be disclosed to third parties, which could cause us to lose any competitive advantage resulting from such know-how or trade secrets, as well as related intellectual property protections in certain cases. The potential for know-how leakage has recently increased, with our increased sourcing of more advanced products from our PBPs.

The actions we take to establish and protect our intellectual property may not be adequate to prevent unlawful copy and use of our technology by third parties or the imitation of our products and the offering of them under our trademarks by others. These actions may also not be adequate to prevent others, including our competitors, from obtaining intellectual property rights overcoming ours, and limiting or blocking the production and sales of our existing or future products and applying certain technologies. Our competitors may seek to limit our marketing and offering of products relying on their alleged intellectual property rights.

We may face significant expenses and liability in connection with the protection of our intellectual property rights in and outside the United States. The laws of certain foreign countries may not protect intellectual property rights to the same extent as the laws of the United States.

Third parties have claimed, and may from time-to-time claim, that our current or future products infringe their patent or other intellectual property rights. Under such circumstances, we may be required to expend significant resources to contest such claims and, in the event that we do not prevail, we may be required to seek a license for certain technologies, develop non-infringing technologies or discontinue some of our products. In addition, any future intellectual property litigation, regardless of its outcome, may be expensive, divert the efforts of our personnel and disrupt or damage relationships with our customers.

For more information, see “ITEM 4.B: Information on the Company—Business Overview—Intellectual Property.”

We may have exposure to greater-than-anticipated tax liabilities.

The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. We have applied the guidance in ASC 740, “Income Taxes” in determining our accrued liability for unrecognized tax benefits, which totaled approximately $2.9 million in 2022 and 2023. See also note 12 to our financial statements included elsewhere in this report. Although we believe our estimates are reasonable, the ultimate outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

We have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. The amount of income tax that we pay could be materially and adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates. From 2015 onward, our U.S. manufacturing operations also carry inter-company transactions at transfer prices and arrangements set by us. We cannot be certain that tax authorities will not disfavor our inter-company arrangements and transfer prices in the relevant jurisdictions. Taxing authorities outside of Israel could challenge our allocation of income between us and our subsidiaries and contend that a larger portion of our income is subject to tax in their jurisdictions, which may have higher tax rates than the rates applicable to such income in Israel. Any adjustment in one country while not followed by counter-adjustment in the other country, may lead naturally to double taxation for the group. Any change to the allocation of our income as a result of review by such taxing authorities could have a negative effect on our operating results and financial condition.

Our facility in Israel receives different tax benefits as “Preferred Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959 (“Investment Law”), with our production lines qualifying to receive different grants and/or reduced company tax rates (7.5% for Bar Lev activity, 16% for Sdot Yam activity, while 23% is the statutory tax rate in Israel). Therefore, some of our production lines also receive tax benefits based on our revenues and the allocation of those revenues between our facilities in Israel. In addition, the portion of our products manufactured by our PBPs is growing, and as a result of these factors, the Israeli taxing authorities could challenge our allocation of income and contend that a larger portion of our income is subject to higher tax rates. In Israel, there are no tax benefits to production outside of the country. As such, our portion of taxable income in Israel that relates to the growing portion produced by our PBPs might not have tax benefits, based on certain interpretations. The Israel Tax Authority (“ITA”) could challenge the allocation of income related to production in Israel and income related to production outside of Israel, which may result in significantly higher taxes. There are currently no legal regulations governing this allocation and certain of the ITA’s internal guidelines have ambiguities. Moreover, we may lose all our tax benefits in Israel in the event that our manufacturing operations outside of Israel exceed certain production levels (currently set at 50% of the overall production and subject to future changes by the ITA).

In the United States, H.R. 1, originally known as the 2017 Tax Cuts and Jobs Act (the “TCJA”) made significant changes to the U.S. Internal Revenue Code, including a reduction in the federal income corporate tax rate from a top marginal rate of 35% to a flat rate of 21% and limitations on certain corporate deductions and credits. In addition, the TCJA requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the TCJA and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from our interpretation. Finally, foreign governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially affect our financial position and results of operations. While we have provided the effect of the TCJA in our Consolidated Financial Statements as included in Note 12 to our financial statements included elsewhere in this report, the application of accounting guidance for various items and the ultimate impact of the TCJA on our business are currently uncertain.

We are entitled to a property tax abatement (starting in the 2014 tax year) with respect to our U.S manufacturing facility and the capital investment made in such facility for ten years at 100% and an additional five years at 50% subject to our satisfaction of certain qualifying terms with respect to headcount, average salaries paid to our employees and total capital investment amount in our U.S manufacturing facility. The tax abatement is granted pursuant to bond purchase loan agreements we entered with the Development Authority of Bryan County. If we do not meet the qualifying terms of the bond, we will bear the applicable property tax, which will be recognized in our operating costs, and which would materially and adversely impact our projected margins and results of operations. See “ITEM 4.D: Information on the Company—Property, Plants and Equipment.”

Environmental, health and safety regulations, industry standards and other similar matters may be costly, difficult or impossible to comply with under our existing operations and could negatively impact our financial condition and results of operations.

Our manufacturing facilities are subject to numerous Israeli and Indian federal and Gujarati laws and regulations which may cause us to incur significant costs and liabilities. We are also subject to industry standards and policies imposed by our customers (such as large retailers), relating to environmental, health and safety, as well as other matters such as dust exposure, acetone and styrene control, as further detailed in “ITEM 4.B: Information on the Company—Business Overview—Environmental and Other Regulatory Matters.” Other aspects of our activities are subject to local laws wherever we operate, including Canada, Australia, Singapore, the United Kingdom and Sweden. These laws, ordinances and regulations can be subject to change and such changes could result in increased compliance costs or otherwise adversely affect us. For example, during February 2022, Israel adopted a long-term goal for the reduction of environmental styrene emissions. Although such goal is not expected to impact our current operations, the adoption of new regulations could create an additional burden for any future investment in our Israeli Bar-Lev facility. Violations of environmental, health and safety laws and regulations may lead to civil and criminal sanctions against us, our directors, officers or employees. Liability under these laws and regulations and compliance with various industry standards and policies involves inherent uncertainties and, in some cases, may compel the installation of additional equipment and subject us to substantial penalties, injunctive orders and facility shutdowns, as well as damages to our reputation and brand and may therefore lead to loss in revenue. If our operations are enjoined because of failure to comply with such regulations, or if we are required to install expensive equipment to meet regulatory requirements, it could materially adversely affect the results of operations. Any contemplated expansion of our facilities will also need to meet standards imposed by laws, regulations, and other industry standards. Violations of environmental laws could also result in obligations to investigate or remediate potential contamination, third-party property damage or personal injury claims resulting from potential migration of contaminants off-site. Violations of such laws and regulations may also constitute a breach of current or future commercial contracts we have with third parties and impact our cooperation with customers and suppliers. We have identified in the past and may identify in the future compliance risks related to environmental and health and safety regulation standards. Preparation and implementation of mitigation plans for such risks may take time during which we may not be in full compliance with applicable laws and standards.

In addition, the operation of our manufacturing facilities in Israel, and India (Gujarat) are subject to applicable permits, standards, licenses and approvals. Any expansions or improvements to our facilities will be subject to obtaining appropriate permits, and we cannot be certain that such permits will be obtained in a timely matter, or at all. For detailed information, see “ITEM 4.B: Information on the Company—Business Overview—Environmental and Other Regulatory Matters”. We expect our business licenses to be extended by the relevant authorities for a specified term and we intend to seek subsequent extensions on an ongoing basis. Generally, failure to obtain a permit or license required for the operation of our facilities, or failure to comply with the requirements thereunder, may result in civil and criminal penalties, fines, court injunctions, imprisonment, and operations stoppages. If we are unable to obtain, extend or maintain the business license for any of our plants, we would be required to cease operations there, which would materially adversely affect the results of operations. Our ability to obtain necessary permits and approvals for our manufacturing facilities may be subject to additional costs and possible delays beyond our initial projections. In addition, in order to demonstrate compliance with underlying permits, licenses or approvals, we are required to perform a considerable amount of monitoring, record-keeping and reporting and may incur material costs or liabilities in connection with any violations, or in connection with remediation at our sites or certain third-party manufacturing sites if we are found liable in relation thereto.

From time to time, we face compliance issues related to our manufacturing facilities. See “ITEM 4.B: Information on the Company—Business Overview—Environmental and Other Regulatory Matters” for additional information on compliance with environmental, health and safety and other relevant regulations relating to our facilities, including with respect to our compliance with styrene ambient air standards and dust emission occupational health standards.

New environmental laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement or other developments in Israel, and India (Gujarat) could require us to make additional unforeseen expenditures. These expenditures and other costs for environmental compliance could have a material adverse effect on our business’s results of operations, financial condition and profitability. The range of reasonably possible losses from our exposure to environmental liabilities in excess of amounts accrued to date cannot be reasonably estimated at this time. For example, recently the Israeli Ministry of Environmental Protection added to the requirements involved in extending our ability to hold certain materials conditioned on cyber security investments.

In addition, our manufacturing, distribution, and other facilities are subject to health and safety regulations. Although we introduced safety rules and procedures at all our facilities and provide safety training to our employees and contractors on a regular basis, breaches of such safety measures have occurred in the past and may occur in the future. If our employees or contractors do not follow and we do not successfully enforce the safety procedures established in our facilities or otherwise do not meet the relevant laws and standards, our employees or contractors may be subject to work-related injuries. As a result, we and our officers and directors could be subject to claims, fines, orders and injunctions due to workplace accidents involving our employees or contractors. Although we maintain workers’ compensation and liability insurance, it may not provide adequate coverage against potential liabilities and can expose us, our directors and officers to administrative and criminal proceedings.

Other than as described above, we cannot predict whether we may become liable under environmental, product liability and health and safety statutes, rules, regulations and case law of the countries in which we operate. The amount of any such liability in the future or its impact on our business operation otherwise could be significant and may adversely impact our financial condition and results of operations.

From time to time, we are subject to litigation, disputes, or other proceedings, which could result in unexpected expenses and time and resources that could have a materially adverse impact on our results of operation, profit margins, financial condition, and liquidity.

We are currently involved in several legal disputes, including against certain fabricators (our customers) and their employees in Israel, Australia, and the United States, as well as against our former workers, as further detailed in “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial Information—Legal Proceedings.” In addition, from time to time, we are involved in other legal proceedings and claims in the ordinary course of business related to a range of matters, including contract law, intellectual property rights, employment, product liability and warranty claims (including class actions), and claims related to modification and adjustment, or replacement of product surfaces sold.

The outcome of litigation and other legal matters is always uncertain, and the actual outcome of any such proceedings may materially differ from estimates. An adverse ruling in these proceedings could have a materially adverse effect on us. If we are unsuccessful in defending such claims or elect to settle any of these claims, we could incur material costs and could be required to pay varying amounts of monetary damages, some of which may be significant, and/or incur other penalties or sanctions, some, or all of which may not be covered by insurance. Although we maintain product liability insurance, we cannot be certain that our coverage, if applicable, will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. These material costs could have a materially adverse effect on our business, results of operations and financial condition.

Failure to meet ESG expectations or standards or a failure to effectively pursue our ESG goals could adversely affect our business, results of operations, financial condition, or stock price.

Environmental Social and Governance (or “ESG”) matters, including greenhouse gas emissions, diversity and inclusion, responsible sourcing, human rights, and corporate governance, have gained increased attention from regulators, customers and other stakeholders. In line with our commitment to ESG, as demonstrated by latest ESG report in 2023, we have established certain ESG goals; however, achieving these goals is not guaranteed and may be hindered by operational, regulatory, reputational, financial, legal, and other factors. Additionally, accounting standards and regulations surrounding ESG are subject to change and may result in additional costs for compliance. As the pathway towards achieving such evolving goals is uncertain, we may exert extensive efforts that would not yield our desired results or become a high financial burden. If we fail to meet ESG expectations, it could harm our reputation, negatively impact customer and talent retention, and lead to increased scrutiny from investors and authorities. Damage to our reputation could also reduce demand for our products and services and negatively impact our financial results.

Our operating results may suffer due to our failure to manage our international operations effectively or due to regulatory changes in foreign jurisdictions where we operate

Our products are sold in over 60 countries throughout the world, our raw materials, equipment, and machinery are acquired in different countries, our products are manufactured by us in Israel and India, and by our PBP across the world, while our global management operates from Israel. We are therefore subject to risks associated with having global operations, including risks related to complying with the law and regulations of various foreign governments and regulatory authorities. These laws and regulations may apply to us, our subsidiaries, individual directors, officers, employees, and agents, and may restrict our operations, trade practices, investment or acquisition decisions or partnership opportunities. Accordingly, our sales, purchases and operations are subject to risks and uncertainties, including, but not limited to:

•

fluctuations in exchange rates and currency exchange regulation;

•

fluctuations in land and sea transportation costs, as well as delays or other changes in transportation and other time-to-market delays, including as a result of strikes;

•

compliance with unexpected changes in regulatory requirements;

•

compliance with a variety of regulations and laws in each relevant jurisdiction;

•

difficulties in collecting accounts receivable and longer collection periods;

•

changes in tax laws and interpretation of those laws;

•

taxes, tariffs, quotas, custom duties, trade barriers and other similar restrictions on our sales, purchases and exports which could be imposed by certain jurisdictions;

•

negative or unforeseen consequences resulting from the introduction, termination, modification, or renegotiation of international trade agreements or treaties or the imposition of countervailing measures or antidumping duties or similar tariffs;

•

difficulties enforcing intellectual property and contractual rights in certain jurisdictions; and

•

economic changes, geopolitical regional conflicts, including military conflict in the Middle East and the invasion of Ukraine by Russia, terrorist activity, political unrest, civil strife, acts of war, strikes and other economic or political uncertainties.

Significant political developments could also have a materially adverse effect on us.

In the United States, due to our substantial sales, distribution, import and manufacturing operations, potential or actual changes in fiscal, tax and labor policies could have uncertain and unexpected consequences that materially impact our business, results of operations and financial condition.

Tariffs, taxes, or other trade barriers could require us to change manufacturing sources, reduce prices, increase spending on marketing or product development, withdraw from or not enter certain markets or otherwise take actions that could be adverse to us. The U.S. federal government may propose additional changes to international trade agreements, tariffs, taxes, and other government rules and regulations. These regulatory changes could significantly impact on our business and financial performance. For example, the expansive sanctions being imposed by the U.S., EU and other countries against Russia, and any proposed changes to the prior imposition of tariffs on imports from China, Mexico, India and others. Given the unpredictable nature of the U.S.-China relationship and its sizable impact on global economic stability, our business and operating success may be materially adversely affected if recent normalization attempts by these two countries do not endure and additional tariffs or other restrictions on free trade are imposed by either country. Any such changes may impact the level of free trade or tariff prices on goods imported into the United States. Moreover, changes in U.S. political, regulatory, and economic conditions or in its policies governing international trade and foreign manufacturing and investment in the U.S. could adversely affect our sales in the U.S.

The regulatory framework for privacy and data security issues worldwide is currently in flux and is likely to remain so for the foreseeable future. A failure by us or a third-party contractor providing services to us to comply with applicable privacy and data security laws and regulations may result in sanctions, statutory or contractual damages or litigation.

All these risks could also result in increased costs or decreased revenues, either of which could have a materially adverse effect on our profitability. As we continue to expand our business globally, we may have difficulty anticipating and effectively managing these and other risks that our global operations may face, which may materially and adversely affect our business outside of Israel and our financial condition and results of operations.

Certain U.S. holders of our ordinary shares may suffer adverse tax consequences if we or any of our non-U.S. subsidiaries are characterized as a “controlled foreign corporation”, or a CFC, under Section 957(a) of the Internal Revenue Code of 1986, as amended.

A non-U.S. corporation is considered a CFC if more than 50% of (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the stock of such corporation, is owned, or is considered as owned by applying certain constructive ownership rules, by United States shareholders who each own stock representing 10% or more of the vote or 10% or more of the value on any day during the taxable year of such non-U.S. corporation (“10% U.S. Shareholder”). Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as CFCs (regardless of whether we are treated as a CFC). Generally, 10% U.S. Shareholders of a CFC are required to report annually and include currently in its U.S. taxable income such 10% U.S. Shareholder’s pro rata share of the CFC’s “Subpart F income”, “global intangible low-taxed income”, and investments in U.S. property by CFCs, regardless of whether we make an actual distribution to such shareholders. “Subpart F income” includes, among other things, certain passive income (such as income from dividends, interests, royalties, rents and annuities or gain from the sale of property that produces such types of income) and certain sales and services income arising in connection with transactions between the CFC and a person related to the CFC. An individual that is a 10% U.S. Shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a 10% U.S. Shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a 10% U.S. Shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a CFC or whether any investor is treated as a 10% U.S. Shareholder with respect to any such CFC or furnish to any 10% U.S. Shareholders information that may be necessary to comply with the aforementioned reporting and tax payment obligations. A United States investor should consult its tax advisors regarding the potential application of these rules to an investment in our ordinary shares.

Risks Related to our Relationship with Kibbutz Sdot-Yam

Our directors and employees who are members of Kibbutz Sdot-Yam and Tene may have conflicts of interest with respect to matters involving the Company.

As of March 1, 2024, the Kibbutz, together with Tene, being parties to a Shareholders Agreement, beneficially owned 14,029,494 constituting approximately 40.6% of our shares. Both the Kibbutz and Tene are deemed our controlling shareholders under the Israeli Companies Law, 5759-1999 (the “Companies Law”). For more information, see “ITEM 7.A. Major Shareholders and Related Party Transactions—Major Shareholders.” Three members of our board of directors and a number of our employees are members of the Kibbutz, and we continue to have an operational and business relationship with the Kibbutz. Certain of these individuals also serve in different positions in the Kibbutz, including Chairman of the Kibbutz’s Economic Council and its Chief Financial Officer. Such individuals have fiduciary duties to both us and Kibbutz Sdot-Yam. As a result, our directors who are members of the Kibbutz may have real or apparent conflicts of interest on matters affecting both us and the Kibbutz and, in some circumstances, such individuals may have interests adverse to us. For example, in the annual general meeting of our shareholders held in December 2015, the Kibbutz opposed the independent nominees our board of directors proposed to nominate to the board and suggested two alternative nominees identified by the Kibbutz as independent. In addition, our chairman of the board of directors, also serve as partner in Tene. Since these individuals have fiduciary duties to both us and Tene, there may be real or apparent conflicts of interest in this respect as well. See “ITEM 6.A: Directors, Senior Management and Employees—Directors and Senior Management.”

Regulators and other third parties may question whether our agreements with Kibbutz Sdot-Yam are no less favorable to us than if they had been negotiated with unaffiliated third parties.

Our headquarters, research and development facilities and our manufacturing facility in Israel is located on lands owned or leased by the Kibbutz. We have entered into certain land use and other agreements with the Kibbutz pursuant to which the Kibbutz provides us with, among other things, a portion of our labor force, electricity, maintenance, security, and other services. We believe that such services are rendered to us in the normal course of business, and they represent at arm’s length terms. Nevertheless, a determination with respect to such matters requires subjective judgments regarding valuations. Regulators and other third parties may question whether our agreements with the Kibbutz are in the ordinary course of our business and are no less favorable to us than if they had been negotiated with unaffiliated third parties. The tax treatment for these transactions may also be called into question, which could have a materially adverse impact on our operating results and financial condition. See “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”

Under Israeli law, our board, audit committee and shareholders may be required to reapprove certain of our agreements with Kibbutz Sdot-Yam every three years, and absence of such approval may expose us to liability and cause significant disruption to our business.

The Companies Law requires that the authorized corporate organs of a public company approve every three years any extraordinary transaction in which a controlling shareholder has a personal interest and that has a term of more than three years, unless a company’s audit committee determines, solely with respect to agreements that do not involve compensation to a controlling shareholder or his or her relatives, in connection with services rendered by any of them to the company or their employment with the company, that a longer term is reasonable under the circumstances. Our implementation of this requirement with respect to the agreements entered between us and the Kibbutz may be challenged by regulators and other third parties.

Our audit committee has determined that the terms of all the agreements entered between us and the Kibbutz are reasonable under the relevant circumstances. See “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.” The extension of our services agreement with the Kibbutz has been approved in 2021 under the Companies Law requirements and is subject to re-approval in 2024.

If the relevant corporate organs do not re-approve the agreements in accordance with the Companies Law, we will be required to terminate such agreements, which may expose us to damage claims and legal fees, and cause disruption to our business. In addition, we would be required to find suitable replacements for the services provided to us by the Kibbutz under the services agreement, which may take time, and we can provide no assurance that we can obtain the same or better terms with a third party than those we have agreed to with the Kibbutz.

Pursuant to certain agreements between us and Kibbutz Sdot-Yam, we depend on Kibbutz Sdot-Yam with respect to leasing the buildings and areas of our manufacturing facility in Israel.

Our Bar-Lev facility is leased from the Kibbutz pursuant to a land purchase and leaseback agreement effective as of September 1, 2012. The land purchase and leaseback agreements were simultaneously executed with a land use agreement pursuant to which the Kibbutz permits us to use the site for a period of ten years with an automatic renewal for an additional ten years unless we provide the Kibbutz two years’ advance notice that we do not wish to renew the lease. In 2021, the agreement was automatically extended for an additional ten-year period.

Our headquarters and R&D facilities remain in the Kibbutz, and are leased from the Kibbutz, pursuant to a land use agreement effective as of March 2012 for a period of 20 years. Pursuant to this agreement our headquarters must remain in the Kibbutz. As a result of these restrictions, our ability to move our Israeli headquarters elsewhere is limited. Our Sdot-Yam production facility ceased operations during 2023 as part of our operational restructuring plan announced in May 2023. Since then, we have been restoring the property, and begun marketing it in parcels for future sub-lease. Pursuant to our land use agreements, our ability to admit tenants requires the Kibbutz’s consent, which may limit our ability to effectively sublease and offset in whole or in part or land-use payments.

In addition, we entered into agreements with the Kibbutz with respect to our Bar-Lev and Sdot-Yam facilities, stating that in the event of a material change in the payments made by the Kibbutz to the Israeli lands administration (the “ILA”) or the Caesarea Development Corporation or changes in the market conditions, every three years the Kibbutz may appoint an independent appraiser to reassess the fees we agreed to pay to the Kibbutz in light of such changes. If an independent appraiser concludes that the fees payable by us to the Kibbutz for the Bar-Lev and Sdot-Yam facilities are below market, the Kibbutz can, in its sole discretion, adjust such fees to the market value with a binding effect on us. Such appraisal took place during 2021 and resulted in an increase of the lease fees. See “—Other factors impacting our results of operations— Agreements with Kibbutz Sdot-Yam.”

For more information with respect to our agreements with the Kibbutz, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”

Risks Related to our Ordinary Shares

The price of our ordinary shares may be volatile, and may be effected by expectations on our dividend payments and future impairments to our goodwill or other Intangible assets or other long-live.

The market price of our ordinary shares could be highly volatile and may fluctuate substantially (as indeed occurred in recent years during which our share price declined) as a result of many factors, including but not limited to (i) actual or anticipated fluctuations in our results of operations; (ii) our financial performance and the expectations of market analysts; (iii) announcements by us or our competitors of significant business developments, changes in distributor relationships, acquisitions or expansion plans; (iv) changes in the prices of our raw materials or the products we sell; (v) impact of regulatory changes on our industry (vi) our involvement in litigation, specifically for example, any adverse precedent set in Australia in connection with silica related claims; (vii) our sale of ordinary shares or other securities in the future; (viii) market conditions in our industry; (ix) changes in key personnel; (x) the trading volume of our ordinary shares; (xi) changes in the estimation of the future size and growth rate of our markets; (xii) changes in our board of directors, including director resignations; (xiii) actions of investors and shareholders, including short seller reports and proxy contests; (xiv) general economic and market conditions unrelated to our business or performance, such as increased shipping and handling markets, (xv) amount or timing of any dividend payments and may decide to pay dividends in the future or lack thereof nor their applicable tax rate.

As per the U.S. GAAP (ASC 350), we are required to test our goodwill for impairment an annual basis or whenever indicators for potential impairment exist. We are operating as one reporting unit for goodwill testing purposes. Due to the Company’s market capitalization, higher interest rates and global slowdown in our markets, we conducted a goodwill impairment testing for the period ended December 31, 2022. As a result of this testing, we recorded an aggregate $44.8 million non-cash impairment charge related to goodwill in the fiscal year 2022. As of December 31, 2023, and 2022 our goodwill was fully impaired and the balance of the other intangibles was $8.8 million and $6.3 million, respectively. See also Note 7 to the financial statements included elsewhere in this annual report.

In addition, we tested our long-lived assets due to the same reasons mentioned above and the closure of our Sdot-Yam and Richmond Hill facilities. Such impairment test was in accordance with U.S. GAAP rules (ASC 360) and resulted in an impairment charge of $26.4 million and $28.5 million in 2022 and 2023, respectively. During 2023, we also recorded a right of use asset of $16.6 million related to Sdot Yam facility. See also Note 6 to the financial statements included elsewhere in this annual report. We are now taking steps to optimize Sdot-Yam “sub-leases” and realize the sale of our Richmond-Hill assets, including Real-estate, however our efforts may not be as successful as we plan.

This testing involves estimates and significant judgments by management. We believe our assumptions and estimates are reasonable and appropriate; however additional adverse changes in key assumptions, including a failure to meet expected earnings or other financial plans, unanticipated events and circumstances such as changes in assumptions about the duration and magnitude of increased supply chain and commodities costs and our planned efforts to mitigate such impacts, further disruptions in the supply chain, increases in tax rates (including potential tax reform) or a significant change in industry or economic trends could affect the accuracy or validity of such estimates and may result in an additional impairment. Any charge or charges could adversely affect our results of operations. See “Critical Accounting Estimates” in Item 5 herein for more information regarding goodwill and other long lived assets impairment testing. Therefore, although we have recorded said impairment charges this year, we cannot guarantee that we will not experience goodwill, other intangible assets or long-lived assets impairments in the future.

Our share price is impacted by reports from research analysts, publicly announced financial guidance, investor perceptions and our ability to meet other expectations about our business.

The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. During 2021, two analysts discontinued research coverage of our business. If additional analysts do not establish research coverage, or if the current research analyst ceases coverage of our company or fails to publish reports on our Company regularly, we could lose visibility in the market and demand for our shares may decline, which might cause our share price and trading volume to decline.

The price of our ordinary shares could also decline if one or more securities analysts downgrade our ordinary shares or if one or more of those analysts issue other unfavorable commentaries. The market price for our ordinary shares has been in the past, and may be in the future, materially and adversely affected by statements made in reports issued by short sellers regarding our business model, our management and our financial accounting. In the past, we have also faced difficulty accurately projecting our earnings and have missed certain of our publicly announced guidance. If our financial results for that period do not meet our guidance or if we reduce our guidance for future periods, the market price of our ordinary shares may decline. We have experienced in the past, and may experience in the future, a decline in the value of our shares as a result of the foregoing factors and the other various factors reflected in the Item. For example, during the second quarter of 2023, our share price dropped to an all-time low of US$ 3.53 per share.

ESG and sustainability reporting is becoming more broadly expected by investors, shareholders and other third parties. We may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards set by our investors, shareholders, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve an acceptable ESG score. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our ordinary shares from consideration by certain investors. The ongoing focus on corporate responsibility matters by investors and other parties as described above may impose additional costs or expose us to new risks. See also “—Failure to meet ESG expectations or standards or achieve our ESG goals could adversely affect our business, results of operations, financial condition, or stock price.”

The substantial share ownership position of Kibbutz Sdot-Yam and Tene will limit your ability to influence corporate matters.

As of March 1, 2024, the Kibbutz and Tene beneficially owned 14,029,494 ordinary shares constituting 40.6% of our outstanding ordinary shares. As a result of this concentration of share ownership and their voting agreement described above, the Kibbutz and Tene are considered controlling shareholders under the Israeli Companies Law, and, acting on their own or together, will continue to have significant voting power on all matters submitted to our shareholders for approval. These matters include:

•

the composition of our board of directors (other than external directors);

•

approving or rejecting a merger, consolidation, or other business combination; and

•

amending our articles of association, which govern the rights attached to our ordinary shares.

This concentration of ownership of our ordinary shares could delay or prevent proxy contests initiated by other shareholders, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give you the opportunity to realize a premium over then-prevailing market price of our ordinary shares. The interests of the Kibbutz or Tene may not always coincide with the interests of our other shareholders. This concentration of ownership may also lead to proxy contests. For example, prior to the voting arrangement between Tene and the Kibbutz, in connection with our annual general meeting of shareholders held in December 2015, the Kibbutz issued a proxy to our shareholders, in which it opposed the independent nominees our board of directors proposed to nominate to the board and suggested two alternative nominees. Such initiatives, which may not coincide with the interests of our other shareholders, result in us incurring unexpected costs and could divert our management’s time and attention. This concentration of ownership may also materially and adversely affect our share price.

In recent years, Israeli issuers listed on securities exchanges in the United States have also been faced with governance-related demands from activist shareholders, unsolicited tender offers and proxy contests. Responding to these types of actions by activist shareholders could be costly and time-consuming for management and our employees and could disrupt our operations or business model in a way that would interfere with our ability to execute our strategic plan.

The market price of the Company’s ordinary shares could be negatively affected by future sales of our ordinary shares.

As of March 1, 2024, we had 34,536,236 shares outstanding. This included approximately 14,029,494 ordinary shares, or 40.6% of our outstanding ordinary shares, beneficially owned by the Kibbutz and Tene, which can be resold into the public markets in accordance with the restrictions of Rule 144, including volume limitations, applicable to resales by affiliates or holders of restricted securities.

Sales by our major shareholders, the Kibbutz, Tene or other large shareholders of a substantial number of our ordinary shares in the public market, or the perception that these sales might occur, could cause the market price of our ordinary shares to decline or could materially impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.

As of March 1, 2024, 5,775,000 ordinary shares were reserved for issuance under our 2011 option plan and our 2020 Share Incentive Plan of which options to purchase 2,641,550 ordinary shares were outstanding, with a weighted average exercise price of $7.49 per share, and 71,676 restricted stock units (“RSUs”) were outstanding. To the extent they are covered by our registration statements on Form S-8, these shares may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell.

Our articles of association designate the federal district courts of the United States as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders.

Our articles of association provide that, unless we consent in writing to the selection of an alternative forum, the U.S. federal district courts shall be the sole and exclusive forum for any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. We note that investors cannot waive compliance with U.S. federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions of our articles of association described above. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.

As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the rules of Nasdaq. We rely on this “home country practice exemption” with respect to the quorum requirement for shareholder meetings. Whereas under the listing rules of the Nasdaq Stock Market, a quorum requires the presence, in person or by proxy, of holders of at least 331/3% of the total issued outstanding voting power of our shares at each general meeting of shareholders, pursuant to our articles of association, and as permitted under the Companies Law, the quorum required for a general meeting of shareholders consists of at least two shareholders present in person or by proxy in accordance with the Companies Law, who hold or represent at least 33 1/3% of the total outstanding voting power of our shares, except if (i) any such general meeting of shareholders was initiated by and convened pursuant to a resolution adopted by the board of directors and (ii) at the time of such general meeting, we qualify to use the forms and rules of a “foreign private issuer,” the requisite quorum will consist of two or more shareholders present in person or by proxy who hold or represent at least 25% of the total outstanding voting power of our shares (and if the meeting is adjourned for a lack of quorum, the quorum for such adjourned meeting will be, subject to certain exceptions, any number of shareholders).

In the future, we may also choose to follow Israeli corporate governance practices instead of Nasdaq requirements with regard to, among other things, the composition of our board of directors, compensation of officers and director nomination procedures. In addition, we may choose to follow Israeli corporate governance practice instead of Nasdaq requirements with respect to shareholder approval for certain dilutive events (such as for issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company) and for the adoption of, and material changes to, equity incentive plans. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules. Following our home country governance practices, as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Global Select Market, may provide less protection than is accorded to investors of domestic issuers. See “ITEM 16G: Corporate Governance.”

As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.

As a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, we are permitted to disclose limited compensation information for our executive officers on an individual basis and we are generally exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. These exemptions and leniencies reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.

We would lose our foreign private issuer status if (a) a majority of our outstanding voting securities were either directly or indirectly owned of record by residents of the United States and (b)(i) a majority of our executive officers or directors were United States citizens or residents, (ii) more than 50% of our assets were located in the United States or (iii) our business were administered principally in the United States. Our loss of foreign private issuer status would make U.S. regulatory provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon Nasdaq exemptions from certain corporate governance requirements that are available to foreign private issuers.

Risks Relating to our Incorporation and Location in Israel

Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and elsewhere in the region, and Israel’s war against them, may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues.

Important aspects of our operations are conducted in or managed from Israel, and a majority of the members of our board of directors and management as well as a many of our employees and consultants and customers and consumers, are directly affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.

In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks.

The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s economic implications on the Company’s business and operations and on Israel’s economy in general. These events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s economic standing, which may have a material adverse effect on the Company and its ability to effectively conduct its operations. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization) and southern border (with the Houthi movement in Yemen, as described below). It is possible that hostilities with Hezbollah in Lebanon will escalate, and that other terrorist organizations, including Palestinian military organizations in the West Bank as well as other hostile countries, such as Iran, will join the hostilities. Such clashes may escalate in the future into a greater regional conflict.

In connection with the Israeli security cabinet’s declaration of war against Hamas and possible hostilities with other organizations, several hundred thousand Israeli military reservists were drafted to perform immediate military service. Although many of such military reservists have since been released, they may be called up for additional reserve duty, depending on developments in the war in Gaza and along Israel’s other borders. 42 of our employees and in Israel have been called for reserve duties, and additional employees may be called, for service in the current or future wars or other armed conflicts with Hamas, as well as the other pending or future armed conflicts in which Israel is or may become engaged, and such persons may be absent for an extended period of time. As a result, our operations may be disrupted by such absences, which disruption may materially and adversely affect our business and the results of operations. Additionally, the absence of employees of our Israeli suppliers and contract manufacturers due to their military service in the current or future wars or other armed conflicts may disrupt their operations, which in turn may materially and adversely affect our ability to deliver or provide products and services to customers.

The hostilities with Hamas, Hezbollah and other organizations and countries have included and may include terror, missile and drone attacks. In the event that our facilities are damaged as a result of hostile actions, or hostilities otherwise disrupt our ongoing operations, our ability to deliver or provide products and services in a timely manner to meet our contractual obligations towards customers and vendors could be materially and adversely affected. Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that such government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damage incurred by us could have a material adverse effect on our business. In addition, some countries around the world restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase. These restrictions may limit materially our ability to obtain raw materials from these countries or sell our products and provide our services to companies and customers in these countries. In addition, there have been increased efforts by activists and organizations to cause companies and consumers to boycott Israeli goods and services. In addition, in January 2024 the International Court of Justice, or ICJ, issued an interim ruling in a case filed by South Africa against Israel in December 2023, making allegations of genocide amid and in connection with the war in Gaza, and ordered Israel, among other things, to take measures to prevent genocidal acts, prevent and punish incitement to genocide, and take steps to provide basic services and humanitarian aid to civilians in Gaza. There are concerns that companies and businesses will terminate, and may have already terminated, certain commercial relationships with Israeli companies following the ICJ decision with the proceedings themselves may have a reputational adverse effect on Israeli brands, and so on our results. The foregoing efforts by countries, activists and organizations, particularly if they become more widespread, as well as the ICJ rulings and future rulings and orders of other tribunals against Israel (if handed), may materially and adversely impact our ability to sell and provide our products and services outside of Israel.

Furthermore, following Hamas’ attack on Israel and Israel’s security cabinet declaration of war against Hamas, the Houthi movement, which controls parts of Yemen, launched a number of attacks on marine vessels traversing the Red Sea, which marine vessels were thought to either be in route towards Israel or to be partly owned by Israeli businessmen. The Red Sea is a vital maritime route for international trade traveling to or from Israel. As a result of such disruptions, we have experienced in the past and may experience in the future delays in obtaining raw materials and other products upon which we rely, extended lead times, and increased cost of freight, increased insurance costs, purchased materials and manufacturing labor costs. The risk of ongoing supply disruptions may further result in delayed deliveries of our products. See “Adverse global conditions, including macroeconomic slowdowns or even recessions and the geopolitical instability, may negatively impact our financial results.”

Finally, political conditions within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. In response to such initiative, many individuals, organizations and institutions, both within and outside of Israel, voiced concerns that the proposed changes may negatively impact the business environment in Israel including due to reluctance of foreign investors to invest or transact business in Israel, as well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security markets and other changes in macroeconomic conditions. To date, these initiatives have been substantially put on hold. If such changes to Israel’s judicial system are again pursued by the government and approved by the parliament, this may have an adverse effect on our business, our results of operations and our ability to raise additional funds, if deemed necessary by our management and board of directors.

Our operations may be affected by negative economic conditions or labor unrest in Israel.

General strikes or work stoppages, including at Israeli seaports, have occurred periodically or have been threatened in the past by Israeli trade unions due to labor disputes. These general strikes or work stoppages may have a materially adverse effect on the Israeli economy and on our business, including our ability to deliver products to our customers and to receive raw materials from our suppliers in a timely manner. These general strikes or work stoppages, in Israel or in other countries where we, our subsidiaries, suppliers and distributors operate, may prevent us from shipping raw materials and equipment required for our production and shipping our products by sea or otherwise to our customers, which could have a materially adverse effect on our results of operations. Specifically, our Israeli operations are highly dependent on the free exchanges of goods (whether raw material into Israel or finished product export), a trade that is made possible through a limited number of seaports in Israel. Current pressures experienced by Israeli ports, planned governmental reforms and dock workers unions responses could lead to strikes or other disruptions in the ports operations could affect our ability to operate out Israeli facilities or our export our product, which could have a materially adverse effect on our results of operations.

Since none of our employees work under any collective bargaining agreements, extension orders issued by the IMEI apply to us and affect matters such as cost of living adjustments to salaries, length of working hours and work week, recuperation pay, travel expenses, and pension rights. Any labor disputes over such matters could result in a work stoppage or strikes by employees that could delay or interrupt our output of products. Any strike, work stoppages or interruption in manufacturing could result in a failure to meet contractual obligations or in delays, including in our ability to manufacture and deliver products to our customers in a timely manner, and could have a materially adverse effect on our relationships with our distributors and on our financial results.

If a union of our employees is formed in the future, we may enter into a collective bargaining agreement with our employees, which may increase our costs and limit our managerial freedom, and if we are unable to reach a collective bargaining agreement, we may become subject to strikes and work stoppages, all of which may materially and adversely affect our business.

The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

Our Israeli facilities have been granted “Preferred Enterprise” status by the Israeli Authority for Investment and Development of the Industry and Economy (“Investment Center”), which provides us with investment grants (in respect of certain Approved Enterprise programs) and makes us eligible for tax benefits under the Investment Law.

In order to remain eligible for the tax benefits of a “Preferred Enterprise” we must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and in certificates of approval issued by the Investment Center (in respect of Approved Enterprise programs), which may include, among other things, selling more than 25% of our products to markets of over 14 million residents in 2012 (such export criteria will further be increased in the future by 1.4% per annum) in a specific tax year, making specified investments in fixed assets and equipment, financing a percentage of those investments with our capital contributions, filing certain reports with the Investment Center, complying with provisions regarding intellectual property and the criteria set forth in the specific certificate of approval issued by the Investment Center or the ITA. If we do not meet these requirements, the tax benefits could be canceled and we could be required to refund any tax benefits and investment grants that we received in the past adjusted to the Israeli consumer price index and interest, or other monetary penalties. Further, in the future, these tax benefits may be reduced or discontinued. If these tax benefits are cancelled, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies has been 23% since 2018.

Effective as of January 1, 2011, the Investment Law was amended (“Amendment No. 68” or the “2011 Amendment”). Under Amendment No. 68, the criteria for receiving tax benefits were revised. In the future, we may not be eligible to receive additional tax benefits under this law. The termination or reduction of these tax benefits would increase our tax liability, which would reduce our profits. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible to be included in future Israeli tax benefit programs. We may lose all our tax benefits in Israel in the event that our manufacturing operations outside of Israel exceed certain production levels (currently set at 50% of the overall production and subject to future changes by the ITA). We do not foresee such circumstances as probable in the coming years. From 2017 onward, our current Preferred, the tax rate for the portion of our income related to the Bar-Lev manufacturing facility was reduced to 7.5% and Sdot-Yam tax rate 16%. During 2023 the company launched a restructuring plan, closing Sdot-Yam manufacturing facility, resulting future tax benefits to be received only from income relates to the Bar-Lev manufacturing facility.

Historically, some portions of income were tax exempt, but that is no longer the case. In the event of a distribution of a dividend from the tax-exempt income described above, we will be subject to tax at the corporate tax rate applicable to our Approved Enterprise’s and Beneficiary Enterprise’s income on the amount distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) in accordance with the effective corporate tax rate that would have been applied had we not relied on the exemption. In addition to the reduced tax rate, a distribution of income attributed to an “Approved Enterprise” and a “Beneficiary Enterprise” will be subject to 15% withholding tax (or a reduced rate under an applicable double tax treaty, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). As for a “Preferred Enterprise,” dividends are generally subject to 20% withholding tax from 2014 (or a reduced rate under an applicable double tax treaty, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). However, because we announced our election to apply the provisions of Amendment No. 68 prior to June 30, 2015, we will be entitled to distribute exempt income generated by any Approved/Beneficiary Enterprise to our Israeli corporate shareholders tax free (See “ITEM 10.E: Additional Information—Taxation—Israeli tax considerations and government programs—Law for the Encouragement of Capital Investments, 1959”).

The amendment to the Investment Law stipulated those investments in subsidiaries, including in the form of acquisitions of subsidiaries from an unrelated party, may also be considered as a deemed dividend distribution event, increasing the risk of triggering a deemed dividend distribution event and potential tax exposure. The ITA’s interpretation is that this provision applies retroactively to investments and acquisitions made prior to the amendment.

It may be difficult to enforce a U.S. judgment against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.

We are incorporated in Israel. Other than one director, none of our directors, or our independent registered public accounting firm, is a resident of the United States. None of our executive officers is resident in the United States. The majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.

Our articles of association provide that unless we consent otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between us and our shareholders under the Companies Law and the Israeli Securities Law, which could limit our shareholders’ ability to bring claims and proceedings against, as well as obtain a favorable judicial forum for disputes with, us and our directors, officers and other employees.

Unless we consent in writing to the selection of an alternative forum, the competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which U.S. federal courts would have exclusive jurisdiction. Such exclusive forum provision in our articles of association will not relieve us of our duties to comply with U.S. federal securities laws and the rules and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules, and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees.

Your rights and responsibilities as our shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of United States corporations.

Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in the company or has another power with respect to the company, has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “ITEM 6.C: Directors, Senior Management and Employees—Board Practices—Board Practices—Fiduciary duties and approval of specified related party transactions under Israeli law—Duties of shareholders.” Additionally, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined by the Israeli courts. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of United States corporations.

Provisions of Israeli law and our articles of association may delay, prevent or make undesirable a merger transaction, or an acquisition of all or a significant portion of our shares.

Provisions of Israeli law, including the Companies Law and our articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third-party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares. Among other things:

•	the Companies Law regulates mergers and requires that a tender offer be affected when more than a specified percentage of shares in a company are purchased;
•	the Companies Law requires special approvals for certain transactions involving directors, officers or certain significant shareholders and regulates other matters that may be relevant to these types of transactions;
•	the Companies Law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;
•	an amendment to our articles of association will generally require, in addition to the approval of our board of directors, a vote of the holders of a majority of our outstanding ordinary shares entitled to vote and present and voting on the matter at a general meeting of shareholders (referred to as simple majority), and the amendment of a limited number of provisions, such as increases to the size of the board of directors and the ability for the board of directors to effect vacancy appointments, requires a vote of the holders of at least 65% of the total voting power of our shareholders; and
•	our articles of association provide that director vacancies may be filled by our board of directors.

Israeli tax considerations may also make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of up to two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. See “ITEM 10.B: Additional Information—Memorandum and Articles of Association—Acquisitions under Israeli law.”

Under Israeli law, our two external directors have terms of office of three years and may serve up to three terms. Our current external directors have been elected by our shareholders to serve for a second term of a three-year term commencing December 1, 2023.

These provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.

If we are considered to have sizable market power under Israeli law, we could be subject to certain restrictions that may limit our ability to freely conduct our business to which our competitors may not be subject.

Under the Israeli Economic Competition law (formerly, the Restrictive Trade Practices Law, 1988) (the “Israeli Competition Law”), a company that holds significant market power in a relevant market, is subject to certain business practices, designed against its abuse of its market powers. If we are indeed deemed to have major market share, a sizable market power and the relevant regulator believes we have abused our position in the market by, it could serve as prima facie evidence in private actions or class actions against us alleging that we have engaged in anti-competitive behavior. Furthermore, the Commissioner may order us to take or refrain from taking certain actions, which could limit our ability to freely conduct our business.

Sales in Israel accounted for approximately 4% of our revenues in 2023. We have a significant market position in certain jurisdictions outside of Israel and cannot assure you that we are not, or will not become, subject to the laws relating to the use of dominant product positions in particular countries, which laws could limit our business practices and our ability to consummate acquisitions.

If we fail to comply with Israeli law restrictions concerning employment of Jewish employees on Saturdays and Jewish holidays, we and our office holders may be exposed to administrative and criminal liabilities and our operational and financial results may be materially and adversely impacted.

We are subject to the Israeli Hours of Work and Rest Law, 1951 (“Rest Law”), which imposes certain restriction on the employment terms and conditions of our employees. Among others, the Rest Law prohibits the employment of Jewish employees on Saturdays and Jewish holidays, unless a permit is obtained from the IMEI. Employment of Jewish employees on such days without a permit constitutes a violation of the Rest Law. We received a permit from the IMEI to employ Jewish employees on Saturdays and Jewish holidays in connection with most of the production machinery in our Sdot-Yam facility, effective until December 30, 2024. There is no assurance that we will be able to maintain such permit while we do not actually employ Jewish employees on Saturdays, or, if cancelled by the IMEI, that we will be able to obtain such permit in the future. If we fail to obtain such permit in the future or if we are deemed to be in any violation of the Rest Law, we may be required to halt operations of our manufacturing facilities on Saturdays and Jewish holidays, we and our officers may be exposed to administrative and criminal liabilities, including fines, and our ability to utilize our Sdot-Yam facility and therefore our operational and financial results could be materially and adversely impacted.

General Risk Factors

If we do not manage our inventory effectively, our results of operations could be materially adversely affected.

We must manage our inventory effectively in order to meet the demand for our products. If our forecasts for any Specific Stock Keeping Unit (“SKU”) exceed actual demand, we could experience excess inventory, resulting in increased logistic costs. If we ultimately determine that we have excess inventory, we may have to reduce our prices and write-down inventory which could have an adverse effect on our business, financial condition and results of operations. If we have insufficient inventory levels, we may not be able to respond to the market demand for our products, resulting in reduced sales and market share.

We depend on our senior management team and other skilled and experienced personnel to operate our business effectively, and the loss of any of these individuals could materially and adversely affect our business and our future financial condition or results of operations.

We are dependent on the skills and experience of our senior management team and other skilled and experienced personnel. These individuals possess strategic, managerial, sales, marketing, operational, manufacturing, logistical, financial and administrative skills that are important to the operation of our business. There have been, and from time to time, there may continue to be, changes in our management team resulting from the hiring or departure of executives and key employees, or the transition of executives within our business. For example, Mr. Shiran replaced Yuval Dagim as our Chief Executive Officer on March 16, 2023, and six of our current 14 members of the management team have joined since such date. Such changes and transitions in our executive management team may divert resources and focus away from the operation of our business. Furthermore, in recent years we experienced a trend of relatively high turnover in some sites and roles.

Retention of institutional knowledge and the ability to attract, motivate and retain personnel, as well as the ability to successfully onboard our senior management as a team comprised of several new members, are crucial for implementing our business strategy, without which our business and our future financial condition or results of operations could suffer materially and adversely. We do not carry key man insurance with respect to any of our executive officers or other employees. We cannot assure you that we will be able to retain all our existing senior management personnel and key personnel or to attract additional qualified personnel when needed.

The market for qualified personnel is competitive in the geographies in which we operate. Moreover, the COVID-19 pandemic has also caused a shift to virtual or hybrid recruiting and employment, which has increased the difficulty in timely attracting new employees, integrating, and introducing them into our corporate culture and retaining them for the longer term. Companies with whom we compete have expended and will likely continue to expend more resources than we do on employee recruitment and are often better able to offer more favorable compensation and incentive packages than we can. We seek to retain and motivate existing personnel through our compensation practices, company culture, and career development opportunities. If we are unable to attract and retain qualified personnel when and where they are needed, our ability to operate and grow our business could be impaired. Moreover, if we are not able to properly balance investment in personnel with sales, our profitability may be adversely affected.

In addition, factors beyond our control may damage or disrupt the ability of our senior management or key employees to perform their critical roles in the Company.

ITEM 4: Information on the Company

A.	History and Development of the Company

Our History

Caesarstone Ltd. was founded in 1987 and incorporated in 1989 in the State of Israel. We began as a leading manufacturer of high-end quartz based engineered surfaces used primarily as countertops in residential and commercial buildings, and we are now a global multi material, multi-application designer, producer, and reseller of surfaces. We design, develop produce and source engineered stone, natural stone and porcelain products that offer aesthetic appeal and functionality through a distinct variety of colors, styles, textures, and finishes used primarily as countertops surfaces, vanities, and other interior and exterior spaces.

Our products are currently sold in over 60 countries through a combination of direct sales in certain markets performed by our subsidiaries and indirectly through a network of independent distributors in other markets. We acquired the businesses of our former Australian, Canadian, U.S. and Singaporean distributors, and established such businesses within our own subsidiaries in such countries. In March 2012, we listed our shares on the Nasdaq Global Select Market. In 2017, we started selling our products in the U.K. directly through our U.K. subsidiary, Caesarstone (UK) Ltd. In October 2020, we acquired a majority stake in Lioli, an India-based producer of porcelain slabs, which also sells its porcelain products in India and other markets. In December 2020, we acquired Omicron, a premier stone supplier which operated several locations across Florida, Ohio, Michigan, and Louisiana. We now generate a substantial portion of our revenues in the United States, Australia, and Canada from direct distribution of our products. In July 2022, we also acquired our distributor in Sweden and established Caesarstone Scandinavia.

During 2023, our manufacturing network has been undergoing restructuring, with the focus of optimizing our global production footprint. As part of this strategic plan, we shifted our focus from production activities and discontinued production operations in our Sdot Yam, Israel, and Richmond Hill, GA, USA, production facilities.

We are a company limited by shares organized under the laws of the State of Israel. We are registered with the Israeli Registrar of Companies in Jerusalem. Our registration number is 51-143950-7. Our principal executive offices are located at Kibbutz Sdot-Yam, MP Menashe, 3780400, Israel, and our telephone number is +972 (4) 610-9368. We have irrevocably appointed Caesarstone USA as our agent for service of process in any action against us in any United States federal or state court. The address of Caesarstone USA is 1401 W. Morehead Street, Suite 100, Charlotte, NC, 28208. The SEC maintains an internet site at http:/www.sec.gov that contains reports and other information regarding issues that file electronically with the SEC. Our securities filings, including this annual report and the exhibits thereto, are available on the SEC’s website. For more information about us, our website is www.caesarstone.com. The information contained in, or connected with, our SEC filings on the SEC internet site and our website shall not be deemed to be incorporated by reference in this annual report.

Principal Capital Expenditures

Our capital expenditures for fiscal years 2023, 2022 and 2021 amounted to $11.2 million, $17.8 million, and $31.5 million, respectively. The majority of our investment activities have historically been related to the purchase of manufacturing equipment and components for our production lines. For additional information on our capital expenditures, see “ITEM 5.B: Liquidity and Capital Resources–Capital expenditures.”

B.	Business Overview

We are a multi material designer, producer and reseller of countertops used in residential and commercial buildings globally. Based on the Freedonia Report The global countertop industry generated approximately $160.6 billion in sales to end consumers in 2022 based on average installed price, which includes fabrication, installation and other service-related costs, as per the following charts:

The majority of our sales are at the wholesale level to fabricators and distributors and exclude fabrication, installation and other service-related costs.

The engineered quartz countertop is a growing category in the countertop market and continues to take market share from other materials, such as granite, manufactured solid surfaces and laminate. Between 1999 and 2022, global engineered quartz sales to end-consumers grew at a compound annual growth rate of 16.2% compared to a 6.0% compound annual growth rate in total global countertop sales to end-consumers during the same period. In 2022, we successfully launched the marketing and sales of porcelain countertops under the Caesarstone brand following the Lioli Acquisition. Porcelain represents one of the fastest growing categories in the global countertop market and between 2016 and 2022, the porcelain sales to end-consumers grew at a compound annual growth rate of 36%.

In recent years, quartz penetration rate, by volume, other than in Israel, increased in our key markets, as detailed in the following chart:

Quartz penetration in our key markets

	For the year ended December 31,
	2022			2020			2016			2014			2012
Region
United States		21	%		20	%		14	%		8	%		6	%
Australia (not including New Zealand)		48	%		47	%		45	%		39	%		35	%
Canada		27	%		28	%		24	%		18	%		12	%
Israel (*)		53	%		67	%		87	%		86	%		85	%

(*) In Israel, quartz lost market share mainly to porcelain, which increased its market share from a de-minimis rate in 2016 to over 34% in 2022.

Our products consist primarily of engineered stone fabrication and installation related services, natural stone and porcelain slabs that are currently sold in over 60 countries through a combination of direct sales in certain markets and indirectly through a network of independent distributors in other markets. Our products are primarily used as indoor & outdoor kitchen countertops in the renovation and remodeling and residential construction end markets. Other applications for our products include vanity tops, back splashes, furniture, and other interior and exterior surfaces that are used in a variety of residential and non-residential applications. High quality engineered stone offers durability, non-porous characteristics, superior scratch, stains and heat resistance levels, making it durable and ideal for kitchen and other applications relative to competing products such as granite, manufactured solid surfaces and laminate. Porcelain is characterized by its hardness and its stain resistance, as well as extreme heat and UV resistance. Through our design and manufacturing processes we can offer a wide variety of compositions, colors, styles, designs, and textures.

From 2010 to 2023, our revenue grew at a compound annual growth rate of 8.4%. From 2022 to 2023, our revenue decreased at an annual rate of 18.2%. In 2023, we generated revenue of $565.2 million, net loss of $107.7 million attributable to controlling interest, which included a one-time non-cash impairment charge of $47.9 million, an adjusted EBITDA loss of $9.4 million and adjusted net loss attributable to controlling interest of $46.4 million. Adjusted EBITDA and adjusted net income attributable to controlling interest are non-GAAP financial measures. See “ITEM 4.B: Information on the Company—Business Overview—Non-GAAP Financial Measures” below for a description of how we define adjusted EBITDA and adjusted net income attributable to controlling interest and reconciliations of net income to adjusted EBITDA and net income attributable to controlling interest to adjusted net income attributable to controlling interest.

Not as projected by the Freedonia report, our primary markets, and potentially engineered stone penetration have slowed down during 2023, which we believe is attributable to macroeconomics with higher global interest rates and inflation, as well as uncertainties relating to the changes in the Australian market that may further affect the realization of such projections during 2024.

Our Products

Our products are generally marketed under the Caesarstone brand. Currently, our porcelain products manufactured in India are marketed either under the Caesarstone brand, mainly for counter-top applications in selected markets, and under the existing Lioli brand mainly for flooring and cladding applications. Most of our engineered stone and Porcelain products are installed as countertops in residential kitchens. Other applications of our products include vanity tops, back splashes, and exterior surfaces for outdoor kitchens. In addition, we sell natural stone, sinks and various ancillary fabrication tools and materials. Our standard size engineered stone slabs measure 120 inches long by 56 1/2 inches wide, with a thickness option of 1/2, 3/4, or 1 1/4 inches. Our jumbo slabs, constituting the majority of our products, measure 131 1/2 inches long by 64 1/2 inches wide, with a thickness of 3/4 or 1 1/4 inches. On average engineered stone surfaces are comprised on average of 85% minerals blended with polyester, and pigments. Our engineered stone products’ manufacturing processes and composition gives them superior strength and resistance levels to heat impact, scratches, cracks and stains. Pigments act as a dyeing agent to vary our products’ colors and patterns. Our standard size porcelain countertop slabs measure 126 inches long by 63 inches wide, 94.5 inches long by 47 inches wide and 47 inches by 47 inches mm, with a thickness of 1/2 inches, 1/3 inches and 1/4 inches, in a range of matt finishes. Porcelain surfaces are typically comprised of clay minerals, natural minerals, and additives, and offer non-porous characteristics as well as scratch and heat resistance.

We design our products with a wide range of colors, finishes, textures, thicknesses, and physical properties, which help us meet the different functional and aesthetic demands of end-consumers. Our designs range from fine-grained patterns to coarse-grained color blends with a variegated visual texture. Through offering new designs, we capitalize on Caesarstone’s brand name and foster our position as a leading innovator in the counter-top space.

Our product offerings consist of a few collections (Classico, Supernatural, Metropolitan, Outdoor and recently Porcelain), each of which is designed to have a distinct aesthetic appeal. We use a multi-tiered pricing model across our products and within each product collection ranging from lower price points to higher price points. Each product collection is designed, branded, and marketed with the goal of reinforcing our products’ premium quality.

We introduced our original product collection, Classico, in 1987. Launched in 2012, our Supernatural collection, which is marketed as specialty high-end, offers designs inspired by natural stone and which are manufactured using proprietary technology. In 2018, we launched our new Metropolitan collection, inspired by the rough and unpolished textures found in industrial architecture. In 2020, we introduced our Outdoor collection, an innovative product category, which comprises stain resistant surfaces, made of a highly durable material, proven to withstand UV-rays and the most extreme environmental conditions over a long term, intended for use in outdoor kitchens spaces. Following the Lioli Acquisition we began offering porcelain products as well for countertops as well as flooring and cladding applications.

We regularly introduce new colors and designs to our product collections based on consumer trends. We offer over 70 different colors of engineered stone products, with five textures and three thicknesses generally available for each collection.

In addition, following the Omicron Acquisition, we now offer to our customers in the United States resale of natural stone, as well as various ancillaries and fabrication and installation accessories.

A key focus of our product development is a commitment to substantiating our claim of our products’ superior quality, strength, and durability. Our products undergo ongoing tests for durability and flexural strength internally by our internal laboratory operations group and by external accreditation laboratories and organizations. Products in our portfolio are accredited by organizations overseeing safety, Food contact and environment performance, such as the NSF International and GREENGUARD Indoor Air Quality. Generally, our products support green building projects and allow contractors to receive Leadership in Energy and Design (“LEED”) points for projects incorporating our products.

Distribution

Our four largest markets based on sales are currently the United States, Australia (including New Zealand), Canada and Israel. In 2023, sales of our products in these markets accounted for 48.1%, 18.8%, 13.4% and 4.2% of our revenues, respectively. Total sales in these markets accounted for 84.2% of our revenues in 2023. For a breakdown of revenues by geographic market for the last three fiscal years, see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results.”

Direct Markets

We currently have direct sales channels in the United States, Australia, Canada, Israel, the United Kingdom (“U.K.”), Sweden (Scandinavia), India, and Singapore. Our direct sales channels allow us to maintain greater control over the entire sales channel within a market. As a result, we gain greater insight into market trends, receive feedback more readily from end-consumers, fabricators, architects and designers regarding new developments in tastes and preferences, and have greater control over inventory management. Our subsidiaries’ warehouses in each of these countries maintain inventories of our products and are connected to each subsidiary’s sales department. We supply our products primarily to wholesalers, resellers and fabricators, who in turn resell them to contractors, developers, builders and consumers, who are generally advised by architects and designers. In certain market channels in the U.S., Canada Israel and Australia, we also provide, together with our products, fabrication and installation services, which we source from third party fabricators. We believe that our supply of a fabricated and installed Caesarstone countertop is a competitive advantage in such channels, which enables us to better control our products’ prices as well as to promote a full solution to our customers, while in some of these cases our products are sold under different brands.

During the second half of 2022, we made changes to our distribution strategic in the Israeli market, and began selling directly to major fabricators, in addition to selling through a handful of local distributers Although we still sell our products to distributors in this market, we consider this a direct market due to the warranty we provide to end-consumers, as well as our fabricator technical and health and safety instruction programs and our local sales and marketing activities. In the United States, Australia, Canada, the United Kingdom, Sweden (Scandinavia) and Singapore we have established direct distribution channels with distribution locations in major urban centers complemented by arrangements with various third parties, sub-distributors or stone suppliers in certain areas of the United States.

Indirect Markets

We distribute our products in other territories in which we do not have a direct sales channel through third-party distributors, who generally distribute our products to fabricators on an exclusive or non-exclusive basis in a specific country or region. Fabricators sell our products to contractors, developers, builders and consumers. In some cases, our distributors operate their own fabrication facilities. Additionally, our distributors may sell to sub-distributors located within the territory who in turn sell to fabricators.

In most cases, we engage one or more distributors to serve a country or territory. Today, we sell our products in over 50 countries through third-party distributors, and to over 60 countries in total. Sales to third-party distributors in such indirect markets accounted for approximately 11% of our revenues in 2023. This strategy often allows us to accelerate our penetration into multiple new markets. Our distributors typically have prior stone surface experience and close relationships with fabricators, builders and contractors within their respective territory.

We work closely with our distributors to assist them in preparing and executing a marketing strategy and comprehensive business plan. Ultimately, however, our distributors are responsible for the sales and marketing of our products and providing technical support to their customers within their respective territories. To assist some of our distributors in the promotion of our brand in these markets, we provide marketing materials and in certain cases, monetary participation in marketing activities. Our distributors devote significant effort and resources to generating and maintaining demand for our products along all levels of the product supply chain in their territory. To this end, distributors use our marketing products and strategies to develop relationships with local builders, contractors, developers, kitchen and bath retailers, architects and designers. Certain distributors, as well as sub-distributors, do not engage in brand promotion activities and their activities are limited to sales promotion, warehousing and distributing to fabricators or other customers.

We do not control the pricing terms of our distributors or sub-distributors’ sales to customers, nor do we control their purchasing and inventory policy. As a result, prices for our products may vary and their inventory policies may affect their purchases.

Sales and Marketing

Sales

We manufacture or source our products based upon our rolling projections of the demand for our products.

From 2019 and through 2023, we operated under a regional structure which consists of North America, APAC, EMEA and Israel. Commencing 2024 each of our subsidiaries is responsible for its direct revenues, with the responsibility of the majority of third-party distribution partners handled by our Rest of World team.

We believe our products still have significant growth opportunities in the United States, Canada and Europe. For information on sales trends in the markets in which we operate, see “ITEM 5: Operating and Financial Review and Prospects—Components of statement of income”. In 2016, we established a direct sales channel in the United Kingdom and starting in January 2017 we have been selling and distributing our products in the U.K. directly through our U.K. subsidiary. In December 2020, we acquired Omicron, a premier stone supplier servicing the Florida, Ohio, Michigan, and Louisiana markets in the U.S. In July 2022, we acquired a leading distributor in Sweden, establishing first direct Go-To-Market presence in E.U. under Caesarstone Scandinavia AB. We intend to continue to invest resources to further strengthen and increase our penetration in our existing markets. We are also exploring alternative sales channels and methodologies to further enhance our presence in each market.

Marketing

We position our engineered stone, porcelain and natural stone surfaces as premium branded products in terms of their designs, quality and pricing. Through our marketing, we seek to convey our products’ ability to elevate the overall design and quality of an entire kitchen or other setting. Our marketing strategy is to deliver this message every time our end-consumers, customers, fabricators, architects and designers meet our brand. We also aim to communicate our position as a design-oriented global leader in engineered surfaces innovation and technology.

The goal of our marketing activities is to drive marketing and sales efforts across the regions, while creating demand for our products from end-consumers, kitchen and bath retailers, fabricators, contractors, architects and designers, which we refer to as a “push-and-pull demand strategy.” We combine both pushing our brand and products through all levels of the product supply chain while generating demand from end-consumers as a complementary strategy.

We implement a multi-channel marketing strategy in each of our territories and market not only to our direct customers, but to the entire product supply chain, including fabricators, developers, contractors, kitchen retailers, builders, architects and designers. Such marketing channels include, among others: advertisements in home interior magazines and websites, the placement of our display stands and sample books in kitchen retails stores and our company’s website and social media presence. We share professional knowledge with fabricators about our products and their capabilities, installation methods and safety requirements through manuals, seminars and webinars. In addition, our “Master of Stone” program operates as an online training platform, with content aimed at educating fabricators on the topics of Health & Safety, professional know-how and added value content for fabrication plant managers and making safety and professional working guidelines accessible to our fabricators worldwide.

Our marketing materials are developed by our global marketing department in Israel and are used globally, in addition to local marketing initiatives in the regions. In 2023, we spent $15.7 million on direct marketing and promotional activities.

Our digital platforms’ websites are a key part of our marketing strategy enabling us to create data-driven personal relationships, on and off site, in order to increase engagement and conversion to sale. Our websites enable our business partners, customers and end-consumers to view currently available designs, photo galleries of installations of our products in a wide range of settings, instructions with respect to the correct usage of our products and offer an innovative cutting-edge experience with rich content and interactive tools to empower and guide consumers at any stage of their renovation journey. We also conduct marketing activity in the social media arena mainly to increase our brand awareness among end-consumers, architects and designers.

We also seek to increase awareness of our brand and products through a range of other methods, such as trade shows, home design shows, design competitions, media campaigns and through our products’ use in high profile projects and iconic buildings. In recent years, we have collaborated with renowned designers, who created exhibitions and particles from our products. Our design initiatives attracted press coverage around the world.

Research and Development

Our research and development (“R&D”) department is primarily located in Israel. As of December 31, 2023, our corporate R&D department was comprised of 19 employees, all of whom have extensive experience in engineered stone and porcelain surface manufacturing, polymer science, engineering, product design and engineered surfaces applications. In 2023, R&D costs accounted for approximately 0.9% of our revenues.

The strategic mission of our R&D team is to develop and maintain innovative and leading technologies and top-quality designs, develop new and innovative products according to our marketing department’s roadmap, increase the cost-effectiveness of our manufacturing processes and raw materials, and generate and protect company intellectual property in order to enhance our position in the engineered stone surface industry. We also study and evaluate consumer trends by attending industry exhibitions and hosting international design workshops with market and design specialists from various regions.

Customer Service

We believe that our ability to provide outstanding customer service is a strong competitive differentiator. Our relationships with our customers are established and maintained through the coordinated efforts of our sales, marketing, production and customer service personnel. In our direct markets, the warranty period varies. We provide end-consumers with various warranties depending on the relevant markets ranging from a ten-year limited warranty to limited lifetime warranties in selected markets such as the United States, Canada and Israel. In our indirect markets, end-consumers, warranty issues on our products are addressed by our local distributor. We provide all our distributors with a limited direct manufacturing defect warranty and our distributors are responsible for providing warranty coverage to end-customers. The warranties provided by our distributors vary in term. In our direct markets, following an end-consumer call, our technicians are sent to the product site within a short time. We provide readily accessible resources and tools regarding the fabrication, installation, care and maintenance of our products. We believe our comprehensive global customer service capabilities and the sharing of our service-related know-how differentiate our company from our competitors.

Raw Materials and Service Provider Relationships

Minerals, clay, polyester and pigment are the primary raw materials used in the production of our surfaces. We acquire raw materials from third-party suppliers. Suppliers ship raw materials for our engineered stone products and porcelain to our manufacturing facilities in Israel and India primarily by sea. Our raw materials are generally inspected at the suppliers’ facilities and upon arrival at our manufacturing facilities in Israel and the U.S. The cost of our raw materials consists of the purchase prices of such materials and costs related to the logistics of delivering the materials to our manufacturing facilities. Our raw materials costs are also impacted by changes in foreign currency exchange rates.

Minerals are our main raw material component used in our engineered surface products. Raw minerals must be processed into finer grades of sand and powder before we can use them in our manufacturing process. We purchase minerals from our suppliers after some process. We acquire minerals from suppliers primarily in Turkey, Belgium, India, Portugal, the U.S. and Israel. In 2023, approximately 69% of our minerals, including mainly quartzite, which is used across all of our engineered stone products, was imported from several suppliers in Turkey. Approximately 63% of the imported minerals from Turkey (or 44% of our total direct mineral consumption) were acquired from Mikroman Madencilik San ve TIC.LTD.STI (“Mikroman”) and approximately 32% of the imported quartz from Turkey (or 22% of our total mineral consumption) were acquired from Ekom Eczacibasi Dis Ticaret A.Ş. (“Ekom”). In light of market volatility and our changing raw material needs, while we have long lasting mutually beneficial relationships with our suppliers, we do not currently have an annual framework agreement in place and are purchasing materials from them based on spot purchase orders.

Similar to our arrangements with Mikroman and Ekom described above, we typically transact business with other quartz suppliers and execute purchase orders from them from time to time.

In most cases, we acquire polyester from several suppliers, on an annual framework basis or purchase order basis based on our projected needs for the subsequent one to three months. Typically, suppliers are unwilling to agree to preset prices for periods longer than a quarter and suppliers’ prices may vary during a quarter as well.

Pigments for our engineered stone production in Israel are purchased from Israel and suppliers abroad. Pigments for our U.S. engineered stone production are primarily purchased from U.S. vendors.

The principal raw materials for our porcelain products are minerals (such as clay and feldspar) and chemical additives. We typically transact business with our suppliers of raw materials for porcelain products on an annual framework basis, under which we execute purchase orders from time to time.

Our strategy is to maintain, whenever practicable, multiple sources for the purchase of our raw materials to achieve competitive pricing, provide flexibility and protect against supply disruption.

See “ITEM 3.D. Key Information—Risk Factors—We may encounter significant delays in manufacturing if we are required to change the suppliers for the raw materials used in the production of our products.” For our cost of raw materials in 2023 and prior years, see “ITEM 5.A: Operating Results and Financial Review and Prospects—Operating Results—Cost of revenues and gross profit margin.”

Manufacturing and Facilities

Following the closure of our Sdot-Yam and Richmond-Hill facilities during 2023, our products are now manufactured at our two manufacturing facilities located in Bar-Lev Industrial Park in northern Israel, and in Morbi, Gujarat in India and by our third party PBP partners. We completed our Bar-Lev manufacturing facility in 2005, which included our then third production line, and we established our fourth production line at this facility in 2007 and our fifth production line at this facility in 2013. As part of the Lioli Acquisition, in 2020 we acquired a porcelain slab manufacturing facility, which is comprised of one production line currently in operation.

Finished slabs are shipped from our facilities in Israel and India, or from our PBP, to our distribution centers worldwide, to third-party distributors or directly to customers worldwide. For further discussion of our facilities, see “ITEM 4.D: Information on the Company—Property, plants, and equipment.”

The manufacturing process for our engineered products typically involves the blending of minerals (85% on average) with polyester and pigments. Using machinery acquired primarily from Breton, the leading supplier of engineered stone manufacturing equipment, together with our proprietary manufacturing enhancements, this mixture is compacted into slabs by a vacuum and vibration process. The slabs are then moved to a curing kiln where the cross-linking of the polyester is completed. Lastly, the slabs are gauged, calibrated and polished to enhance shine.

The manufacturing process for our porcelain products typically involves blending clay, natural minerals (such as feldspar) and chemical additives required for the shaping process. The multi-ingredient mixture is fed to a ball mill, together with water, to achieve fine grinding. The excess water is then removed, and the resulting powder is shaped into slabs. Slabs are first moved to dryers and then passed through a glaze line, where they are decorated with different applicators. Decorated slabs are passed through digital printing machines and then go into a curing kiln for the final firing process. Lastly, the slabs are gauged, calibrated and polished to enhance shine.

We maintain strict quality control and safety standards for our products and manufacturing processes both in our facilities as well as with our PBP. Our manufacturing facility in Israel holds ISO45001 safety certifications from The Standards Institution of Israel, while our facility in India, is in the process of obtaining the same certification from TUV).

In addition, since 2018 we have increased our outsourcing capabilities and currently purchase a portion of our product from our PBPs including natural stone, engineered stone, porcelain and ancillaries. We conduct quality control and quality assurance processes with respect to such products. In 2023, products produced by third parties accounted for approximately 22.4% of revenues, and we are aiming to increase purchases from PBPs in 2024. For more information, see ITEM 3.D: Key Information - Operational Risks.

Seasonality

For a discussion of seasonality, please refer to “ITEM 5.A: Operating and Financial Review and Prospects—Operating Results—Factors impacting our results of operations” and “ITEM 5.A: Operating and Financial Review and Prospects—Operating Results—Seasonality.”

Competition

We believe that we compete principally based upon product quality, breadth of colors and designs offering and innovation, brand awareness and position, pricing and customer service. We believe that we differentiate ourselves from competitors on the basis of our premium brand, our signature product designs, our products and designs innovation, our ability to directly offer our products in major markets globally, our focus on the quality of our product offerings, our customer service-oriented culture, our high involvement in the product supply chain and our leading distribution partners.

The dominant surface materials used by end-consumers in each market vary. Our products compete with a number of other surface materials as well as similar materials offered by other producers and re-sellers. The manufacturers of these products consist of a number of regional as well as global competitors. Some of our competitors may have greater resources than we have and may adapt to changes in consumer preferences and demand more quickly, expand their materials offering, devote greater resources to design innovation and establishing brand recognition, manufacture more versatile slab sizes and implement processes to lower costs.

The engineered stone and porcelain surface market is highly fragmented and is also served by a number of regional and global competitors. We also face growing competition from low-cost manufacturers from Asia and Europe. Large multinational companies have also invested in their engineered stone and porcelain surface production capabilities. For more information, see “ITEM 3.D. Key Information—Risk Factors—We face intense competitive pressures from manufacturers of other surface materials, which could materially and adversely affect our results of operations and financial condition”

Information Technology Systems

We believe that an appropriate information technology infrastructure is important in order to support our daily operations and the growth of our business.

We implemented various IT systems to support our business and operations. Our Enterprise Resource Planning (“ERP”) software enables us to manage our day-to-day business activities and provides us with accessible quality data that support our forecasting, planning and reporting. Accurate planning is important in order to support sales and optimize working capital and cost as our products can be built in a number of combinations of sizes, colors, textures and finishes. Given our global expansion, we implemented a global ERP based on an Oracle platform. Our MES systems manage work processes on the production floor in our facilities and Salesforce enhances our Customer Relationship Management (“CRM”) infrastructure.

We are implementing digitalization across our organization to better streamline processes and support our business strategy. We are investing in digital transformation projects to enhance consumer engagement and customer experience. Our technological and digital investments will be geared towards operational enhancements in inventory management and production, along with transforming our go-to-market tools. We seek to update our IT infrastructure to enhance our ability to prevent and respond to cyber threats and conduct trainings for our employees in this respect. For further details, see “ITEM 3.D. Key Information—Risk Factors—Disruptions to or our failure to upgrade and adjust our information technology systems globally, may materially impair our operations, hinder our growth and materially and adversely affect our business and results of operations.

Intellectual Property

Our Caesarstone brand is central to our business strategy, and we believe that maintaining and enhancing the Caesarstone brand is critical to expanding our business.

We have obtained trademark registrations in certain jurisdictions that we consider material to the marketing of our products, including CAESARSTONE® and our Caesarstone logo. We have obtained trademark registrations for additional marks that we use to identify certain product collections, as well as other marks used for certain of our products. While we expect our current and future applications to mature into registrations, we cannot be certain that we will obtain such registrations. In many of our markets we also have trademarks, including registered and unregistered marks, on the colors and models of our products. We believe that our trademarks are important to our brand, success and competitive position. In order to mitigate the risk of infringement, we conduct an ongoing review process before applying for registration. However, we cannot be certain that third parties will not oppose our application or that the application will not be rejected in whole or in part. In the past, some of our trademark applications for certain classes of our products’ applications have been rejected or opposed in certain markets and may be rejected for certain classes in the future, in all or parts of our markets, including without limitation, for flooring and wall cladding. We are currently subject to various proceedings regarding our Caesarstone trademark applications in various jurisdictions.

To protect our know-how and trade secrets, we customarily require our employees and managers to execute confidentiality agreements or otherwise agree to keep our proprietary information confidential. Typically, our employment contracts also include clauses requiring these employees to assign to us all inventions and intellectual property rights they develop in the course of their employment and agree not to disclose our confidential information. We limit access to our trade secrets and implement certain protections to allow our know-how and trade secret to remain confidential.

In addition to confidentiality agreements, we seek patent protection for some of our latest technologies. We have obtained patents for certain of our technologies and have pending patent applications that were filed in various jurisdictions, including the United States, Europe, Australia, Canada, China and Israel, which relate to our manufacturing technology and certain products. No patent application of ours is material to the overall conduct of our business. There can be no assurance that pending applications will be approved in a timely manner or at all, or that such patents will effectively protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we have chosen and may further choose not to pursue patents for innovations that are material to our business.

Environmental and Other Regulatory Matters

Environmental and Health and Safety Regulations

Our manufacturing facility and operations in Israel, and our manufacturing facility in Gujarat, India are subject to numerous Israeli and Indian environmental and workers’ health and safety laws and regulations, respectively, and our supply chain operations are subject to applicable local laws and regulations. Laws and regulations govern, among other things, exposure to pollutants, protection of the environment; setting standards for emissions; generation, treatment, import, purchase, use, storage, handling, disposal and transport of hazardous wastes, chemicals and materials, including sludge; discharges or releases of hazardous materials into the environment, soil or water; permissible exposure levels to hazardous materials; product specifications; nuisance prevention; soil, water or other contamination from hazardous materials and remediation requirements arising therefrom; and protection of workers’ health and safety.

In addition to being subject to regulatory and legal requirements, our manufacturing facilities in Israel and India operate under applicable permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards. Business licenses for our facility in Israel contain conditions related to a number of requirements, including with respect to dust emissions, air quality, the disposal of effluents and process sludge, and the handling of waste, chemicals and hazardous materials. The business license for our Bar-Lev plant is in effect until June 30, 2024, and the Company is in the process of seeking an extension. Our site in India has a Factory License which is a basic license issued by the Inspectorate of Factories, which is in effect until December 31, 2028. The site in India has also obtained a Consent to Operate (the “CTO”) from the State Pollution Control Board, which is a permit issued to any factory in India with all the compliance requirements related to environmental aspects, such as air emission, water and wastewater management, waste management. The CTO is valid until September 28, 2023, and following a renewal process we believe we are to receive an extended CTO in the coming weeks. We operate in Israel under poison permits that regulate our use of poisons and hazardous materials. Our current poison permits are valid until January 26, 2025, for Bar-Lev facility. Our site in India is required to comply with all applicable conditions, including with respect to water consumption, wastewater discharge, air emission monitoring and pollution control devices, hazardous wastes storage and disposal, specified in the CTO. In all our manufacturing facilities, we are implementing measures on an ongoing basis in order to achieve and maintain compliance with dust and styrene environmental and occupational emissions standards and to reduce such emissions to minimum thresholds.

Each of these permits, licenses and standards require a significant amount of monitoring, record-keeping and reporting in order for us to demonstrate compliance therewith.

Official representatives of the health and safety and environment authorities in Israel, and Gujarat visit our facilities from time to time, to inspect issues such as workplace safety, industrial hygiene, monitoring lockout tag out programs, exposure and emissions, water treatment, noise and others. Such inspections may result in citations, penalties, revocation of our business license or limitation or shut down of our facilities’ operations. It may also require us to make further investments in our facilities.

From time to time, we face environmental, health and safety compliance issues related to our manufacturing facilities:

•

Emissions - Israel. On March 2018 and later on December 2019 the IMEP issued additional terms for business license for the Bar-Lev facility, and the Company has implemented all the required terms, with certain implementing of cyber related requirements underway. The IMEP closely monitors our Bar-Lev facility’s implementation of the additional terms and emissions, specifically of styrene. During July 2021, the Company received a warning letter from the IMEP in which our Bar-Lev plant was notified of violations of the Clean Air Act and the plant’s business license terms, following an unannounced styrene emission sampling that revealed several cases of deviations from the styrene emission standard under the Clean Air Act in Israel. The IMEP has ordered the Company to take corrective and preventive actions, including reducing the expected timeframe for installation of additional Regenerative Thermal Oxidizer (“RTO”) system and to implement a continuous (online) monitoring device on the Bar-Lev plant’s fence. We are cooperating with the IMEP and are currently in the process of implementing all its requirements and remaining additional terms, such process is currently behind schedule, since the current geopolitical circumstances in Israel prevents the arrival of experts needed to conclude the project. In February 2022, Israel adopted a long-term goal for the reduction of environmental styrene emissions. Although such goal is not expected to impact our current operations, the adoption of new regulations could create an additional burden for any future investment in our Israeli facilities. We are constantly in the process of taking the required corrective actions in order to comply with the business license terms, the styrene emission standard and the IMEP instructions.

•

Workers’ safety and health. The Israeli Ministry of Economics, Labor Division (“IMOE”) in Israel and the Indian Ministry of Labor and Employment, conduct audits of our plants, in which, among other things, they examine if there were any deviations from permitted ambient levels of RCS, styrene and acetone in the plants. We seek, on an ongoing basis, to continue reducing the level of exposure of our employees to RCS, styrene and acetone, while enforcing our employees’ use of personal protection equipment. A fatal accident occurred at the Company’s facility in Richmond Hill in February 2023. The accident was investigated by local law enforcement and OSHA and the matter is now closed.

•

Australian Market. On December 13, 2023, Australian federal, state and territory governments announced a joint decision to ban the use, supply and manufacture of engineered stone slabs containing crystalline silica (including our quartz-based products) in Australia. Subject to the formal adoption of the legislation and regulations, the ban will go into effect on July 1, 2024, in most Australian states and territories. While we disagree with this decision, we believe that the focus should be aimed at improving occupational health and safety, and has communicated its position to Australian governments, it is taking the necessary steps to ensure supply of alternative materials to its Australian customers in line with its high standards. This process may negatively impact our sales in the near-term in the Australian market, which accounted for approximately 18.8% of revenue during the fiscal year ended December 31, 2023.

Other Regulations

We are subject to the Israeli Rest Law, which, among other things, prohibits the employment of Jewish employees on Saturdays and Jewish holidays, unless a permit is obtained from the IMEI.

If we are deemed to be in violation of the Rest Law, we may be required to halt operations of our manufacturing facilities on Saturdays and Jewish holidays, we and our officers may be exposed to administrative and criminal liabilities, including fines, and our operational and financial results could be materially and adversely impacted. For more information, see “Item 3.D. Key Information—Risk Factors—Risks relating to our incorporation and location in Israel—If we fail to comply with Israeli law restrictions concerning employment of Jewish employees on Saturdays and Jewish holidays, we and our office holders may be exposed to administrative and criminal liabilities and our operational and financial results may be materially and adversely impacted.”

For information on other regulations applicable, or potentially applicable, to us, see the following risks factors in “ITEM 3.D. Key Information—Risk Factors”:

•

“Risks related to our business and industry—We may have exposure to greater-than-anticipated tax liabilities.”

•

“Risks related to our incorporation and location in Israel— Conditions in Israel could materially and adversely affect our business.”

•

“Risks related to our incorporation and location in Israel—The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.”

•

“Risks related to our incorporation and location in Israel—If we are considered a ‘monopoly’ under Israeli law, we could be subject to certain restrictions that may limit our ability to freely conduct our business to which our competitors may not be subject.

Legal Proceedings

See “ITEM 8.A: Financial Information—Consolidated Financial Statements and Other Financial Information—Legal Proceedings.”

Non-GAAP Financial Measures

We use certain non-GAAP financial measures to evaluate our performance in conjunction with other performance metrics. The following are examples of how we use such non-GAAP measures:

•

Our annual budget is based in part on these non-GAAP measures.

•

Our management and board of directors use these non-GAAP measures to evaluate our operational performance and to compare it against our work plan and budget.

Our non-GAAP financial measures, adjusted gross profit, adjusted EBITDA and adjusted net income (loss) attributable to controlling interest, have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide such non-GAAP data because management believes that such data provides useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with similar measures used by other companies. These non-GAAP financial measures are presented solely to permit investors to more fully understand how management and our board assess our performance. The limitations of these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without reflecting all events during a period and may not provide a comparable view of our performance to other companies in our industry.

Investors should consider non-GAAP financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.

In arriving at our presentation of non-GAAP financial measures, we exclude items that either have a non-recurring impact on our income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude share-based compensation expenses to facilitate a better understanding of our operating performance, since these expenses are non-cash and accordingly, we believe do not affect our business operations. While not all inclusive, examples of these items include:

•

amortization of purchased intangible assets;

•

legal settlements (both gain or loss) and loss contingencies, due to the difficulty in predicting future events, their timing and size;

•

Impairment expenses

•

material items related to business combination activities important to understanding our ongoing performance;

•

excess cost of acquired inventory;

•

expenses related to our share-based compensation;

•

significant one-time offering costs;

•

significant one-time non-recurring items (both gain or loss);

•

material extraordinary tax and other awards or settlements, both amounts paid and received; and

•

tax effects of the foregoing items.

	2023			2022		2021		2020		2019

Reconciliation of Gross profit to Adjusted Gross profit:
Gross profit	$	91,939		$	163,245	$	171,498	$	133,942	$	148,639
Share-based compensation expense (a)		95			315		321		416		285
Non-recurring import related income		—			—		—		—		(1,501	)
Amortization of assets related to acquisitions		285			306		852		529		—
Non recurring items related to restructuring (b)		3,924			237		-		-		1,661
Other non-recurring items		(304	)		-		—		—		—
Adjusted Gross profit	$	95,939		$	164,103	$	172,671	$	134,887	$	149,084

(a)	Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company.

(b)

In 2023, reflects residual operating expenses related to Sdot-Yam after closing; In 2022, reflects workforce reduction and in 2019, reflects mainly one-time amortization of machinery equipment with no future alternative use, and one-time inventory write down due to discontinuation of certain product group manufacturing.

	2023			2022			2021		2020		2019
Reconciliation of Net Income (loss) to Adjusted EBITDA:
Net income (loss)	$	(108,240	)	$	(56,366	)	$	17,889	$	7,622	$	12,862
Finance expenses (income), net		(1,069	)		(3,079	)		7,590		10,199		5,578
Taxes on income		21,281			758			1,950		4,700		6,243
Depreciation and amortization		30,007			36,344			35,407		29,460		28,587
Legal settlements and loss contingencies, net (a)		(4,770	)		568			3,283		6,319		12,359
Contingent consideration adjustment related to acquisition		264			120			284		—		—
Share-based compensation expense (b)		1,025			1,502			1,845		2,858		3,632
Impairment expenses related to goodwill and long-lived assets		47,939			71,258			—		—		—
Non-recurring import related expense (income)		—			—			—		—		(1,501	)
Acquisition-related expenses		-			80			—		921		—
Non recurring items related to restructuring (c)		4,438			684			-		-		1,286
Other non-recurring items		(304	)		-			—		—		-
Adjusted EBITDA	$	(9,429	)	$	51,869		$	68,248	$	62,079	$	69,046

(a)	Consists of legal settlements expenses and loss contingencies, net related to product liability claims and other adjustments to ongoing legal claims, including related legal fees.

(b)	Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company.

(c)

In 2023, related to long-lived assets impairment and restructuring expenses related to closure of Richmond plant, impairment and restructuring expenses related to Sdot Yam plant closure. In 2022, related to workforce reduction, in 2019, relates to non-recurring expenses related to North American region establishment, one-time charge related to reduction in headcount and certain activities including discontinuation of certain product group manufacturing.

	2023			2022			2021		2020		2019
Reconciliation of Net Income (loss) Attributable to Controlling Interest to Adjusted Net Income Attributable to Controlling Interest:
Net income (loss) attributable to controlling interest	$	(107,656	)	$	(57,054	)	$	18,966	$	7,218	$	12,862
Legal settlements and loss contingencies, net (a)		(4,770	)		568			3,283		6,319		12,359
Contingent consideration adjustment related to acquisition		264			120			284		—		—
Amortization of assets related to acquisitions, net of tax		2,142			2,084			2,391		446		—
Share-based compensation expense (b)		1,025			1,502			1,845		2,858		3,632
Non-cash revaluation of lease liabilities (c)		(1,556	)		(9,527	)		2,918		3,189		3,615
Non-recurring import related expense (income)		—			—			—		—		(1,501	)
Impairment expenses related to goodwill and long-lived assets		47,939			71,258			—		—		—
Acquisition-related expenses		-			80			—		921		—
Non recurring items related to restructuring (d)		4,438			684			—		—		2,486
Other non-recurring items		(304	)		—			—		—		—
Total adjustments before tax		49,178			66,769			10,721		13,733		20,591
Less tax on above adjustments (e)		(12,035	)		(910	)		1,054		4,488		6,729
Total adjustments after tax	$	61,213		$	67,679		$	9,667	$	9,245	$	13,862
Adjusted net income (loss) attributable to controlling interest	$	(46,443	)	$	10,625		$	28,633	$	16,463	$	26,724

(a)	Consists of legal settlements expenses and loss contingencies, net related to product liability claims and other adjustments to ongoing legal claims, including related legal fees.

(b)	Share-based compensation includes expenses related to stock options and restricted stock units granted to employees and directors of the company.

(c)	Exchange rate differences deriving from revaluation of lease contracts in accordance with FASB ASC 842.

(d)

In 2023, related to long-lived assets impairment and restructuring expenses related to closure of Richmond and Sdot Yam plants. In 2022, related to workforce reduction, in 2019, relates to non-recurring expenses related to North American region establishment, one time charge related to reduction in headcount and certain activities including discontinuation of certain product group manufacturing, one time amortization of machinery equipment with no future alternative use.

(e)	Based on the effective tax rates of the relevant periods.

C.	Organizational Structure

The legal name of our company is Caesarstone Ltd.

Caesarstone was organized under the laws of the State of Israel. We have six direct wholly-owned subsidiaries: Caesarstone Australia PTY Limited, which is incorporated in Australia, Caesarstone South East Asia PTE LTD, which is incorporated in Singapore, Caesarstone (UK) Ltd., which is incorporated in the United Kingdom, Caesarstone Canada Inc., which is incorporated in Canada, Caesarstone Scandinavia AB, which incorporated in Sweden, and Caesarstone USA, Inc., which, together with its two wholly-owned subsidiaries, Caesarstone Technologies USA, Inc. and Omicron LLC, are incorporated in the United States. In addition, following the Lioli Acquisition, Caesarstone Ltd. holds a majority interest of Lioli, incorporated in India, and therefore is consolidating the results of its operations in our Consolidated Financial Statements.

We operate based on regional structure with teams in each of our mentioned subsidiaries.

D.	Property, Plants and Equipment

Our manufacturing facilities are located in Israel and India. The following table sets forth our most significant facilities as of December 31, 2023:

Properties	Issuer’s Rights	Location	Purpose	Size
Kibbutz Sdot-Yam(1)	Land Use Agreement	Caesarea, Central Israel	Headquarters, research and development center	Approximately 30,000 square meters of facility and approximately 48,000 square meters of un-covered yard*
Bar-Lev Industrial Park manufacturing facility(2)	Land Use Agreement & Ownership	Carmiel, Northern Israel	Manufacturing facility	Approximately 23,000 square meters of facility and approximately 50,000 square meters of un-covered yard**
Belfast Industrial Center (3)(4)	Ownership	Richmond Hill, Georgia, United States	Manufacturing facility	Approximately 26,000 square meters of facility and approximately 401,000 square meters of un-covered yard (excluding 56,089 square meters of wetland)
Bharat Nagar (5)	Ownership	Morbi, Gujarat, India	Manufacturing facility	Approximately 60,000 square meters of facility and approximately 55,000 square meters of open land, gas yard, effluent treatment plant, labor colony and roads

* Square-meter figures with respect to properties in Israel are based on data measured by the relevant municipalities used for local tax purposes.

** Square-meter figures based on data used by Israeli municipalities for local tax purpose is adjusted to reflect the property leased from Kibbutz Sdot-Yam as agreed between us and the Kibbutz during 2014. This does not include an additional 5,000 square meters adjacent to the manufacturing facility, which we acquired in December 2019.

(1)

Leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered in March 2012 with a term of 20 years, which replaced the former land use agreement. Starting from September 2014 we use an additional 9,000 square meters pursuant to Kibbutz Sdot-Yam’s consent under terms materially similar to the land use agreement. However, we have the right to return such additional office space and premises to Kibbutz Sdot-Yam at any time upon 90 days’ prior written notice. In September 2016, we exercised our right to return to the Kibbutz an additional office space of approximately 400 square meters which we used since January 2014 under terms materially similar to the land use agreement. The lands on which these facilities are located are held by the ILA and leased or subleased by Kibbutz Sdot-Yam pursuant to agreements described in “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam—Land use agreement.”

(2)

We own 2,673 square meters of facility and 2,550 square meters of uncovered yard, and the remainder is leased pursuant to a land use agreement with Kibbutz Sdot-Yam entered into in March 2011, with a term of 10 years commencing in September 2012, which will be automatically renewed, unless we give two years’ prior notice, for an additional 10-year term. In 2021, the agreement was extended for an additional ten-year period. This agreement was executed simultaneously with the land purchase and leaseback agreement we entered into with Kibbutz Sdot-Yam, according to which Kibbutz Sdot-Yam acquired from us our rights in the lands and facilities of the Bar-Lev industrial center, under a long term lease agreement we entered into with the ILA on June 6, 2007 to use the premises for an initial period of 49 years as of February 6, 2005, with an option to renew for an additional term of 49 years as of the end of the initial period. For more information, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions—Relationship and agreements with Kibbutz Sdot-Yam—Land purchase agreement and leaseback.”

(3)

On September 17, 2013, we entered into a purchase agreement for the purchase of approximately 45 acres of land in Richmond Hill, Georgia, United States, comprising approximately 36.6 acres of upland and approximately 9 acres of wetland for our new U.S. manufacturing facility, the construction of which was completed in 2015. On June 22, 2015, we exercised a purchase option in the agreement and acquired approximately 19.4 acres of land, comprising approximately 18.0 acres of upland. On November 25, 2015, we entered into a new purchase agreement for the purchase of approximately 54.9 acres of additional land situated adjacent to the previously purchased land, comprising approximately 51.1 acres of upland. Consistent with our restructuring plan initiated in mid-2023, in December 2023 we announced the closure of its Richmond Hill manufacturing facility, effective mid-January 2024. This decision is expected to contribute savings of approximately $20 million annually by optimizing its manufacturing footprint.

(4)

In December 2014, we entered into a bond purchase loan agreement, were issued a taxable revenue bond on December 1, 2014, and executed a corresponding lease agreement. Pursuant to these agreements, the Development Authority of Bryan County, an instrumentality of the State of Georgia and a public corporation (“DABC”), has acquired legal title of our facility in Richmond Hill, in the State of Georgia, U.S., and in consideration leased such facilities back to us. In addition, the facility was pledged by DABC in favor of us and DABC has committed to re-convey title to the facility to us upon the maturity of the bond or at any time at our request, upon our payment of $100 to DABC. Therefore, we consider such facilities to be owned by us. This arrangement was structured to grant us property tax abatement for ten years at 100% and additional five years at 50%, subject to our satisfying certain qualifying conditions with respect to headcount, average salaries paid to our employees and the total capital investment amount in our U.S. plant. In December 2015, we entered into an additional bond purchase loan agreement with the Development Authority of Bryan County and were issued a second taxable revenue bond on December 22, 2015, to cover additional funds and assets which were utilized in the framework of constructing, acquiring and equipping our U.S. facility. If we were to expand our current U.S. facility, we would have been entitled to an additional taxable revenue bond and a corresponding property tax abatement. In 2017, we notified DABC that we will not be utilizing such additional bond at this time and, accordingly, it has expired.

(5)

In October 2020, we acquired a majority stake, in Lioli, which owns the Bharat Nagar facility in Morbi, Gujarat, India. For more information on our title to the property in Morbi, Gujarat, India, see “ITEM 3.D. Key Information—Risk Factors—Operational Risks—Fully integrating Lioli’s and Omicron’s businesses may be more difficult, costly and time-consuming than expected, which may adversely affect our results of operations and the value of our common shares.”

For further discussion and details of the productive capacity of our facilities, see “ITEM 4.B: Information on the Company—Business Overview—Manufacturing and Facilities.” Various environmental issues may affect our utilization of the above-mentioned facilities. For further discussion, see “Item 4.B. Information on the Company—Business Overview—Environmental and Other Regulatory Matters—Environmental and Health and Safety Regulations” above.

ITEM 4A: Unresolved Staff Comments

Not applicable.

ITEM 5: Operating and Financial Review and Prospects

A.	Operating Results

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial information presented in “ITEM 3: Key Information,” our audited consolidated balance sheets as of December 31, 2023 and 2022, the related consolidated income statements and cash flow statements for each of the three years ended December 31, 2023, 2022 and 2021, and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with U.S. GAAP. See “ITEM 3.D: Key Information—Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Company overview

We are a leading brand of high-end engineered surfaces used primarily as countertops in residential and commercial buildings. We design, develop and produce engineered stone and porcelain products that offer aesthetic appeal and functionality through a distinct variety of colors, styles, textures, and finishes used in countertops, vanities, and other interior and exterior surfaces. Our high-quality engineered stone surfaces are marketed and sold under our premium Caesarstone brand. We have grown to become one of the largest global providers of engineered stone surfaces. Our products accounted for approximately 4.4% of global engineered stone by volume in 2022. Our sales in the United States, Australia (including New Zealand), Canada and Israel, our four largest markets, accounted for 48.1%, 18.8%, 13.4% and 4% of our revenues in 2023. We believe that our revenues will continue to be highly concentrated among a relatively small number of geographic regions for the foreseeable future. For further information with respect to our geographic concentration, see “ITEM 3.D: Key Information—Risk Factors—Our revenues are subject to significant geographic concentration and any disruption to sales within one of our key existing markets could materially and adversely impact our results of operations and prospects.”

Between 2010 to 2023, our revenue grew at a compound annual growth rate of 8.4% driven mainly by the continued quartz penetration and the Lioli and Omicron acquisitions, increased remodeling spending in all our top three markets and growth in the residential segment in the United States, our largest market. In addition, the portion of innovative designs within our offering increased over time. Our revenue trend reversed and revenues decreased by 18.2% during 2023. See “—Comparison of period-to-period results of operations—Year ended December 31, 2023, compared to year ended December 31, 2022—Revenues” for additional information.

During 2023, our gross margin decreased from 23.6% to 16.3% (our adjusted gross margin decreased from 23.8% to 17%), and our margin of net loss attributable to controlling interest was 19.0% compared to 8.3% in 2022 (the adjusted margin of net income (loss) attributable to controlling interest decreased from an adjusted net income of 1.5% in 2022 to an adjusted net loss of 8.2% over the same period).

Adjusted EBITDA margin decreased from a positive 7.5% to a negative Adjusted EBITDA of 1.7%. We define each of such margins by dividing adjusted gross profit, adjusted EBITDA, and adjusted net income (loss) attributable to controlling interest, respectively, by revenues. Adjusted EBITDA, adjusted gross profit, and adjusted net income (loss) attributable to controlling interest are non-GAAP financial measures, see “ITEM 4.B: Information on the Company—Business Overview—Non-GAAP Financial Measures” for a description of how we define adjusted EBITDA and adjusted net income attributable to controlling interest and reconciliations of net income to adjusted EBITDA and net income attributable to controlling interest to adjusted net income attributable to controlling interest. We attribute the decrease in the adjusted EBITDA margin mainly due to increased manufacturing costs per unit due to lower capacity utilization which resulted in lower fixed-costs absorption, increased logistics costs higher raw material prices, lower revenues offset by decrease in shipping prices and higher selling price.

Our mission is to be the first brand of choice for surfaces all around the world. We believe that a significant portion of our future growth will come from our U.S. market where we see the greatest growth opportunity. We believe that transitioning to direct sales will contribute to our future growth in the long term. We believe that in order to remain competitive in the long term, we will need to grow our business both organically and through acquisitions.

As part of the Company’s business growth strategy, strategic acquisitions are considered opportunities to enhance our value proposition through differentiation and competitiveness. In recent years and as further described below, we have successfully executed on this strategy, including our 2020 acquisitions of Lioli, an India-based developer and producer of porcelain countertop slabs with manufacturing facilities in Asia; Omicron, a premier stone supplier operating in several locations across the United States in Florida, Ohio, Michigan and Louisiana, which now operate as part of our United States operations; and Caesarstone Scandinavia a Swedish distributor. For more information, see “2020 Acquisitions” below.

Factors impacting our results of operations

We consider the following factors to be important in analyzing our results of operations:

•

Our sales are impacted by home renovation and remodeling and new residential construction, and to a lesser extent, commercial construction. We estimate (supported also by the Freedonia Report) that approximately 60%-70% of our revenue in our main markets (U.S., Australia, Canada) is related to residential renovations and remodeling activities, while 30%-40% is related to new residential construction.

•

Our revenues and results of operations traditionally exhibit some quarterly fluctuations as a result of seasonal influences which impact construction and renovation cycles. Due to the fact that certain of our operating costs are fixed, the impact of such fluctuations on our profitability could be material. We believe that the second and third quarters tend to exhibit higher sales volumes than the other quarters because demand for our surfaces and other products is generally higher during the summer months in the northern hemisphere with the effort to complete new construction and renovation projects before the new school year. Conversely, the first quarter is typically impacted by the winter slowdown in the northern hemisphere in the construction industry and might impact sales in Israel depending on the timing of the spring holiday a particular year. Similarly, sales in Australia during the first quarter are negatively impacted by fewer construction and renovation projects. The fourth quarter is susceptible to being impacted by the onset of winter in the northern hemisphere. These trends were not visible during 2023 which was affected by challenging macro-economic conditions impacting our revenues.

•

We conduct business in multiple countries in North America, South America, Europe, Asia-Pacific, Australia, and the Middle East and as a result, we are exposed to risks associated with fluctuations in currency exchange rates between the U.S. dollar and certain other currencies in which we conduct business. A significant portion of our revenues is generated in U.S dollar, and to a lesser extent the Australian dollar, Canadian dollar, Euro and NIS. In 2023, 49.3% of our revenues were denominated in U.S. dollars, 18.8% in Australian dollars, 13.4% in Canadian dollars, 6.4% in Euros and 3.9% in NIS. As a result, devaluations of the Australian dollars, and to a lesser extent, the Canadian dollar relative to the U.S. dollar may unfavorably impact our profitability. Our expenses are largely denominated in U.S. dollars, NIS and Euro, with a smaller portion in Australian dollars and Canadian dollars. As a result, appreciation of the NIS, and to a lesser extent, the Euro relative to the U.S. dollar may unfavorably affect our profitability. We attempt to limit our exposure to foreign currency fluctuations through forward contracts, which, except for U.S. dollar/NIS forward contracts, are not designated as hedging accounting instruments under ASC 815, Derivatives and Hedging. We currently engage in derivatives transactions, such as forward contracts, to hedge against the risks associated with our foreign currency exposure. Our strategy to hedge our cash flow exposures involves consistent hedging of exchange rate risk in variable ratios up to 100% of the exposure over rolling 12 months. As of December 31, 2023, our average hedging ratio was approximately 9% out of our expected currencies exposure for 2023. As of December 31, 2023, we had total outstanding forward contracts with a notional amount of $21.2 million. These forward contracts were for a period of up to 12 months. The fair value of these foreign currency derivative contracts was positive $0.5 million, which is included in our current assets and current liabilities, as of December 31, 2023. Hedging results are charged to finance expenses, net, and therefore, do not offset the impact of currency fluctuations on our operating income. Our U.S. dollar/NIS forward contracts are charged to operating expenses as designated hedge instruments, partially offsetting the impact of the U.S. dollar/NIS currency fluctuations on our operating income (loss). While we may decide to enter into additional hedging transactions in the future, the availability and effectiveness of these transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations. For further discussion of our foreign currency derivative contracts, see “ITEM 11: Quantitative and Qualitative Disclosures About Market Risk.”.

Components of statements of income

Revenues

We derive our revenues from sales of engineered mineral surfaces their fabrication and installation services, and, to a lesser extent, other surfaces and ancillaries, mostly to fabricators and resellers in our direct markets and to third-party distributors in our indirect markets. The purchasers of our products in our non-direct markets are our third-party distributors who, in turn, fabricate or sell to local fabricators and re-sellers. Our direct sales accounted for 89% of our revenues, for the years ended December 31, 2023.

Revenue is recognized when a customer obtains control of promised goods or when services have been rendered in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

The warranties that we provide vary by market. In our indirect markets, we provide all our distributors with a limited direct manufacturing defect warranty. In all our indirect markets, distributors are responsible for providing warranty coverage to end-customers. In our direct markets we provide end-consumers with a limited warranty on our products for varying applications and duration. Based on historical experience, warranty issues are generally identified within one and a half years after the shipment of the product and a significant portion of defects are identified before installation. We record a reserve on account of possible warranty claims, included in our cost of revenues. Historically, warranty claims expenses have been low, accounting for approximately 0.2% of our total cost of goods sold in 2023.

The following table sets forth the geographic breakdown of our revenues during the periods indicated:

	Year ended December 31,
	2023					2022					2021
Geographical Region	% of total revenues			Revenues in thousands of USD		% of total revenues			Revenues in thousands of USD		% of total revenues			Revenues in thousands of USD
United States		48.1	%	$	271,647		49.5	%	$	342,293		47.4	%	$	305,353
Canada		13.4	%		75,462		13.5	%		93,377		13.1			84,467
Latin America		0.6	%		3,285		0.6	%		4,481		0.7			4,702
Australia (incl. New Zealand)		18.8	%		106,223		16.8	%		116,284		18.4			118,714
Asia		4.6	%		25,959		5.0	%		34,607		4.7			30,390
EMEA		10.6	%		59,908		9.2	%		63,320		9.4			60,836
Israel		4.0	%		22,747		5.3	%		36,444		6.1			39,430
Total		100.0	%	$	565,231		100.0	%	$	690,806		100	%	$	643,892

Revenue in 2023 was $565.2 million compared to $690.8 million in the prior year. On a constant currency basis, 2023 revenue was lower by 17% year-over-year, mainly due to lower volume resulting from macroeconomic headwinds and competitive pressures. The increase in 2022 revenues compared to 2021 on a constant currency basis was 10.8% and was mainly due to higher selling prices.

Revenues in the U.S. decreased by 20.6% in 2023 compared to an increase of 12.1% in 2022. The decrease in 2023 is mainly due to lower volume. The increase in 2022 was mainly due to higher prices.

Revenues in Canada decreased by 19.2% in 2023 mainly due to lower volume compared to an increase of 10.5% in 2022, representing a 16.1% decrease and 14.6% increase on a constant-currency basis, respectively.

Revenues in Latin America decreased by 26.7% in 2023 compared to a decrease of 4.7% in 2022.

Revenues in Australia decreased by 8.7% in 2023 compared to a decrease of 2% in 2022 mainly due to lower volume. On a constant currency basis, revenues in Australia decreased by 4.7% in 2023 and increased by 6.2% in 2022.

Revenues in Asia decreased by 25% in 2023 compared to an increase of 13.9% in 2022 mainly due to lower volume resulting from macroeconomic headwinds and competitive pressures. On a constant currency basis, revenues in Asia decreased by 26% in 2023 and increased by 15.3% in 2022.

Revenues in EMEA decreased by 5.4% in 2023 and increased by 4.1% in 2022 mainly due to lower volume resulting from macroeconomic headwinds and competitive pressures. On a constant-currency basis, revenue decreased in EMEA by 7.6% in 2023 and increased by 16.7% in 2022.

Revenues in Israel decreased by 37.6% in 2023 compared to a decreased of 7.6% in 2022. On a constant currency basis, revenues decreased by 31.4% in 2022 and by 4.5% in 2022. This decrease is attributable to the macroeconomic, competitive environments as well as the recent attack by Hamas and other terrorist organizations from the Gaza Strip.

For additional information, see “—Comparison of period-to-period results of operations—Year ended December 31, 2023 compared to year ended December 31, 2022—Revenues.” And “Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and elsewhere in the region, and Israel’s war against them, may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues”

Cost of revenues and gross profit margin

Our cost of revenues includes the cost of manufactured products sold as well as the cost of purchased products from third parties such as engineered stone, Porcelain, natural stone and other ancillary products. We experienced a decrease in costs that are connected with the global supply chain environment after their increase during 2022. The price of our main raw materials for engineered stone products, minerals and polyester, decreased during 2023. Approximately 30% of our cost of revenues (related to our manufactured products) consists of raw material costs. The cost of our raw materials consists of the purchase prices of such materials and costs related to the logistics of delivering the materials to our facilities but does not include the cost of raw materials used in the production of products produced by our PBPs. In addition, approximately 15.8% of our cost of revenues relates to products purchased from PBP. Our raw materials costs are also impacted by changes in foreign exchange rates. Our principal raw materials, minerals and polyester jointly accounted for approximately 70% of our total raw material cost in 2023. The balance of our cost of revenues consists primarily of manufacturing costs, related overhead and the cost of other products not manufactured by us. Cost of revenues in our direct distribution channels also includes the cost of delivery from our manufacturing facilities to our warehouses, warehouse operational costs, as well as additional delivery costs associated with the shipment of our products to customer sites in certain markets. In the U.S. and Canada, we also incur fabrication and installation costs related to retail sales and other commercial building projects. In the case of our indirect distribution channels, we bear the cost of delivery to the seaport closest to our production plants and our distributors bear the cost of delivery from the seaport to their warehouses.

In 2023, approximately 69% of our total minerals including quartz were purchased from suppliers in Turkey, with the major part from Mikroman and Ekom.

Minerals (primarily quartz) accounted for approximately 38.2% of raw materials cost in 2023. Accordingly, our cost of sales and overall results of operations are impacted significantly by fluctuations in quartz prices. In 2023 and 2022, the average cost of quartz decreased by 7.7% and increased by 17.9%, respectively. The decrease in 2023 was primarily due to a decrease in shipping costs. Any future increases in the cost of minerals may adversely impact our margins and net income.

Given the significance of polyester costs relative to our total raw material expenditures, our cost of sales and overall results of operations are impacted significantly by fluctuations in polyester prices, which generally correlate with benzine prices. In 2023, our average polyester costs decreased by approximately 31% as a result of decrease in energy prices and shipping costs. In 2022, our average polyester costs increased by approximately 23% as a result of unfavorable market conditions. Any future increases in polyester costs may adversely impact on our margins and net income.

We are exposed to fluctuations in the prices of pigments, although to a lesser extent than with polyester. For example, the cost of titanium dioxide, our principal white pigmentation agent, decreased in 2023 by approximately 28% due to decrease in energy prices and improved product sourcing, compared with an increase of 11% during 2022. Any future increases in pigments costs may adversely impact on our margins and net income.

The gross profit margins on sales in our direct markets are generally higher than in our indirect markets in which we use third-party distributors, due to the elimination of the third-party distributor’s margin. In many markets, our expansion strategy is to work with third-party distributors who we believe will be able to increase sales more rapidly in their market and be more cost effective than if we distributed our products directly. However, in several markets we distribute directly, including the United States, Australia, Canada and in the United Kingdom, Scandinavia, Singapore and India. In the future, we intend to evaluate other potential markets to distribute directly.

Research and development, net

Our research and development expenses consist primarily of salaries and related personnel costs, as well as costs for subcontractor services and costs of materials consumed in connection with the design and development of our products. We expense all our research and development costs as incurred.

Selling and marketing

Selling and marketing expenses consist primarily of compensation and associated costs for personnel engaged in sales, marketing, distribution and advertising and promotional expenses. In 2023, our advertising and promotional expenses as well as marketing assistance expenses slightly increased in order to continue porcelain marketing efforts and maintain the Caesarstone brand. In 2022 expenses increased in connection with the increase in sales team, primarily in the U.S. and the launch of porcelain products globally.

General and administrative

General and administrative expenses consist primarily of compensation and associated costs for personnel engaged in finance, human resources, information technology, legal and other administrative activities, as well as fees for legal and accounting services. See “—Other factors impacting our results of operations—Agreements with Kibbutz Sdot-Yam” and “ITEM 7: Major Shareholders and Related Party Transactions—Related Party Transactions.”

Goodwill and long-lived assets impairment charges

Impairment of long-lived assets: in 2023 and 2022 year-ends, the Company identified indicators for impairment, among others, reduced demand due to global market conditions, lower utilization in certain plants, increased inflation and higher interest rates. Following these indicators and following the announcements on closures of Sdot Yam and Richmond Hill plants, and in accordance with ASC360, we recorded the following impairment expenses:

•

During 2022 - a property, plant and equipment expenses of $26.4 million related to Sdot Yam facility.

•

During 2023 - property plant and equipment expenses of $27.5 million related to Richmond Hill facility and $1.0 million related to Sdot Yam facility, and right of use assets impairment of $16.6 million related to Sdot Yam facility land use agreement.

Goodwill: As of December 31, 2023 and 2022 our goodwill was fully impaired. During the year ended December 31, 2022 the Company recorded goodwill impairment of $44.8 million.

See also Note 6 and Note 7 to our financial statements included elsewhere in this report.

Legal settlements and loss contingencies, net

Legal settlements and loss contingencies, net consists of expenses related to settlements expenses and estimated exposure not covered by our insurance applicable mainly to individual silicosis claims. We recorded $4.8 million of credit for these expenses in 2023, compared to $0.6 million of expenses in 2022, and $3.3 million in 2021. The change from 2022 to 2023 is mainly attributed to a reduction in estimates made by our legal counsel in light of certain court rulings, and also due to lower then estimated settlement amounts in Israel. See “—Financial Information—Consolidated Financial Statements and Other Financial Information—Legal Proceedings—Claim by former South African distributor”.

Finance (income) expenses, net

Finance expenses (income), net, consist primarily of bank and credit card fees, borrowing costs and exchange rate differences arising from changes in the value of monetary assets and monetary liabilities stated in currencies other than the functional currency of each entity. These expenses are partially offset by interest income on our cash balances and gains on derivative instruments. The finance income during 2023 related mainly to exchange rate differences arising from changes in the value of monetary assets and monetary liabilities in Israel due to the strengthening of the USD against the NIS.

Corporate taxes

As we operate in multiple countries, our income is subject to taxation in different jurisdictions with a range of tax rates. Our effective tax rate was 24.5% in 2023, 1.4% in 2022 and 9.8% in 2021. In 2023 our effective tax rate is attributable mostly to taxable loss position in Israel and the United States for three consecutive years and as a result establishing full valuation allowance on the deferred tax assets, net. In 2022 and 2021 the lower effective tax rate is attributable mainly to taxable losses in certain entities and to deferred tax assets recorded to capture carry forward NOLs. See also note 12 to our financial statements included elsewhere in this report.

The standard corporate tax rate for Israeli companies was 23% in each of 2023, 2022, and 2021. Our non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of origination.

Effective January 1, 2011, with the enactment of Amendment No. 68 to the Israeli Tax Law, both of our Israeli facilities operate under a consolidated “Preferred Enterprise” status. The “Preferred Enterprise” status provides the portion related to the Bar-Lev manufacturing facility with the potential to be eligible for grants of up to 20% of the investment value in approved assets and a reduced flat corporate tax rate, which applies to the industrial enterprise’s entire preferred income, 7.5% in 2017 onward. For the portion related to the Sdot-Yam facility, this status provides us with a reduced flat corporate tax rate, which applies to the industrial enterprise’s entire preferred income, which was 16% during the same period. During 2023, and as part of the company’s restructuring plan, the company closed Sdot-Yam manufacturing facility, ending future portion related to Sdot-Yam facility and reduced corporate tax rate applied to this income.

In December 2017, the U.S. enacted significant tax reform commencing with the year ended December 31, 2017, including, but not limited to (1) reducing the U.S. federal corporate income tax rate to 21% effective 2018; and (2) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries of U.S. companies that had not been previously taxed in the U.S.

The TCJA also established new tax provisions affecting 2018, including, but not limited to (1) creating a new provision designed to tax global intangible low-tax income; (2) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax; (4) creating the base erosion anti-abuse tax; (5) establishing a deduction for foreign derived intangible income; (6) repealing the domestic production activity deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation.

The reduction of the U.S. federal corporate income tax rate required us to remeasure our deferred tax assets and liabilities as of the date of enactment. For the year ended December 31, 2017, we decreased the net deferred tax liability as a result of such remeasurement, resulting in tax income benefit for the year ended December 31, 2017.

As of December 31, 2019, certain provisions of the TCJA remains subject to Internal Revenue Service as well as state tax authorities’ guidance and interpretation which could have a material adverse effect on our cash tax liabilities, results of operations, and financial condition. In addition, the TCJA could be subject to potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the legislation on us and our business. We will continue to evaluate the effects of the TCJA on us as federal and state tax authorities issue additional regulations and guidance.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act has a number of beneficial tax provisions. Among the provision of the CARES Act, the business interest deduction limit under Code Sec. 163(j) is increased to 50 percent of our adjusted taxable income in the U.S. for tax year 2020. In addition, Net operating losses (NOLs) arising in tax years beginning in 2019, 2020, and 2021 now have a five-year carryback period and an unlimited carryforward period. Under the CARES Act we carryback our U.S. NOL for the year ended December 31, 2021 to prior taxable years.

For more information about the tax benefits available to us as an Approved Enterprise or as a Beneficiary Enterprise or as Preferred Enterprise, see “ITEM 10.E: Additional Information—Taxation—Israeli tax considerations and government programs.”

Net income (loss) attributable to non-controlling interest

In October 2020, we acquired a majority stake in Lioli and for the year ended on December 31, 2023, 39.6% of Lioli’s net income was attributed to its minority shareholders. In 2023, Lioli had a net loss of approximately $1.5 million.

Other factors impacting our results of operations

Share-based compensation

We recorded share-based compensation expenses of $1.0 million, $1.5 million and $1.8 million in 2023, 2022 and 2021, respectively, and expect to record $2.8 million over a weighted average period of 3 years from December 31, 2023. For more information, see also Note 13 to our financial statements included elsewhere in this report.

Agreements with Kibbutz Sdot-Yam

We are party to a series of agreements with our largest shareholder, the Kibbutz, which govern different aspects of our relationship. Pursuant to these agreements, in consideration for using facilities leased to us or for services provided by the Kibbutz, we paid to the Kibbutz an aggregate of $10.2 million in 2023, $11.3 million in 2022 and $11.0 million in 2021 (excluding VAT).

For more information on these agreements, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”

Management Services Agreement with Tene

In November 2021, we entered into a management services agreement with Tene Growth Capital 3 Funds Management Company Ltd., the management company of the general partner of Tene Investment in Projects 2016, L.P., pursuant to which Tene Investment in Projects 2016, L.P. provides us with the services of an Executive Chairman of the Board (by Dr. Ariel Halperin), and regular business development advice services, for an aggregate annual management fee of NIS 750,000 plus VAT and expenses (excluding services of an additional director, Mr. Dori Brown, who no longer serves on our board).

For more information on these agreements, see “ITEM 7.B: Major Shareholders and Related Party Transactions—Related Party Transactions.”

Acquisitions

During 2022:

Magrab Acquisition On July 6, 2022, the Company completed the acquisition of 100% of the shares of Magrab Naturtsen AB ("Magrab"), a leading distributor in Sweden, establishing first direct go-to-market presence in E.U., for a total net consideration of approximately $2.2 million, with an additional considerations of up to approximately $1.5 million.

Comparison of period-to-period results of operations

The following table sets forth our results of operations as a percentage of revenues for the periods indicated:

	Year ended December 31,
	2023						2022						2021
	Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue
	(in thousands of U.S. dollars)

Consolidated Income Statement Data:
Revenues:	$	565,231			100	%	$	690,806			100	%	$	643,892			100	%
Cost of revenues		473,292			83.7			527,561			76.4			472,394			73.4
Gross profit		91,939			16.3			163,245			23.6			171,498			26.6
Operating expenses:
Research and development, net		5,086			0.9			4,098			0.6			4,216			0.7
Selling and marketing		82,222			14.5			94,412			13.7			85,725			13.3
General and administrative		49,490			8.8			51,596			7.5			50,845			7.9
Impairment expenses related to goodwill and long lived assets		47,939			8.5			71,258			10.3
Legal settlements and loss contingencies, net		(4,770	)		(0.8	)		568			0.1			3,283			0.5
Total operating expenses		179,967			31.8			221,932			32.3			144,069			22.4
Operating income (loss)		(88,028	)		(15.6	)		(58,687	)		(8.5	)		27,429			4.3
Finance expenses, net		(1,069	)		(0.2	)		(3,079	)		(0.4	)		7,590			1.2
Income before taxes on income (loss)		(86,959	)		(15.4	)		(55,608	)		(8.1	)		19,839			3.1
Taxes on income		21,281			3.8			758			0.1			1,950			0.3
Net income (loss)	$	(108,240	)		(19.1	)	$	(56,366	)		(8.2	)	$	17,889			2.8	%
Net income (loss) attributable to non-controlling interest		(584	)		0.1			688			0.1			(1,077	)		(0.2	)
Net income (loss) attributable to controlling interest	$	(107,656	)		(19.0	)%	$	(57,054	)		(8.3	)%	$	18,966			2.9	%

Year ended December 31, 2023, compared to year ended December 31, 2022

Revenues

Revenues decreased by $125.6 million, or 18.2%, to $565.2 million in 2023 from $690.8 million. The decrease in 2023 is mainly due to lower volume related to macroeconomic conditions including relatively high inflation and interest rate hikes across our main markets which resulted in lower demand for our products.

Cost of revenues and gross profit margins

Cost of revenues in 2023 amounted to $473.3 million compared to $527.6 million in 2022 as a result of lower revenues as mentioned above. Gross margins during 2023 decreased to 16.3% compared to 23.6% in 2022, as a result of increased manufacturing costs, due to lower capacity utilization which resulted in lower fixed-costs absorption, increase in logistics costs per unit, higher raw material prices offset by a decrease in shipping prices and favorable selling prices.

Gross profit decreased from $163.2 million in 2022 to $91.9 million in 2023, with a decrease in gross margin of 7.4%, from 23.6% in 2022 to 16.3% in 2023. The decrease in gross margin primarily reflects the increase in manufacturing costs due to lower capacity utilization which resulted in lower fixed-costs absorption, increase in logistics costs per unit higher raw material prices, offset by a decrease in shipping prices and favorable selling prices.

Operating expenses

Research and development. Research and development expenses remained relatively unchanged and amounted to $5.1 million in 2023 and $4.1 million in 2022.

Selling and marketing. Selling and marketing expenses decreased by $12.1 million, or 12.9%, to $ 82.2 million in 2023 from $94.4 million in 2022, stemming mainly from cost savings initiatives in our U.S. market related to lower volumes and lower labor expenses. Marketing expenses as a percentage of revenue increased from 13.7% in 2022 to 14.5% in 2023. In 2022 our advertising and promotional expenses as well as marketing assistance expenses increased mainly to support future growth in the U.S and to support porcelain launch.

General and administrative. General and administrative expenses (without impairment) decreased by $ 2.1 million, or 4.1%, to $49.5 million in 2023 from $51.6 million in 2022.

Legal settlements and loss contingencies, net. Legal settlements and loss contingencies, net, decreased by $5.3 million, from $0.6 million in 2022 to -$4.8 million in 2023. The change from 2022 to 2023 is mainly attributed a reduction in estimates made by our legal counsels in light of certain court rulings, and also due to lower then estimated settlement amounts in Israel.

Impairment of Goodwill and Long-lived assets. During 2023 and 2022, the Company performed impairment tests of its goodwill and indefinite-lived intangible assets and its long-lived assets which resulted in a pre-tax non cash impairment charge of $45.1 million and $71.3 million, respectively. The Company performed these tests after determining a triggering event had occurred, taking into consideration the impact of market capitalization, higher weighted average cost of capital (“WACC”), and deteriorating macroeconomic conditions, and the fact the company announced on closing of its Sdot Yam and Richmond Hill plants. In connection with the closure of our plants in Israel and in the U.S. the Company recorded $2.9 million restructuring expenses.

Finance (income) expenses, net

In 2023 the Company had finance income of $1.1 million, compared to finance income of $3.1 million in 2022. The difference was primarily a result of exchange rate differences arising from changes in the value of monetary assets and monetary liabilities in Israel due to the strengthening of the NIS against the USD.

Taxes on income

Taxes on income increased by $20.5 million to $21.3 million in 2023, from $0.7 million in 2022. Our effective tax rate was 24.5% in 2023 compared with 1.4% in 2022. This was mostly due to taxable loss position in Israel and the United States for three consecutive years and as a result deleting the related deferred tax assets.

Net income (loss) attributable to non-controlling interest

In 2023, net loss attributable to non-controlling interest amounted to $0.6 million. In 2022, net income attributable to non-controlling interest amounted to $0.7 million.

Year ended December 31, 2022, compared to year ended December 31, 2021

For a comparison of the years ended December 31, 2022, and 2021, see “ITEM 5.A. Operating and Financial Review and Prospects—Operating Results—Year ended December 31, 2022 compared to year ended December 31, 2021” included in our annual report on Form 20-F for the year ended December 31, 2022, filed with the SEC on March 15, 2023, which comparative information is herein incorporated by reference.

Seasonality

Our results of operations are impacted by seasonal factors, including construction and renovation cycles. We believe that traditionally the second and third quarters of the year exhibits higher sales volumes than other quarters because demand for mineral surface products is generally higher during the summer months in the northern hemisphere, when the weather is more favorable for renovation projects and new construction, as well as the impact of efforts to complete such projects before the beginning of the new school year. Conversely, the first quarter is impacted by a slowdown in new construction and renovation projects during the winter months in the northern hemisphere. Similarly, sales in Australia during the third quarter are negatively impacted due to fewer construction and renovation projects.

During periods of economic slowdown, seasonality trends might not manifest as was the case in 2023 results.

B.	Liquidity and Capital Resources

Our primary capital requirements have been to fund production capacity expansions, as well as investments in and acquisitions of third-party distributors, such as the purchase of Caesarstone Canada Inc., our acquisition of the business of our former Australian distributor and establishing our U.K. operations, our investment in and acquisitions of Caesarstone USA (formerly known as U.S. Quartz Products, Inc.) Lioli, Omicron and Caesarstone Scandinavia, and the construction of our manufacturing facility in the United States. Our other capital requirements have been to fund our working capital needs, operating costs, meet required debt payments, finance a repurchase of our shares and to pay dividends on our share capital.

Capital resources have primarily consisted of cash flows from operations and borrowings under our credit facilities. Our working capital requirements are affected by several factors, including demand for our products, raw material costs and shipping costs.

Our inventory strategy is to maintain sufficient inventory levels to meet anticipated customer demand for our products. Our inventory is significantly impacted by sales in the United States, Australia and Canada, our largest markets, due to the 40-120 days required to ship our products to these locations from Israel or other production sources. We continue to focus on meeting market demand for our products while improving our inventory efficiency over the long term by implementing procedures to improve our production planning process.

We minimize working capital requirements through our distribution network that allows sales and marketing activities to be provided by third-party distributors. We believe that, based on our current business plan, our cash, cash equivalents and short-term bank deposits on hand, cash from operations and borrowings available to us under our revolving credit line and short-term facilities, we will be able to meet our capital expenditure and working capital requirements, and liquidity needs for at least the next twelve months. We may require additional capital to meet our liquidity needs and future growth requirements. Continued instability in the global market may increase our capital needs, and conditions in the capital markets could adversely affect our ability to obtain additional capital to grow or sustain our business and would affect the cost and terms of such capital.

The Company’s material cash requirements include the following contractual and other obligations:

Leases

The Company has lease arrangements for certain equipment and facilities, including for manufacturing, logistics and offices. As of December 31, 2023, the Company had lease payment obligations of $138.1 million, with $26.0 million payable within 12 months.

Purchase Obligations

As of December 31, 2023, the Company had manufacturing equipment and raw material purchase obligations of $18.6 million all payable within 12 months. The Company’s purchase obligations are primarily noncancelable.

Debt

As of December 31, 2023, the Company had outstanding bank credits and debts of an aggregate principal amount of $5.1 million all payable within 12 months. Future interest payments associated with the these amounts total $0.5 million, all payable within 12 months.

See also Note 8 and Note 15 to the financial statements included elsewhere in this report.

Cash flows

The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

	Year ended December 31,
	2023			2022			2021
	(in thousands of U.S. dollars)
Net cash provided (used) by operating activities	$	66,529		$	(23,311	)	$	20,684
Net cash used in investing activities		(40,526	)		(7,285	)		(34,885	)
Net cash provided (used) by financing activities		(23,779	)		9,156			(25,254	)

Cash provided by operating activities

Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, share-based compensation and deferred taxes. In addition, operating cash flows are impacted by changes in operating assets and liabilities, principally inventories, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses.

Cash provided by operating activities increased during 2023 by $89.8 million from ($23.3) million to $66.5 million, mainly due to lower Inventory levels, lower raw material and shipping costs and an impact of the Sdot Yam plant closure during 2023.

Cash used in operating activities decreased in 2022 by $44 million from $20.7 million to cash used $23.3 million mainly due to decrease in trade payables by $49.3 million during 2022 compared to an increase by $46.1 million during 2021, and impairment of long-term assets by $71.3 million during 2022. During 2022 our working capital increased as a result of higher inventory levels resulting from higher raw materials and shipping costs slightly offset by improved collection from customers.

Cash used in investing activities

Net cash used in investing activities for the years ended December 31, 2023, 2022 and 2021 were $40.5 million, $7.3 million, and $34.9 million, respectively. In 2023, investing activities included $36.5 million of investing in short-term bank deposits, $11.2 million of capital expenditure offset by $7.1 million proceeds from sales and maturity of marketable securities. In 2022, investing activities included $17.8 million of capital expenditure and $ 2.2 million of cash consideration paid for the Magrab Acquisition, offset by $12.4 million proceeds from securities. In 2021, investing activities included $31.5 million of capital expenditures, and $1.3 million of investment in marketable securities.

Cash used in financing activities

Net cash used in financing activities for 2023 was $23.8 million, which included repayment of a bank credit in the same amount. Net cash provided from financing activities for 2022 was $9.2 million, which included $18.6 million short term loans receipts from banks offset by an $8.6 million dividend payment to stockholders. Net cash used in financing activities for 2021 was $25.3 million, which included a $11.8 million bank credit repayment, $10.7 million of dividends paid, and $1.3 million of repayment of a financial leaseback arrangement related to our Bar-Lev facility.

Credit facilities

As of December 31, 2023, we had a bank debt from commercial banks in India, in the amount of $7.2 million, presented in long-term and short-term liabilities, including a utilized credit line of $2.8 million bearing interest at the rate in a range of 8.8% to 9.45% (linked to MCLR/T-Bill) per annum. As of December 31, 2022, we had a long-term bank debt from commercial banks in India, as a result of the Lioli Acquisition, in the amount of $6.6 million, presented in short-term liabilities, together with a credit line of $2.7 million bearing interest at the rate equal to 7.4% per annum equal to MCLR+0.20%. The bank debt is to be repaid on a monthly basis through 2025. While the loan is outstanding, Lioli is subject to certain covenants including, among others, limiting its ability to divest assets, pay dividends, borrow additional funds and place other encumbrances on its assets. The loan agreement with the bank in Lioli contains customary covenants. Lioli is in compliance with the requirement of the financial covenants under the agreement of own capital contribution. The Loan Agreement also contains certain customary negative covenants that require Lioli to refrain from certain actions unless the bank’s consent is obtained. Lioli debt is secured by an SBLC from Caesarstone and floating charge on all of Lioli’s assets.

In addition, Lioli was provided with a shareholder’s loan by all its shareholders (including its minority shareholders). Such loan is denominated in INR and amounts to $3.9 million, including the approximately $3.4 million that the Company extended during 2021 in part in accordance with the terms of the Lioli Acquisition, and which was used to repay certain selling shareholders. The loan bears an interest rate per annum equal to Libor rate plus 4.5% and is to be repaid during the third quarter of 2025.

During 2022, we secured a $30 million credit line in from and Israeli bank, which we have not utilized during 2023, and the credit line agreement expired during July 2023.

In addition, we had long-term and short-term debt related to the Bar-Lev sale and lease-back transaction with the Kibbutz, fully repaid during 2022.

As of December 31, 2023, we had short term line of $12 million from banks in India, of which 7.2 million were utilized as of December 31, 2023.

See also Note 8 and Note 15 to the financial statements included elsewhere in this report.

Capital expenditures

Our capital expenditures mainly included the expansion, improvement and maintenance of our manufacturing capacity and capabilities, expansion on our north America distribution network and investment and improvements in our information technology systems. In 2023, 2022 and 2021 our capital expenditures were $ 11.2 million, $17.8 million, and $31.5 million, respectively. For more information, see “Item 4.A. Information on the Company –Principal Capital Expenditures”.

Land purchase agreement and leaseback

Pursuant to a land purchase agreement entered on March 31, 2011, which became effective upon our IPO, Kibbutz Sdot-Yam acquired from us our rights in the lands and facilities of the Bar-Lev Industrial Park in consideration for NIS 43.7 million (approximately $10.9 million). The carrying value of the Bar-Lev land at the time of closing this transaction was NIS 39.0 million (approximately $10.4 million). The land purchase agreement was executed simultaneously with the execution of a land use agreement.

Pursuant to the land use agreement, Kibbutz Sdot-Yam permits us to use the Bar-Lev land for a period of ten years commencing on September 2012, that will be automatically renewed, unless we give two years’ prior notice, for a ten-year term in consideration for an annual fee of NIS 4.1 million (approximately $1.1 million) to be linked to increases in the Israeli consumer price index. The fee is subject to adjustment following January 1, 2021, and every three years thereafter at the option of Kibbutz Sdot-Yam if Kibbutz Sdot-Yam chooses to obtain an appraisal that supports such an increase. During 2021, the Kibbutz utilized its option under the agreement and the annual fees for Bar-Lev land were updated to NIS 8.1 million (approximately $2.6 million).

The transaction was not qualified as “sale lease-back” accounting under both ASC 840 and ASC 842 and the Company recorded the entire amount received as consideration as a liability. This liability was matured at August 31, 2022.

C.	Research and Development, Patents and Licenses

Our R&D department is located in Israel. As of December 31, 2023, our corporate R&D department was comprised of 17 employees, all of whom have extensive experience in engineered stone surface manufacturing, polymer science, engineering, product design and engineered stone surface applications. In addition, our R&D for porcelain manufacturing is conducted by two dedicated employees located in India, whose activities are supported by the R&D department in Israel. In 2023, research and development costs accounted for approximately 0.9% of our revenues, and in 2022 and 2021, research and development costs accounted for approximately 0.6% and 0.7% of our revenues, respectively.

We pursue a strategy of identifying certain innovative proprietary technologies and seeking patent protection when applicable. We have obtained patents for certain of our technologies and have pending patent applications which relate to our manufacturing technology and certain products. We act to protect other innovative proprietary technologies developed by us by implementing confidentiality protection measures without pursuing patent registration. No patent application is material to the overall conduct of our business.

Research and development expenses were $5.1 million, $4.1 million and $4.2 million in 2023, 2022 and 2021, respectively.

For a description of our research and development policies, see “ITEM 4.B: Information on the Company—Business Overview—Research and development.”

D.	Trend Information

Other than as described in Item 3.D. “Risk Factors”, in Item 5.A. “Operating Results—Factors impacting our results of operations”, and in Item 5.B. “Liquidity and Capital Resources” of this annual report, which are incorporated by reference herein, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

E.	Critical Accounting Estimates

Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements for the years ended December 31, 2023, 2022 and 2021, included in this annual report. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and could have a materially adverse effect on our reported results.

In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s judgment in its application, while in other cases, management’s judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.

We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time, or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

Revenue recognition

We derive our revenues from sales of quartz surfaces mostly through a combination of direct sales in certain markets and indirectly through a network of distributors in other markets.

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We apply the following five steps in accordance with ASC 606:

(1) identify the contract with a customer: A contract is an agreement between two or more parties that creates enforceable rights and obligations. In evaluating the contract, we analyze the customer’s intent and ability to pay the amount of promised consideration (credit risk) and consider the probability of collecting substantially all the consideration. We determine whether collectability is reasonably assured on a customer-by-customer basis pursuant to various criteria including our historical experience, credit insurance results and other inputs.

(2) identify the performance obligations in the contract: At a contract’s inception, we assess the goods or services promised in a contract with a customer and identify the performance obligations. The main performance obligation is the delivery of our products.

(3) determine the transaction price: Our products that are sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, we consider all the distributors to be end-consumers. For certain revenue transactions with specific customers, we are responsible also for the fabrication and installation of our products. We recognize such revenues upon receipt of acceptance evidence from the end consumer which occurs upon completion of the installation. Although, in general, we do not grant rights of return, there are certain instances where such rights are granted. We maintain a provision for returns in accordance with ASC 606, which is estimated, based primarily on historical experience as well as management judgment, and is recorded through a reduction of revenue.

(4) allocate the transaction price to the performance obligations in the contract: The majority of our revenues are sales of goods, therefore there is one main performance obligation that absorbs the transaction price.

(5) recognize revenue when a performance obligation is satisfied: Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers at a point in time, which affects when revenue is recorded. The majority of our revenues deriving from sales of products which are recognized when control is transferred based on the agreed International Commercial terms, or “INCOTERMS”.

We adopted ASC 606 in the first quarter of 2018 using the modified retrospective method, no cumulative effect adjustment as of the date of the adoption was required.

Prior years information has not been restated and continues to be reported under the old accounting standard 605, “Revenue Recognition” (ASC 605).

Lease accounting

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding Right-Of-Use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing on the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

Following the closure of Sdot Yam plant, we evaluated our right of use asset resulted from non-cancelable lease agreement effective through 2032. Based on future estimated sublease we recorded an impairment of $16,6 million during 2023.

See Note 2 and Note 10 to our Consolidated Financial Statements for the year ended December 31, 2023 for further information regarding leases.

Allowance for credit loss

Our trade receivables are derived from sales to customers located mainly in the United States, Australia, Canada, Israel and Europe. We perform ongoing credit evaluations of our customers and to date have not experienced any substantial losses. In certain circumstances, we may require letters of credit or prepayments. We maintain an allowance for credit loss for estimated losses from the inability of our customers to make the required payments that we have determined to be doubtful of collection. We determine the adequacy of this allowance by regularly reviewing our accounts receivable and evaluating individual customers’ receivables, considering customers’ financial condition, credit history and other current economic conditions. If a customer’s financial condition were to deteriorate, which might impact its ability to make payment, then additional allowances may be required. Provisions for credit loss are recorded in general and administrative expenses. Our allowance for credit loss was $12.2 million, $9.8 million and $9.0 million as of December 31, 2023, 2022 and 2021, respectively.

Inventory valuation

The majority of our inventory consists of finished goods and of raw materials. Inventories are valued at the lower of cost or net realizable value, with cost of finished goods determined on the basis of direct manufacturing costs plus allocable indirect costs representing allocable operating overhead expenses and manufacturing costs and cost of raw materials determined using the “standard cost” method which approximates actual cost on a weighted average basis. We assess the valuation of our inventory on a quarterly basis and periodically write down the value for different finished goods and raw material categories based on their quality classes and ageing. If we consider specific inventory to be obsolete, we write such inventory down to zero. Inventory provisions are provided to cover risks arising from slow-moving items, discontinued products, excess inventories, and net realizable value lower than cost. The process for evaluating these write-offs often requires us to make subjective judgments and estimates concerning prices at which such inventory will be able to be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may cause actual results to differ from the estimates at the time such inventory is disposed of or sold. Inventory provision was $27.4 million, $21.7 million, and $16.8 million as of December 31, 2023, 2022 and 2021, respectively.

Goodwill and other long-lived assets

The purchase price of an acquired business is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

We assess the impairment of goodwill of our reporting unit annually during the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than is carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. We have only one reporting unit because all our components have similar economic characteristic, and we determine its fair value based on fair value methodologies include estimates of future cash flows, future short-term and long-term growth rates and weighted average cost of capital, see also Note 2l and 7 in our financial statements.

As of December 31, 2022, our goodwill and identifiable intangible assets totaled $0 million and $8.8 million, respectively. As of December 31, 2023, our goodwill and identifiable intangible assets totaled $0 million and $6.5 million, respectively. The decrease in intangible assets was mainly attributable to the amortization of intangibles assets related to the Lioli, Omicron and Magrab acquisitions.

We also evaluate the carrying value of all long-lived assets, such as property, plant and equipment and right of use assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We will record an impairment loss when the carrying value of the underlying asset group exceeds its estimated fair value. In determining whether long-lived assets are recoverable, our estimate of undiscounted future cash flows over the estimated life of an asset is based upon our experience, historical operations of the asset, an estimate of future asset profitability and econ

Caesarstone Ltd. [CSTE] Filings
20-F	[2024-03-06]
20-F	[2023-03-15]
20-F	[2022-03-15]
20-F	[2021-03-22]
20-F	[2020-03-23]
20-F	[2019-03-14]
20-F	[2018-03-12]
20-F	[2017-03-13]
20-F	[2016-03-07]
20-F	[2015-03-12]
20-F	[2014-05-13]
20-F	[2013-03-25]
F-1	[2012-02-16]