Q3 2019 Earnings Call
The formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Rodney <unk> Investor Relations. Thank you Sir you may begin.
Thank you for joining us for Tecnoglass, its third quarter 2019 conference call.
Copy of the slide presentation to accompany the call may be obtained on the Investor section of the Tecnoglass website.
Hi speakers for today's call, our Chief Executive Officer, <unk>, Chief Operating Officer, Chris Dice, and Chief Financial Officer Santiago.
I'd like to remind everyone that matters discussed in this call except for historical information.
Looking statements within the meaning of the private Securities Litigation Reform Act that 1995, including statements regarding future financial performance future growth and future acquisitions.
Mr based on Tecnoglass, its current expectations or beliefs and are subject to uncertainty and changes in circumstances.
Actual results may vary in a material nature from those expressed or implied by the statement here in due to changes in economic business competitive indoor regulatory factors and other risks or uncertainties affecting the operations of technical access business.
These risks uncertainties and contingencies are indicated from time to time in taking classes filings with the Securities and Exchange Commission. The information discussed during the call as presented in light of such risks further investors should keep should keep in mind that TEGNA glasses financial result in any particular period may not be indicative of future results Tecnoglass is under no.
Obligation to expressly disclaims any obligation to update or alter its forward looking statements whether as a result of new information.
Future events or changes in assumptions or otherwise.
I'll now turn the call over what was the Manuel beginning on slide number four.
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Thank you are quick.
Beginning with our financial highlights on slide number.
We were pleased to improve third quarter revenues by 11.8% year over year to 108.5 million.
Excluding the impact favorable foreign currency total revenues would have increased 13.6% compared to the prior year quarter.
We have completed this work continues to rapidly penetrate the U.S. market, that's really what's the rough feel where sales were 60% compared to the prior year core.
Lower gross margin year over year was primarily due to an exceptionally favorable mix so higher margin manufacturing revenues during the prior year quarter.
In the third quarter 2019, we had a more typical makes a manufacturing and service revenue.
Produce a gross margin more in line with our previously communicated normalized level in the low to mid Thirtys right.
We were very pleased to improve operating expense.
Percentage of sales by 140 basis points to 18.6% on higher revenues on cost control.
We ended the quarter, we've got strong passports instead of 42 million net leverage ratio coupon core times down from 2.7 times last year.
These balances right supports our growth initiatives and operational enhancements as we move forward.
We spent 6.1 million on topics in the third quarter, we did majority geared toward the higher return capacity up right automation initiatives.
Most parts Capex, having already being funded I heard a bit near term completion.
Looking at the driver so revenue on the slide number nine.
Continued outperformance in the U.S.
The majority of their core itself with the U.S.
Marking its 20, a great quarter double digit revenue growth.
Squeezing by 13% year over year to 92.8 million.
The U.S., primarily reflected stronger residential invoicing healthy commercial construction activity.
Market share gains and additional projects nonstrategic geographies, where we are growing our present.
In Latin America, we were pleased with better than expected third quarter performance in Colombia, where revenues grew 7% year over year and 21% excluding FX.
As we mentioned last quarter with the significant shift in our business could the U.S. during the past five years, the United States actually represents a higher percentage of TEGNA glass revenue mix as compared to most of our user base building product <unk>.
On a trailing 12 month basis, the U.S. represented approximately 86% up our total revenue.
This compares to an average of approximately 80% core U.S. base building products peer group.
Looking at the drivers of adjusted EBIDA on slide number.
Adjusted EBITDA increased 5.2% to 24 million from the prior to your quarter, representing an adjusted EBITA margin of 22.1%.
Gross profit increased 3% <unk> third quarter record 35.7 million, representing a 33% growth market.
This compared to gross profit of 34.7 million during the prior year quarter, representing a gross margin of 35.8%.
I mentioned earlier the difference in gross margin was primarily related to an exceptionally favorable revenue maker.
Significant portion of money factoring related revenues in the comparable 2018 Perry.
During the third quarter 2019, we had a more balanced makes a manufacturing on the service revenues producing that gross margin more in line with our expectations and our normalized margin profile.
Our operating expenses.
For a sizable revenue improved by 140 basis points year over year to 18.6% in the third quarter.
This was like that operating leverage on higher revenue, coupled with ongoing company wide initiatives to improve their DNA, mainly on shipping and handling and personal cost.
Our joint venture, we signed Gabon contributed 1.2 million to adjusted EBITDA.
Looking at our continued expansion into the residential market on slide number 12.
A reminder, we report to you a single family residential our residential business.
We <unk> all of their sales, including medium and high rights Condos Arts commercial.
In 2017, we entered the U.S. single probably market in a rapid growth in this segment of our business continues to surpass our expectations.
At the end of the third quarter. The U.S. single family market represented 17% of our trailing 12 month U.S. revenue compared to just 3% in 2017.
Year to date, our resi, that's wholesale double when compared to the results for the first nine months of 2018, when she's a very encouraging trends.
We continue to believe dark collective airports in residential alone. We are more outreach commercial reputation will allow us to continue to grow faster than the national Robert.
We see significant upside in the potential of our business to capture a rising share of residential and overall market share in the U.S.
Moving to our high return investments on slide number 13.
Well, if you're right 2019, we completed our previously announced aluminum production capacity expansion in response to strong customer demand for aluminum products.
Our other high return investments to automate key operations are several glass on aluminum facilities are scheduled to be operates held by Europe .
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Our quarter, we have already deployed approximately 80% of our total anticipated 20 million copied all investments in this growth any accretion see any city.
A portion of the remaining spend will be pushed into early 2020 and paid up there we are able to assess the performance of the upgrades.
Our <unk> joint venture we talk about it continues to reinforce our vertical integration strategy for writing those without key supplier blocks in our production process, while contributing to results.
Beyond the existing JV operation the construction of the second state of the our plan nearby our headquarters in Battle in Kenya.
He is on track to begin by the first quarter 2000 and <unk>.
We are backing up and easy pay there with the permit and planning stages and continue to be very encouraged by the potential efficiencies through our business over time.
Moving to our 2019 outlook on slide number 15.
We continue to expect strong top and bottom line growth in full year 2019.
Based on solid execution year to date and better end market visibility, we are raising our outlook for the full year 2019 revenues to grow to a range of 432 $440 million.
We anticipate the majority your revenue growth to come from the U.S.
Help partly by innovative new products project, <unk> geographic expansion and single family residential I.
Okay explain on prior calls they bright year over year percentage growth in the first half is higher compared to the back half year over year <unk>.
Based on the anticipated timing of invoicing in 2019 compared to 2018.
Based on our increased sales outlook on anticipated mix of revenue, we're writing our full year adjusted EBITDA outlook could be in the range of 93 $97 million.
This outlook assumes favorable operating leverage on higher revenues and a higher mix of sales for manufacturing operations compared to the prior year.
Additionally, the outlook incorporates our unchanged share of adjusted EBITDA from the San Gobank joint venture, which began contributing to our results into second quarter 2019.
Contemplated in our regional outlook.
Are there more we expect lower as DNA upper teens wholesale based on incremental revenues and ongoing cost control efforts.
We are extremely confident in our ability to achieve our growth objectives for 2019.
As we build but our competitive advantages we plan to continue gaining market share and advancing farther out a leading your with opus producer of high quality glass products. We thank you for your continued support are pregnant lot.
We will be happy to answer your questions. Operator, Please open the line for questions.
Thank you ladies and gentlemen at this time, we will be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation to indicate that your line is in the question Q you May press star to if he would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your hands.
Before pressing the star keys, one moment, please let me pull for questions.
Thank you. Our first question comes from the line of Mike Shlisky with Dougherty. Please proceed with your question.
Good morning, guys.
Oh I'm wondering Mike.
Morning wanted to touch first on the central Bond JB.
In the slide you mentioned that it was about a one point you might not adjusted EBITDA in the quarter.
Your first quarter of ownership that you had it for the full quarter I think so.
Let me tell us and other it's a new.
Facility coming online eventually but for the next bunch of quarters is that the right runway thing or the EBITDA contribution.
Yes, it will be between 1.2 to 1.5 million.
On a quarterly basis, which is what do you suspect to going forward.
Okay great.
And then turning into whats in the backlog today first of all great jogging and a 5% over the prior year I guess my question is based on what you know what's in the backlog today.
The next between rather than non res et cetera is there anything that would have us believe that the margins you've got the last couple of quarters won't continue into most the 2020 at this point or if there's some change in.
The next or something that that that could be either up or down.
Our next year on the on EBITDA margin.
No I think.
Based on on the mix the gross margin there could be expected he's really in line with what we sold each quarter and in previous quarters.
However, we do expect to good operating leverage on as GE a name will win for US you. So in these periods.
Okay.
And then I also wanted to ask about the employment situation.
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I'm not in the bearing key area I know you've had some growth engine good backlog.
As mentioned, there's been some low cost, but because of all the growth have you had an issue spanning people find them not to correct wages.
Kind of built this backlog going forward.
Oh unemployment is a backdrop in there.
In Colombia, well more unemployment now we used to have.
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They don't know have so we are not finding many.
It was finding the right people on would own the automation, but he's taking place, it's all going to be necessary.
Got it got it that's why I squeeze one more any news one is for Santiago you brought down leverage year over year could you remind us if you've got any kind of targeted range for your your leverage going forward.
Yes, the beginning of the year, we had indicated we wanted to wind up but two and a half times so being on their daddy's certainly nice.
My idea would be to continue that train and hopefully over the next few quarters get it down to two times.
We don't we don't have a necessary our guidance for for leverage but my expectation would be to end up where we are or a little lower by the end of the year.
Okay, guys, great well, thanks, so much I appreciate it thanks, Mike books.
Thank you.
Thank you. Our next question comes from Josh Wilson with Raymond James. Please proceed with your question.
Good morning, and thanks for taking my questions.
Good morning, Josh Good morning.
First a a little clarity on the gross margin outlook. So based on your backlog and also the the new automation equipment or just to clarify what you think gross margins shaken up like for 2020.
Well the that what you saw this quarter is really in line with their recent performance a once we are able to assess the impacts from the automation on direct labor, we could gain I'd be to leverage on or arbiter operating leverage on that.
But you know once we have a couple of months under our belt or the automation needs due to start this month.
Once we have a couple of months, we'll be in a better position to tell you exactly what that's going to look like our base case, even though we are able to kind of get with 33% level.
We have what we expect as far as efficiencies on the on the neighborhood side, we should be able to increase that.
I would say 50 basis points, but you know will have a better idea. Once we have operated a couple of months and in line with a the timing when we will provide guidance for 2020.
Got it and then inventory was better than I expected was that just a timing issue are you, making further gains and working capital.
I think it is both of these efficiency east so streamlining the process.
Making me no large efforts to manage working capital, which has been a big focus pretty company each year.
Inventory days, she came down nicely.
If you compare versus last year.
Dsos are stable and that's the next you know point of focus so hopefully we'll level will be able to improve that trend as well.
Good and then I've been getting more questions around the the Miami market could you give us your latest thoughts on how that markets what kind of what your exposures are.
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Got it good luck with the next quarter.
Thanks, Joe.
Thank you. The next question comes from same Carine with D.A. Davidson. Please proceed with your question.
Good morning, gentlemen, thank you for the time.
Well good morning, good morning, Thank you.
So first off I noticed the Colombian sales grew for the first time in a while congrats there do you expect that to recover going forward are you deliberately magic kind of how large that gets for you given the margin difference between there in the U.S.
Unfortunately, since we had a lot of devaluation of the pencil. Our it also made US look like Colombian sends where are coming down Daisy not go down that much about 20% devaluation really are made and looked outweighed by.
The good news is a we are closing a lot of new deals in Colombia at all for the next three to six months delivery or the money looking not just thrown a yard never look in the last 12 months.
Just to just do out to that point on our new guidance, we're not baking in any growth from Columbia Q4, So anything that we see in which were already seeing could be could be an upside.
I think will be better able to assess 2021, when we have a couple months, So Paulo growth under our belt on not just this quarter to see we have established trend. So again I think once we announce our guidance for 2020, we can give you a lot more color, but certainly things are picking up and looking better than that.
During the last 12 months.
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Why doesn't dual lumen aluminum production capacity become incrementally <unk> results and how should we think about contribution.
Well, yes. It is you know for sure.
We believe that beginning in January because we were not taking any more orders as we were sold out.
We have some good come even though we're gonna start to see beginning in January for the incremental Oh, the aluminum on and also we have some good news industry respect we how are we.
We had close for the <unk> for the 2000 I didn't hear the prices of aluminum dot $2100 at dawn they futures.
We were now able to buy for 2000 2019 onto the Olivia Tong, which we wanted to see an incremental war.
Marginal dodson.
So he's looking very good.
Thank you and then any expectations on here on a cash flow and can we expect some working capital or at least here at the end of year.
Yes, there's actually a little bit of seasonality to cash flow because we have some tax and interest payments on that first and third quarters of the year.
Well the expectation would be for Q4 to be another quarter, all a positive working capital in cash flow from operations.
So the expectation would be for August two two end up higher than you saw year to date.
Thank you.
Thank you.
Thank you. Our next question comes from Alex Rigel with FBR and company. Please proceed with your question.
Thank you good morning, gentlemen, very nice quarter.
Thanks, Alex how are you argue do well [laughter] couple of quick questions here residential businesses is doing fantastic can you update so congratulations on that but can you update us on sort of where you stand with regards to manufacturing capacity.
What geographies, you're selling it in and I suspect to still primarily Florida, but well your plans are for expanding that residential business in 20, Twond tea and it clearly 60% growth year over year is is a level that [laughter] probably on sustainable long term, but how should we think about gross enough business as we look.
Out into 2020 and beyond.
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That's excellent and then as it relates to product price mix as it related to EBITDA declined 3 million in the quarter, a subject or can you explain that a little bit.
No. The mix was basically in line with what is normal last a year during the third quarter. We had an abnormally high makes a meaningful revenue coming from manufacturing as opposed to servicing.
So if you look at the gross margin profile over the last few quarters, you more or less end up in low to mid Thirtys, which is where we are right now.
So in reality like like we were saying the gross margin really is gonna be a function Oh, Oh mix, because you know on on pricing.
Oh, we're not seeing a whole lot of headwinds to the contrary anything we should be seen tailwinds moving forward, but he is more a function of makes rather done then pricing Alex.
Very helpful. Thank you.
Thanks, Alex.
Thank you. Our next question comes from the line as well the over Merrell, What's Sidoti and company. Please proceed with your question.
Hi, good morning, everyone.
And we'll do you how are you.
Good so some of the forward indicators, we've been looking at such as the A.B. I and showing some moderation in the northeast northeastern U.S., which is where I know you are making some inroads earlier in the year can you just talk about what you're seeing on the ground from UGC customers.
Especially from that geographic perspective.
Yes, Julio basically if you look at the composition of they owe that backlog, it's actually ships being a two other places like we've been talking the last couple of calls.
So starting out with a lower base you know when when you're growing from from a small base actually on a comparable basis. It looks a very strong.
These encouraging to know that that backlog is growing outside of Florida, which has been you know the company's strategy in the last couple of years, but from our beating perspective I'm quoting perspective, you know we continue to see stronger activity.
In the main markets, though that we're targeting so I don't know <unk>, if we isn't necessarily a function of the overall market expanding or just a functional market share gains.
But activity as we see a continued to look strong.
Got it so and on that point, yeah. The U.S. isn't making up you know 86% of sales on trailing 12 month, given that backlog mix continuing to trend that way.
Do you see the U.S., making up maybe 90% plus of sales in 2021 is that fair way to think about your mix going forward.
I I you if you look at it I saw a September he was 88% already what's gonna take place here is that if Colombia in Latam continue that the upward trend they might catch up a little bit on and and eat some of that percentage.
But we would start to school the U.S. continues to grow the way has been it wouldn't be unreasonable together, where we're already at 88% from my backlog standpoint.
Got it and then just last one for me is.
Can you maybe talk about some of those companywide initiatives, you're doing that temper. Your operating expenses I think in your prepared remarks, you mentioned, some shipping and handling and personnel costs. If you could elaborate on those initiatives. So thank you.
Well, there's a lot of automation these.
How many not this time on a we hope to bring down our course significantly.
<unk> in the near Perjure, we just don't want to make it into the calculations yet because.
We don't know if everything that they are telling us that these new lines will do we really I mean, if they come performed 70% of what they say they can do this is gonna be a game changer from thinking a lot. So we're expecting nothing we're also revising.
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Robin order of savings on actually we will begin to see that we sold for the fourth fourth quarter I'm first quarter of next year. So we are really thinking about the future.
Got it thanks, very much and best of luck in Q4.
Thanks will infection.
Thank you. The next question is from same carine with D.A. Davidson. Please proceed with your question.
A quick follow up for you guys.
I know there continue to successfully penetrate the new regions.
Market.
And aggressively growing in resi in Florida in particular, what does the competitive response right now and are they responded with more competitive pricing to try and get their traditional business back.
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Thank you and then in terms of backlog growth.
Are there new markets or regions in the U.S. driving that area that you haven't historically served.
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Great. Thank you gentlemen.
Thank you.
Thank you. It appears we have no further questions at this time, so I'd like to pass the floor back over to what they went well for concluding comments.
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Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.