Q4 2020 Tecnoglass Inc Earnings Call
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[music].
Yeah.
Greetings and welcome to technical Glass, Inc. Fourth quarter 2020 earnings Conference call.
This time, all participants are on listen only mode.
Question and answer session will follow the formal presentation. If anyone should require operator assistance started 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 This year Investor Relations. Thank you you may begin.
You for joining us for technical as its fourth quarter and full year 2020 conference call a copy of the slide presentation to accompany this call may be obtained on the investors section of the technical Ash website.
Our speakers for today's call are Chief Executive Officer, Jose Manuel Dais, Chief operating officer, Chris values.
And Chief Financial Officer, Santiago Hidalgo.
I'd like to remind everyone that matters discussed in this call except for historical information are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements regarding future financial performance future growth and future acquisitions. These statements are based on technical lapses current expectations or beliefs and are subject to uncertainty and changes.
And circumstances actual results may differ in a material nature from those expressed or implied by the statements herein due to changes in economic business competitive <unk> regulatory factors and other risks and uncertainties affecting the operation of technical asses business.
These risks uncertainties and contingencies are indicated from time to time in technical license filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks further investors should keep in mind that technical Axis financial result in any particular period may not be indicative of future results.
Technical Ash is under no obligation to and expressly disclaims any obligation to update or alter its forward looking statements, whether as a result of new information future events changes in assumptions or otherwise.
I will now turn the call over to Jose Manuel beginning on slide number four.
Thank you rugby and thank you everyone for Patricia Baby with todays call.
Uh huh.
He was the most to you for taking on less well.
Moving to different products.
On the operational side July 22.
We referred to it loves our leadership position.
Good day.
Three two produced was sold to a local liberal across many metrics.
Yeah.
You will note that we had completed the implementation of.
Similarly reported high returns in Brisbane.
On the leisure.
Capacity to further strengthen our.
Because we've got really good operations.
These enhancements have allowed us to produce growth full year operating cash flow.
In addition to record gross profit and adjusted EBITDA.
Both the dollar basis.
As a percentage of sales.
Building on the momentum.
So the structural enhancements, we've navigated successfully through debit related challenges to source and with new businesses.
Which allowed us to end the year with a very low opex slightly on a year over year basis to a comfortable position on $545 million.
These exceptional results.
Reflect the resilience of the indication of growth.
We ended the year on a positive note as we capitalize on the strong residential macro two weeks.
Recovery in commercial and market conditions.
To achieve a synchronous straight quarter of growth.
The U S geographic diversification.
Total.
Stresses.
And we continue to expand and diversify our operations.
Attractive U S markets.
As we aim to capture additional market share.
Clearly the rapidly growing southeast region.
As a result of our focus on maximizing the provisions in the U S.
<unk> now represents.
91% of full year 2020 revenues.
Compared to 85 per se during 2019.
Most importantly on.
Our focus on single family residential and brokers has been and will remain a significant driver of growth.
At the end of 2020 single family represented nearly 21% of the world sales.
Per to ABB in 2019.
And only 3% just four years ago, when we entered that business in 2017.
Our recently introduced probably go multi Max includes models will be reversion to homebuilders.
Which is operating.
Additional growth juggles with dose on top of it.
Large customer.
Yeah.
During the year.
Also made significant progress by enhancing our capital structure to create additional value for our shareholders.
Starting in the first quarter 2020.
We amended and simplified our DVD to a purely cash only payment and eliminated the option to receive dividends in the stock.
Furthermore, our success with managing our working capital is translating into a step change in cash generation.
With our operating cash flow representing over 70%.
Although adjusted EBITDA in 2020.
Our outstanding cash flow allowed us to improve our leverage profile to a very conservative one six times at December 31.
A level not seen since 2016.
In November our return share the ratio the record of success.
His focus company was validated by the extremely favorable recapitalization of our debt.
This was funded by a consortium of mostly U S and European based lenders on.
Firms that were comparable to or better than maybe publicly traded U S companies of similar size.
Yes.
Further commitment to our U S shareholder base, we recently completed our planned release from the Colombian stock exchange.
Second over last years are now exclusively listed on NASDAQ.
Which we believe better aligns.
With our evolution as a U S focused company.
We remain committed to returning a portion of capital to shareholders.
While delivering strong returns on our.
Our investments to drive improved profitability and cash flow.
In summary.
Extremely encouraged by our performance during 2020.
We were thrilled to exit the year with a much stronger and leaner company.
On the paid by a significantly improved capital position to further extend our leadership position in the industry.
We will continue to leverage taking on less structural competitive advantages to.
To maintain industry, leading margins, while capturing additional market share in the U S.
We are well situated to achieve another year of stellar on financial performance on returns for our shareholders in 2021.
I will now turn the call over to Chris to provide a visual details on our backlog.
Thank you all some runway on moving to our backlog on slide five.
Fourth quarter results were encouraging and we were pleased to return to growth in total revenues to close out on his started on our year.
The resiliency of our business is evident in our backlog, which rose approximately 2% sequentially to $545 million or one five times, our LTM revenue.
With a good mix of project wins in some of our key U S markets.
The overall quoting and bidding environment was strong throughout the fourth quarter and remain very active are we moving to a new year.
We ended the quarter with a solid multiyear project pipeline and we are actively pursuing new projects on partnerships to advance our growth in the U S.
The most recent data from <unk> indicates that the glass glazing contractors industry's expected to rebound.
Annualized rate of four 5% over the next five years to 2025 led by residential.
<unk> projects inquires on newly signed contracts have continued to recover since the bottom in April.
And the persistent strength in most of our sectors and regions gave us the confidence.
We are in the right markets with the right products.
The right time.
Based on both our new on long standing partnerships in Rd product lines, a structural competitive advantages on attractive geographic focus we believe we can grow above the market in the coming quarters.
As we mentioned last quarter. Our backlog includes all product types and is approximately one third of nonresidential, while roughly two thirds is related to medium and high rise multifamily projects as well as single family in production.
However single family is on the represented in our backlog due to the shorter term nature of day.
Orders and these will continue to influence the relationship between backlog and forward revenue as we further increase the mix of our revenue don't where single family housing related projects.
Looking to 2021, we are most excited about the significant opportunities we have to further penetrate the single family residential market, where we see the most attractive growth opportunities in the near term.
Turning to an overview of this business on slide six.
Single family macroeconomic tailwind continued to support robust.
End market demand in the U S housing starts existing home sales low supplies.
Dale randomization trends and low interest rates are providing us with opportunities to continue expanding our addressable markets.
Our rapid expansion into single family residential continue into the fourth quarter with revenues spanning more than 50% year over year in the quarter on representing nearly 21% of our full year 2020 U S revenues compared to 18% in 2019.
We have worked hard to expand the reach of our single primary products be on South, Florida and into other markets in central Florida, and the throwing a party on hand.
As a result, we experienced single family revenue growth of 17% sequentially since Q3 in 2020.
As we deepen our presence in single family, we are focused on penetrating the southeast U S.
These include planet efforts to expand on networks of dealers to broaden the reach of our prestige on elite product lines. In addition to our top tier multi Max product line, which is mainly targeted for.
For large scale production builders on lower impact resistant threats on.
In fact, we are in the year, we expect to widen our dealer network for multi Max Inc. To attract these areas of Georgia, Louisiana.
In South Carolina.
As a reminder, our increasing new facility, probably mix provides us with greater manufacturing revenue, which positively impacts our margins.
This business also strengthens our cash flow given our single family projects carry a shorter cash cycle and not retain it.
Overall, our strong single family performance in 2012 was argument by winning new customers, creating new partnerships entering new markets on maintaining our commitment to innovation. We are dedicated to excellence and are excited to drive further improvement.
Across our business in the coming quarters.
I will now turn the call over to Santiago to discourse on.
Financial results and outlook.
Thank you Christian.
During 2020, we reap significant benefits from high return investments in our facilities.
Leverage our remarkable cash flow to strengthen our capital structure.
Banded our business into new geographies and capture additional market share in the U S.
Our 2020 results reflect these collective efforts and allowed us to drive record gross profit on adjusted EBITDA on both a dollar basis and as a percentage of sales all while retaining our entire workforce throughout the COVID-19 pandemic.
Our achievements to date underscores the resilience of our company on our people.
Turning to the drivers of revenue on slide number eight.
In the fourth quarter outperformance in the U S drove growth in that market for the second straight quarter.
Leading to a return to growth in total revenues for the quarter.
Our strong performance in the U S has been the primary driver of our results and helped to offset delay activity at many customer job sites in Colombia, and other Latin American markets seen the onset of the pandemic.
Our Latin American markets remain in the early stages of recovery. However, we were encouraged to see Colombia sales up 80% sequentially since the third quarter of 2020.
The U S continued to mark on increasing mix of our business in 2020, representing approximately 91% of our total full year revenues compared to 85% in 2019.
Growth in our single family residential business was approximately 8% for the full year 2020 by ramped up significantly towards the end of the year with fourth quarter over quarter growth of more than 50%.
While growth in our single family residential segment continues to outpace the rest of our business. We were pleased to see a recovering conditions continue in all of our end markets we serve.
Looking at the drivers of adjusted EBITDA on slide number nine.
Adjusted EBITDA for the fourth quarter, 2020 increased 19, 3% to $25 7 million representing.
Representing an adjusted EBITDA margin of 25, 1%.
Adjusted EBITDA for the full year increased 6% year over year to a record 97 8 million representing a margin of 26, 1%.
Fourth quarter gross profit increased 25, 8% to $36 9 million, representing a 36, 1% growth margin.
These compared to gross profit of $29 3 million in the prior year quarter, representing a growth margin of 28, 9%.
The prior year quarter had an unusual high mix of installation revenue.
The impressive 710 basis point improvement in margins was primarily due to a higher mix of revenue per manufacturing versus installation activity as well as better raw material cost and operating efficiencies from our high return automation enhancements.
This strong fourth quarter performance capped off a year of record full year gross profit, including a 560 basis point margin expansion to a new record full year gross margin of 37, 1%.
Higher operating expenses for the quarter, mainly reflected higher variable expenses related to shipping as well as COVID-19 related expenses.
For the full year 2020 operating expenses improved by $3 9 million year over year on reduced variable expenses as a result of our efforts to enhance our lean administrative structure and tight cost controls.
Along with favorable exchange rates.
As a percentage of revenue operating expenses were higher compared to 2019, primarily due to lower revenues and COVID-19 related expenses for most of the year.
Overall, our highly efficient manufacturing capacity continues to generate strong returns and profitability.
We remain confident in our ability to sustain our industry, leading margins and we believe we can source additional pathways to improve efficiencies and reduce our cost base in 2021.
Looking at our improved balance sheet on leverage profile on slide number 10.
During 2020, we generated a record operating cash flow, which improved by $45 8 million year over year to $71 4 million.
Helped by higher profitability and strong working capital management.
These represented over 70% of our 2020 adjusted EBITDA on encouraging accomplishment.
With our higher return investments nearly completed by the second quarter of the year 2020, Capex of $18 3 million was associated with the completion of these initiatives and with maintenance related capex.
Taking into account Capex, we achieved a record full year free cash flow of $53 1 million.
As a result of our exceptional cash flows we were able to improve our liquidity position significantly to end the year with a cash balance of approximately $70 million and a conservative leverage profile of one six times net debt to adjusted EBITDA down from two three times in 2000 and <unk>.
19.
These balance sheet strength supports our ability to execute on future growth initiatives, along with our direct returns to shareholders through our dividend payout.
In addition last quarter, we announced a new 300 million senior secured credit facility.
This facility consists of a $250 million term loan and a 50 million committed revolving credit facility with an extended maturity date by three years to 2025.
The new facility comprises an initial interest rate of LIBOR, plus a spread of 3%, which will decrease to a level of $2 50, beginning in April 2021.
Based on our conservative net leverage at year end.
These will represent on over 400 basis point reduction from our weighted average interest rate of seven 4% previously.
As expected after the step down in redemption price in late January we paid down our existing 210 million of senior notes, which had an interest of eight 2%.
This will significantly reduce our amortization schedule and cash interest expense.
We estimate aggregate savings will be approximately $11 million annually.
The recapitalization of our debt structure will significantly enhance our financial flexibility to execute on our growth objectives as we move forward.
To that point recent conversations with tangled on AB.
<unk> been very encouraging as far as the advancement of the new construction of the new flow glass plant.
The current existing operation is at capacity and demand for the new capacity looks strong we will provide more color as we move along into the year.
Moving to our outlook on slide number 12.
Based on our positive momentum to close out 2020, and a solid start in the first quarter of 2021 based on strong orders on invoice in year to date, we look forward to achieving solid growth for the full year.
We are pleased to provide our full year 2021 revenue outlook of 400 million to $415 million representing growth of 8% at the midpoint.
We expect higher year over year growth in the first half of 2021 based on anticipated timing of invoicing in 'twenty, one compared to 2020 as well as having a full schedule of operation without any COVID-19 related constraints as we had in March and April of 2020.
In addition, we expect to have a higher mix of product versus installation revenue.
Furthermore, we continue to expect the U S to represent the significant majority of our growth led by single family residential with stronger demand in the U S expected to offset the slower recovery in our Latin American markets.
Based on this sales outlook and anticipated mix of revenues, we expect full year adjusted EBITDA to be in the range of $100 million to $110 million represented almost seven 5% growth at the midpoint of the range.
Gross margins will continue to benefit from our previously completed high return Capex investments in automation initiatives.
However to reiterate on important point, we mentioned last quarter as our market and raw material costs stabilize over the next several quarters, we expect gross margin to trend back towards our previously communicated mid 30 range.
We expect Capex in 2021 to approximate $10 million to $15 million, primarily related to maintenance projects and some incremental automation in new processes within the factory, we should be completed by the end of the year.
With the strength of our balance sheet and financial flexibility to execute on new opportunities. We are confident in our ability to achieve our growth objectives, while maintaining our industry leading margins.
As we move into 2021, we remain focused on maintaining our strong track record of cash flow generation, while expanding our addressable market in single family housing and continuing to execute on our attractive backlog of multifamily and commercial projects in the U S.
With that we will be happy to answer your questions. Operator, Please open the line for questions.
Thank you we will now be conducting a question and answer session.
To ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is the other question queue.
You May press star two if he would like to remove your questions on the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from a lot on Tim <unk> with Robert W. Baird. Please proceed with your question.
Hey.
Good morning, guys nice net close to the year and good to hear things are off to a good start in 'twenty one.
Good morning, Tim.
On.
Maybe just a big picture question, and then I'm not sure how you how.
To answer this but.
Is there any way to kind of frame.
New orders and kind of backlog how much of it is coming from newer customers versus really leveraging existing or other customers and really what I'm trying to get it is.
Are you seeing accelerating traction in the U S with with newer contracts or customers not just in residential but also on the bond rates business.
Yes. This is Jose let me tell you. This we are penetrating.
A logged in the northeast.
I mean, our backlog in the northeast is the highest we have ever seen.
Yeah.
In Florida.
It's been softer the homerun.
Higher in the new growth.
And residential is not even though it goes residential we have a turnaround of six weeks or less.
So our bank global residential.
It's very very reasonable new day bug law.
Okay. Okay. That's helpful and then I guess on on the residential side.
Or are you seeing an opportunity in the southeast from a production standpoint, and really why I'm asking is we've seen a lot of window companies in the U S that are having kind of labor challenges and their lead times are extending I mean are you seeing the benefits from that are you expecting that to kind of be a nice tailwind in 'twenty one.
For Rajeev.
We are moving.
We are hoping to increase by 40% to 50% residential this year.
<unk> the demand that we have because everybody has.
Huge lead times, our lead times on shortening I mean, we know.
The best of both worlds.
The ban.
We have a local strains on labor.
On the cheap labor we are improving.
Production capacity.
My brother has done on mobiles job.
The auto moving the brewery.
The productivity and.
We are shortening our lead times, we have lead times on six to day weeks, depending on the product, though we have all lead times on six weeks.
And we are delivering stable list.
Okay, Okay, that's fantastic.
And then I guess the last one I have just on on free cash flow you had a really strong year on 'twenty I guess as we look at 'twenty. One what are kind of the pluses and minuses from a free cash flow perspective, and then I guess.
Maybe more broadly.
He has taken the leverage down you've extended the maturities you have made a lot of capex investments already in the business. So what are kind of the key I guess cash flow or capital priorities over the next couple of years from your perspectives.
Alright, <unk>, so basically the first priority would be to reinvest in working capital based on our guidance, we are projecting growth as opposed to top line contraction last year.
We're obviously going to reinvest in the business that way.
Our capex as you heard from the call is going to be reduced this year from what you saw in the last couple of years with a lot of the automation being completed however, we are seeing some opportunities to further automate.
Portion of.
Other processes within the factory so cash.
Cash flow is going to be benefited from having a lower capex. This year as well from a capital allocation perspective, I think it makes sense to continue paying down debt reinvesting in the business in and seeing what opportunities come about.
But we are definitely expecting to build on what we produced thus far on its cash flow in the last couple of years. There is also going to be some tailwind to that obviously, having the 11 million on less in interest expenses is going to help quite a bit and also expecting higher profitability based on higher margins. He is going to drive incremental.
Cash flow so.
I think we're well situated to reinvest in the business pay down leverage and.
And then see what opportunities come about.
Okay, Okay, great well good luck on on 'twenty, one and great job on 'twenty guys.
Thanks Kim.
<unk>.
Our next question comes on a lot of breadth.
D. A Davidson. Please proceed with your question.
Great. Thank you congratulations as well on a great year.
I wanted to poke around on single the single family business wanted to get a sense, how impactful multi Max 10 within net more than 50% single family growth you reported this quarter.
Is that legacy products, you've offered on that business.
Uh huh.
Just a standard to shoulder multi max.
Multibank shoes, especially for the low end of the market, where we were not even.
And the business.
We started to share a lot of demand for that product.
Specially in 12 homes.
We were not.
And we hope.
By June.
On the applicable because those are businesses.
You show the Windows They don't order.
Three or four months or maybe even longer.
Like the usual removal of replacement and new construction moving order volume.
Great.
So we.
We are very very excited.
Very positive residential.
Our residential loan.
Okay. So so not.
Not very impactful on all of this quarter it sounds like it's going to ramp up here.
One.
Yes.
The whole room, she released her line.
This is particularly notable other was too.
Book.
These multi box there is good room issued the numbers after June.
The other lines.
For example, the first two months have been greatly the residential so far.
Okay.
Okay.
Yes.
Okay.
Yeah.
And we just lost the speaker's line one moment.
Santiago, maybe you could take over right now.
Yes, I'm here, Brian, but just just to finish that was what I will say it was saying multimarket did not.
A whole lot during Q4, I mean that was that was just getting started so why you saw a pick up was from elite on prestige.
So it was the legacy business.
Hello.
As a reminder, ladies and gentlemen, it is star one to ask a question.
Our next question comes on the line of Mike <unk> with Colliers Securities. Please proceed with your question.
Hey, Good morning can you hear me okay.
Can you just talk regularly Mike where are you on.
Great how are you.
Well thanks.
I guess I wanted to ask you've always talked in the past about how this company has some great advantages and.
In shipping shipping cost shipping container availability moving here some headlines about house in some parts of the world that's been a little bit tougher to find some.
On containers recently and some bulk capacity.
Is that an issue for you guys at all and is that something that could happen going forward or do you feel pretty good about that.
Colombia U S lines right now.
No. We're actually one on one of the great advantages of being fully vertically integrated is that we're not kind of reliant on an extended supply chain from many other places right. I mean, we source most of what we need internally, we're not relying on on antibody to.
To significantly contribute to our supply chain. So from that perspective that has not been the case.
And Furthermore, as you know we have quite a bit about trading balance most containers.
Common name Wow from value add on imported goods from the U S.
Come back pretty much empty right. So there's still a lot of supply of container shipping back into into the U S. So no short answer to your question is no we have not been impacted by shortage of transportation.
Can I ask a question Thats kind of similar on the cost of aluminum for some of your exclusions on any changes to raw.
With that we should be looking at in net.
Well this is cash Kevin.
We finished the price for the whole year of 2021, so we have no.
Aluminum increases for 2021, and we already bought everything that we need for 'twenty and 'twenty. One zone, we're fine as a matter of fact, we were able to get magnified comprises not only for the LMA per also.
There is a premium that you have to pay and we pay at the lowest premium possible now.
Now they have gone up to double the premium price that we pay so.
We're set up in glass on in aluminum.
Like my brother said.
The lines are steaming producing windows on February was the best.
February in the history of the company.
Okay.
Outstanding if I can squeeze one more on here about on asked this question last quarter about COVID-19 conditions within your facilities and you have to do that.
On whether our kitchens are trending upwards or downwards in the Bakken area and in your opinion.
And your facilities themselves.
Well.
Today, we only have five or six active cases of COVID-19.
<unk> 700 employees.
We are doing really good I mean, averaging these contained we have and other needs.
Utilizations in the loss.
Five six months.
The numbers are dramatically down in balance gaea.
We are so.
It's looking good.
Columbia.
Specifically.
No.
We have what is called the herd immunization, who are already 72% with other people.
Peabody's.
We're doing really good.
Wow.
Great to hear guys. Thanks again.
Very well.
Thanks, Mike touched on.
There are no further questions in the queue I'd like to hand, the call back to Jose Manuel for closing remarks.
Yes.
Thank you everyone for participating on today's call.
On the cable having great news on our company's alone for better things.
We are very keen on.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.