Good day, and welcome to the Caesarstone Third Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. Following today's presentation, we will open the lines for Q&A. (Operator Instructions) Today's conference is being recorded. At this time, I would like to turn the conference over to Sarah Bicknell, ICR. Please go ahead, ma'am.

Thank you, operator, and good morning to everyone. I'm joined by Yuval Dagim, Caesarstone's Chief Executive Officer, and Ophir Yakovian, our Chief Financial Officer. Certain statements in today's conference call and responses to various questions may constitute forward-looking statements. We caution you that such statements reflect only the company's current expectations and that actual events or results may differ materially. For more information, please refer to the risk factors contained in the company's most recent annual report on form 20-F and subsequent filings with the Securities and Exchange Commission. In addition, on this call, the company will make reference to certain non-GAAP financial measures, including adjusted net income, adjusted net income per share and adjusted EBITDA. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's Third Quarter 2018 earnings release, which is posted on the company's Investor Relations website. Thank you, And I would like to now turn the call over to Yuval. Please go ahead.

Thank you, Sarah, and good morning, everyone. Having joined the company in August of this year, I'm excited to realize the significant upside in the path of Caesarstone brand and the potential of our global market leading position. Along with the management team, we are working on updating our strategy and crafting the direction for our company vision and mission statement. We have a deep emphasis on health, safety and execution with excellence at all levels of our organization. I'm confident that these focus will bring better efficiency and stronger performance everywhere in our company. In regards to our people and structure, we are working to create a more seamless global operating model and bring these, bring the right talent at all levels. We are enhancing the management team and simplifying our hierarchy to allow faster decision-making process, while empowering our people to be fully accountable for the business. In our U.S. business unit, we are in advanced stage of fill the permanent role for President of Sales, Marketing and Distribution. I look forward to provide an update on that front. In our manufacturing operation, we are working to implement best practices, prioritizing health and safety, improve discipline and bring the right talent where we need it. The Richmond Hill facility in the U.S. is experiencing better throughput and yield, which has contributed positively to margins compared to prior year. We recently appointed a new manager to the Richmond-Hill plant, who brings more than 30 years of operating experience from Alcor. While we expect to continue to face pressures in most markets, mainly due to softer market conditions, we are focused on getting system in better position to capture shares and improve profitability. The actions we are already taking along with many additional initiatives are driven by our focus to drive better results and pivot our company to increasingly focus on growing the EBITDA margins. Look forward to updating you in our progress in coming months. I will now turn the call to Ophir, who will provide details on our results and outlook. Please, Ophir.

Thank you, Yuval and good morning, everyone. In the third quarter of 2018, global revenue was $147.7 million, a decrease of 4.5% compared to $154.7 million in the third quarter of last year. This was mostly attributable to an adverse effects impact of $4 million. On a constant currency basis, revenue declined by 1.9% versus last year, with lower volume more than offsetting more favorable pricing. I will now review our performance by region on a constant currency basis. In the U.S., sales were essentially flat compared to last year. We experienced volume improvement in our core business, which benefited from ongoing changes to enhance our go-to-market strategy. These positive developments were offset by continued weakness in IKEA due to previously discussed changes in IKEA's promotional structure. Australia's sales were down 1.2% on a constant currency basis, with weaker performance than forecasted. The decline was primarily due to increased competition coupled with continued softness in the housing and remodeling markets, which were affected by more rigid lending standards and increased mortgage rates. In Canada, sales increased 2.6% on a constant currency basis, primarily attributable to our core business, we were, while we were able to improve pricing on lower volume. The overall performance in Canada was softer than anticipated. Sales in Israel on a constant currency basis were 18.2% down, the time of Jewish holidays adversely affected results in addition to challenging housing market conditions. In Europe, sales grew 3.1% on a constant currency basis, reflecting improved performance in the U.K. that was partially offset by slower performance in our indirect distribution operations. Revenue in the rest of the world on a constant currency basis was down 14.7%. In the U.S., since August, there have been several announcements from U.S. government agencies in the interest of promoting fair trade in…

Thank you. [Operator Instructions] We will take now our first question from Susan Maklari from Credit Suisse.

It's actually Chris on for Susan. My first question is just on the specific cost saving actions you highlighted for the remainder of the year. It looks like, it's expected to offset a decent amount of the revenue weakness and then imply over 100 basis points of improvement in 4Q. So I was just wondering, if you provide some specific color on what those actions are? And what the run rate for that will be for looking into 2019.

Hi, Chris, thanks for the question. I guess, it's just great opportunity when we're joining the company to, and we now need to change a bit of the trajectory for the year to coach our teams, our leaders all over the world and now invite them with an ask, or we meant to look again on the remaining of the year, what kind of costs we want to spend and what we can avoid off. And then, while, of course, while doing that we are kind of making our annual operating plan for 2019. It should probably be in line with this kind of plans of bringing greater efficiencies to our company.

Got it. So it sounds like it's more on the production efficiency side of things. Okay. And then...

It's just the, maybe it's just about everywhere, I mean we're talking about all G&A cost and S&M cost, so it's all our day-to-day costs that we're trying to see, whether we must do this year and what is not. So we're looking in each and every equipment and each and every spend now all over the world.

Got it. And then just my second question is on the impact of tariffs in the U.S. I know you said, there is a significant amount of prebuying going on, but is there any way you guys have a sense of how long it will take for that prebuy inventory to get work through? And when you'll start seeing the benefits of increased pricing power? And just general better performance coming out of Richmond?

So with regard to the tariffs, I mean we've seen the import from China data and we see that in the past 3 months before the tariffs came into effect. We saw more, the import is more than doubling. So we see that for the few, for the coming few months, it will have the effect. I think it will be reasonable for us to assume that during Q1 next, of next year we will see a better market for us.

Thank you. And we now move on and take our next question from Michael Rehaut from JPMorgan.

First question, and I apologize, you might have answered this before, but I had trouble hearing, maybe from the background noise or whatnot from the speakers. But in the outlook, you talked about reducing the EBITDA range due to the moderated revenue expectations, but partially offset by cost saving actions. So, and I believe, you were talking to this a little bit, but so apologies, if you have to repeat it, I didn't hear it that well. But could you kind of walk through what types of cost savings actions you're taking, and where? And if you can kind of quantify, what dollar benefits you're expecting out of these for 2018 and 2019?

So we're taking step, Yuval mentioned that earlier, it's across all functions, I mean we're checking in and trying to save and make sure that we are investing in the right places that will promote the business. So we are, this is, I can say that, it goes from manufacturing and production and logistics and goes to a sales marketing and G&A. And so this is a general effort that is done by all functions, this is in that regard. I can say that it compares, I think that the level of expenses, operating expenses will be similar to this quarter, next quarter, maybe a little less, but this is the expectation. And therefore 2019 volume, we are yet to plan and complete the planning for next year and we will share it and our expectation for next year, once we decide to do that and we will be ready to do that.

Okay. And I guess, just more broadly about the competitive backdrop in the U.S. How do you feel about your positioning? Obviously, in the last couple of years, your own organization has gone through a lot of change. How would you characterize, Yuval, given your assessment of the team in the U.S. and the strategies or the approaches to market that you have in place today? Where would you say you are in terms of the evolution of the team? And I assume, you mentioned in the press release that you will be bringing different best practices to bear. Where are we in the process of kind of the evolution of the U.S. operation in the go to market strategy?

No, thanks, Mike. I think we're quite well progressed in the development of our U.S. branch, I guess. And I think the new coming President will enhance this process. We have quite a stable team already and I think we are pushing quite hard on our go-to-market efforts to make sure we're captured, capturing the antidumping opportunity coming early next year. So I think, kind of, well positioned for, to take this opportunity to maximize the benefit to our company. And yet, we are giving the right momentum for greater build of our U.S. business. I think all-in-all, I'm feeling very positive on the trajectory and definitely the momentum we are giving to our business in the U.S.

Thank you. Now we take the next question from John Baugh from Stifel.

My question is first on Australia. I think you referenced, Yuval, increased competition as well as the slowing out in the market there. Could you tell us what's going on there? Is that already a Chinese goods showing up? Or is it something else?

Hi, John. It's Yuval, of course. I think what we're experiencing in Australia is probably the two fold, I think on one hand, the markets, the housing markets is becoming softer over the last, has become softer over the last few months. And I think we started to see the buds of new Chinese companies in the market with the different set of prices. I know, you would be competing in all tiers with them, as we are targeting the premium single more than others. But I think we've seen both dynamics. So, yes, first the competition to market and, at the same time, bit softer housing market in Australia.

Okay. And then Canada. Is that, you mentioned, I think volumes were down. Is that IKEA? Or competition? Or housing slowing there? What are the factors driving Canada volume down?

So all-in-all, we did and revenue went up and I think you see good, better pricing and you're right, the volume was down. Our core business did do better than the IKEA. IKEA performed less in this quarter than the core. But all-in-all the market in Canada is good, maybe decelerating a little bit, but still growing. And our expectation is to capture more of this growth and grow more than we do today.

Okay. And then for a follow-up on Michael's question, but I guess, on the sales and marketing spend in the U.S. being down, and it sounds like it'll be similar levels in fourth quarter. Is this simply, are you just kind of, one, reassessing your strategy, what to do with sales and marketing spend? But also, just waiting for the inventories to clear and getting in a better price relative market once the Chinese imports slow dramatically?

It's a combination of things, I think that we are timing our investment in the marketing to be at the right time, and where, and we will not avoid, of course, marketing initiatives that we think that are beneficial and we'll contribute to the business. So we're doing the, what we're doing is optimizing the timing and the right, doing the right thing. So and I think that it's fair to say, that there are places that we think that we can reduce some of the cost without affecting the business.

I think beyond the cost in our go-to-market model, I think we have quite a strong brand in the U.S., playing in the premium segment. And I think what we're going to see over the next years, in months and years, is that we are probably going to be investing more behind our brand and innovation, and I think we'll be probably boosting a bit the exercise in the U.S. and delighting our customers.

Great. And then my last question is on the complexity of product that went through the Israeli facilities, you've referenced that again. [Technical Difficulty] Where are we in terms of that issue abating, getting less [Technical Difficulty] bad, maybe back to a point where, and I know your volumes are down[Technical Difficulty], but that affects throughput, I guess, but I'm curious, as to where we are with outsourcing product versus the [Technical Difficulty] complexities of what you're making inside and that ceasing to be a drag on margin going forward?

I think in general, the continuous improvement momentum is actually continuing and increasing. We are getting better from quarter-to-quarter. We are not suffering for any shortage of capacity. We have stock where we need it. So I think the complexity is something we, is in hand, and we're not seeing this being reflected in our P&Ls too much or less and less. And I think going forward, we will probably continue to look and find for the balance, for the right balance between purchasing some of overall products through an OEM methodology, and continue to produce probably the more innovative models of ours in-house. I think we are in 2019, you will probably present a better balance of that, so we'll be kind of serving the markets better with the right models, manufactured, being manufactured at the right places.

Thank you. As there are no further questions, I will now hand back to your speaker today for any additional or closing remarks. Thank you. Gentlemen you may close your call. Thank you. Gentlemen you may close your call. Thank you.

Thank you. Thank you for your attention this morning. We look forward to updating you on our progress in the quarters to come. Thank you very much for participation.

Thank you. Ladies and gentlemen, this will conclude today's conference call. Thank you for participation, you may now disconnect.