Q1 2021 Tecnoglass Inc Earnings Call
[music].
Greetings and welcome to the check and they'll go out and Inc. First quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce Ravi Nasty, a investor relations. Thank you you may begin.
Thank you for joining us for technical after the first quarter 2021 conference call a copy of the slide presentation to accompany this call may be obtained on the investors section of the technical ACH website.
Your speakers for today's call are Chief Executive Officer, Jose Manuel <unk>, Chief Operating Officer, Chris <unk>, and Chief Financial Officer, Santiago hit out of though.
I would 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 1095, including statements regarding future financial performance future growth and future acquisitions.
These statements are based on technical assets 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 statements herein due to changes and economic business competitive and regulatory factors and other risks and uncertainties affecting the operations of technical acids business.
These risks and uncertainties and contingencies are indicated from time to time and technical assets filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks and further investors should keep in mind. The technical adds this financial result, and any particular period may not be indicative of future results and second glass is under no obligation to and <unk>.
Expressly disclaims any obligation to update or alter its forward looking statements, whether as a result of new information future events changes and assumptions or otherwise.
I will now turn the call over to Jose Manuel beginning on slide number four.
Thank you Robert and thank you.
Every local the abuse your bedroom and we'll do those cool.
We could do two of those.
The precision.
The drill blast.
During the first quarter.
The two sales.
We delivered good results of course literally all of the key operating metrics.
This includes total revenue growth flow through.
Operating profit.
Adjusted EBITDA operating cash.
And so Budd.
Local revenues were largely attributable to the growth digital polls of the recession.
Single family residential pools.
All of these are all about the share gains and the U S.
Which represented 91 per se.
The first quarter of.
Well there is positive.
Sure.
We increased adjusted EBITDA by the.
<unk> per serve two three.
Volume price.
The total global of delivery is total of does.
The results double suedes and they'll be able to consist of the execution.
The original excellence that'd be delays.
We are TV news by leveraging tool.
So that's sustainable competitive advantages.
And the relationships.
The new products.
The lifting.
And then.
And How's your Gopro true disease.
All of the blood into the web the appeal.
And as with all of their business.
Deliveries of the musical and there's total of loved the deal flow.
We hope they'll be the Bud group of dog Legwork of claims.
But the real.
And really the budget most of the industry.
Well positioned really well to efficiently control of the blood true.
But the virtual Bravo, we showed the lead times.
Does the June close tumors.
We expect to be a year of significant growth in the Bud.
Those total of success so far this year.
And we see.
We are pleased to increase the volume revenue and adjusted EBITDA growth outlook.
Total, we'll disclose more detail of laser or the goal.
We have seen a significant amount of recoveries, but also the book.
Debit.
We are therefore.
Relative to where those today.
Of the blood flow through the previously announced circle flow.
Plugged and the JV with <unk>.
And just back on the truck.
We expect total base work and the second half of 2021.
Claude.
And we'll be one of the most of the buzz and the visa glass production facilities and the world.
Located in close proximity to a group of clubs.
The word.
It will further reinforce our vertically integrated platform and allow us to secure the visual slowed glass supply to serve long term demand.
First quarter results.
A direct reflection of the bulk of leasing company that we have created.
Moving forward, we will continue to leverage was too high return investments Inc.
A bunch of history.
Products and people.
Together with our business development activities of growing project portfolio, We're blessed day by day.
And just really budgets and.
The above market growth.
We remain very excited about.
And the opportunity to generate shareholder value in 2020 one of the absorbed all of them.
And extremely proud of our outstanding performance and I.
And I've never been more optimistic about the future flow pegged Olaf.
Now towards the goal of our crews supervise the additional details for the old.
Backlog.
Yeah.
Thank you most of them are moving to our backlog on the slide five and the first quarter, we were thrilled to see the positive momentum continuing our business as we report a share.
And our celebration of growth.
We are seeing strong demand in both residential and commercial and markets, where we operate resulting in an increase in our backlog to record levels of 552 million at quarter end.
As a reminder, our single family residential growth trajectory is not fully capture and backlog even charge of 10 spot duration of projects.
Two thirds of our backlog is comprised of medium and high rise residential projects as well as single family residential already and production. While one third is related to a wide variety of commeasure projects, while the mine has recover significantly.
We are pleased to see several of our larger scale projects and resuming activity in line with improving fundamentals and the Abi index, which increased further into the expansion territory for the second consecutive month in March the.
And March Abi index increased to <unk>, five and six compared to 53.3 and five.
Returning to levels not seen since early 2019.
During the quarter, we continued to broaden our customer base expand our dealer network and.
Strength in our presence in new markets across our increasingly diversified footprint.
The strength and activity continues to be led by the southeast U S. We are extremely well positioned in both residential and commercial end markets.
In addition to adding several new dealers in the single family residential business, we continue to take market share and different geographies.
And by our record backlog.
We are pleased and continue multifamily strength and commit.
Our head of recovery and the resumption of larger scale projects.
We ended the quarter with good visibility of our attractive multiyear project pipeline in.
In addition, we are very positive on single family residential demand.
We expect to continue to drive the majority of our.
Outsized growth.
I will now turn the call over to Santiago on the slide six to the scores are strong single family demand profile vertical integrate the strategy and financial results and our improved outlook for the year.
Thank you Christian.
Encouraging trends and housing starts low mortgage rates and the europeanization combined with our efforts to expand our customer relationships and introduce new products are all supporting the impressive growth of our single family residential businesses.
Single family revenues increased over 70% year over year, and the first quarter now representing 22% of our U S revenue.
Our single family residential sales are comprised primarily of our prestige and the elite product lines. However are largely and top of opportunity with production and homebuilders through our multi Max product line is also an immense avenue for growth.
As we move through the year we.
We will continue to widen our dealer network for multi max into attractive areas in Georgia, and Louisiana, Texas and South Carolina.
Our strong momentum has continued into the second quarter, mainly driven by new business wins and share gains.
<unk> put we are winning because we are able to supply superior quality architectural glass products, which much shorter lead times and attractive value.
Which truly differentiate us in the tight supply environment that the industry is experiencing.
That's an example, we recently received a call from a publicly traded homebuilder requesting quotes on several large communities the <unk>.
First question was about lead times not prices sort.
To be able to deliver favorably on both is extremely promising in the current environment.
Also.
That was just one homebuilder and we have discussions ongoing with several others.
A lot of our successful business development has been enabled by our operational stability due to both our very clean integrated model and well situated operations.
So let me take a moment to dive deeper into the drivers of our success and above market growth.
Looking at slide seven I will explain a bit more as to how technical glass is becoming the architectural glass provider of choice in the U S.
Over many years of investments focused on innovation and operating efficiencies. We have created a defensible architectural glass platform and are well situated and location.
This has resulted in no material pressures from raw material inflation.
This is due to our very cleat integration there.
And that reaches across the entire architectural glass and window of value chain.
<unk> and us with significant control of a substantial portion of cost, resulting in structural advantages relative to industry peers.
In 2019, we entered into a joint venture agreement with Sangamo.
Each had already been the primary supplier of our flow glass in 2013.
This joint venture provided us with access to ample flow glass supply.
<unk> purchasing cost and substantially lower inbound transportation cost given its close proximity to our manufacturing facility in Barra and key Jack Colombia.
And our aluminum, which is another key raw material component in our production process. We are hedged on a significant portion of projects within our commercial portfolio through fixed price contracts.
Better control of raw material visibility has been and advantage the taking of last and our ability to quote projects for customers.
It is important to note that we currently do not have any long supply chains with virtually all inputs being sourced locally or from the U S.
Another structural advantage is productivity in 2019, we invested $20 million and high return automation and expansion initiatives.
These help to optimize our glass and aluminum production capabilities with a significant improvement in output of certain automated lines.
At the same time, we have invest debt in our employees.
We have gone through great lengths to establish our company as an employer of choice and Columbia.
Which has allowed us to benefit from efficient access to talented people and very low turnover.
These has in turn led to further productivity gains and less downtime.
As a result, we are not experiencing material wage inflation or labor constraints, which is keeping the our lead times are very short.
Vertical integration benefits our transportation costs.
Our soft coating aluminum laminating tempering, finishing assembly and other facilities are all co located in the same campus.
And with our float glass supply and nearby.
And this has kept our intercompany transportation cost of less than 5% of revenues.
In addition, Columbia has a long term trade deficit with the U S, which keeps the shipping rates favorable for Colombia and exports to many U S and reports many of which are located close to our project sites.
On the energy side in early 2017, we invested $15 million and solar panels for our facilities.
Over time these investments have provided us with over 15% savings on our energy cost.
We also utilized cogeneration facilities to power plants through onsite and natural gas emissions.
These actions reinforce our commitment to ESG initiatives and provide meaningful tax savings.
To recap.
Our structural advantages are powering our ability to quote more projects expand customer relationships and deliver products when the customers need it can't.
Contract towards value of our superior products and dependability.
Which is unlocking opportunities for continued growth and market share gains.
As we further ramp up our production to service the increasing demand for our best in class products. We are excited to move forward with the construction of our second state of the art float glass plant in <unk> and Keytruda.
Engineering work is expected to commence in the second half of 2021 with groundbreaking to take place during the first half of 2022.
That said our existing installed capacity following our investments in automation and is currently running at about 65% utilization and we have no operational constraints to meet demand for the foreseeable future.
Let's now move to our first quarter financials, starting with our improved balance sheet and leverage profile on slide number nine.
As we discussed last quarter. The recent recapitalization of our debt structure combined with our impressive record of cash flow generation is significantly enhancing our financial flexibility to execute on our growth objectives.
Strong working capital management, lower interest expense and a higher mix of residential revenues helped us generate record first quarter operating cash flow of $29 million.
Extremely proud of the transformational step change in our operating cash flow, which over the past 12 months has represented approximately 90% of adjusted EBITDA.
Based on our conservative leverage ratio of one four times as of March 31.
The interest rate spread on our new 300 million senior secure credit facility decreased by 50 basis points to a spread of two 5% in April 2021 as expected.
Annualized interest expense savings are expected to be $11 million as a result of our completed balance sheet recapitalization.
Turning to the drivers of revenue on slide number 10.
Total revenues increased 27% year over year to a record $110 9 million for the first quarter.
This strength was primarily driven by continued strong single family residential sales recovering commercial construction activity as well as market share gains in part driven by the solid operational execution that I just these costs.
We were pleased to have improved Columbia revenue by 18, 4% compared to the prior year quarter and the cadence of projects begin to normalize and the country.
However, most of our other Latin American markets remain in different stages of recovery from the pandemic.
Looking at the drivers of adjusted EBITDA on Slide number 11.
Record of adjusted EBITDA for the first quarter 2021 increased 64, 8% to $33 5 million.
Compared to $20 3 million in the prior year quarter.
Adjusted EBITDA margin at a record of 32% demonstrated an impressive 690 basis point improvement compared to the first quarter of 2020.
First quarter gross profit increased 48, 4% to $45 1 million, representing a record 47% gross margin.
This compares to gross profit of 34 million during the prior year quarter, representing a gross margin of 34, 9%.
Our 590 basis point improvement and margin was mainly attributable to a higher mix of revenue from manufacturing versus the installation activity as we continue to increase our mix of single family residential products, where we did not carry out installation day.
The improvement was also supported by a full quarter of greater operating efficiencies from prior automation initiatives.
Which were fully implemented during the first quarter of 2012.
Moving forward.
As a single family residential becomes an increasing mix of our products and this will continue to provide us with greater manufacturing and revenue, which positively impacts our margins.
This business also strengthens our cash flow.
And our single family projects carry of shorter cash cycle and non retained cash.
Higher nominal operating expenses for the quarter, mainly reflected higher variable expenses related to marine and ground transportation.
As a percentage of revenue operating expenses were lower by 200 basis points compared to the prior year quarter, primarily.
Primarily driven by higher revenues and better operating leverage on personnel professional fees and other fixed expenses.
Moving to our outlook on slide number 13.
Based on our positive momentum into 2021, and an improved demand outlook, including solid share gains and the strong activity into April and May we are increasing our full year 2021 outlook for revenue and adjusted EBITDA growth.
We now expect full year 2021 revenue of.
422 $435 million.
Representing growth of 14% at the midpoint.
We continue to expect higher year over year growth in the first half of 2021 based on anticipated timing of invoicing in 2021 compared to 2020 as well as having a full schedule of operation without any COVID-19 related constraints as well.
We had in March and April of 2020.
In addition.
We expect to have a higher mix of products versus the installation revenue.
In line with our continued penetration into the U S single family residential market.
We continue to expect the U S to represent the significant majority of our growth of.
Setting the slower pandemic recovery in Latin America.
Based on the sales outlook and anticipated mix of revenues, we raised our full year adjusted EBITDA outlook to a range of $115 million to $125 million, representing a 23% growth at the midpoint of the range as well as margin expansion.
Our gross margins should continue to benefit from our previously completed high return Capex investments in automation initiatives. Additionally, with our increasing mix of single family residential products and bringing more manufacturing revenue to our revenue mix, we now expect growth.
Margins to trend towards a normalized level in the mid to high <unk> range.
Higher than our previously communicated meet 30% range.
We now anticipate capex in 2021 to approximate 20% to $25 million with the increased amount coming from further automation as we continue to expect robust growth.
We are firmly on track to produce another year of record results in 2021, we have effectively positioned technical glass to deliver exceptional above market growth, while maintaining our impressive operating leverage to generate a step change in free cash flow.
Our vertically integrated and well situated operations are more prepared than ever to meet a level of demand much stronger than our current outlook.
Our solid balance sheet and conservative leverage position further reinforce our flexibility to invest in additional value creation.
We truly believe our years of hard work and prudent investment will provide greater returns for our shareholders in the quarters and years ahead.
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.
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One moment, please while we poll for your questions.
Our first questions come from the line of Brent Thielman with D. A Davidson. Please proceed with your questions.
Hey, Thank you congratulations on a really strong start to the year.
Thanks Brent.
And.
Yes, I guess, maybe I'll pick on the margin outlook, obviously, you've taken it up but you had really extraordinary margin this quarter and now what tends to be able of seasonally slower quarter doesn't look like anything sort of transitory in terms of benefit. So just wanted to get your views on.
And why you could repeat the sort of gross margin performance going forward Santiago.
Okay. So a couple of things there.
First one of the mix of business Brent We did expect the installation segment to have lower revenues within the first half of the year.
We are raising our gross margin outlook to mid to high Thirty's from the mid <unk> that we had previously so I do think the going for our gross margin is going to be higher.
Based on mix, we just don't know that he is going to be.
And 40%, 41% of like we like we saw this year, but other than that from an input perspective raw materials should not be.
Headwind you know us as we mentioned during the call. We are hedged on the on a large portion of aluminum.
Through the joint venture we have of stable supply of glass. So we are not seeing inflationary pressures that would have caused the gross margins to come down and he is going to be more of mix.
Type of question as to whether you know of manufacturing continues to grow at the space, but if we if we do continue to grow into manufacturer and as opposed to two installation the expectation of NIS four for them to move higher and so the mid to high Thirty's.
Come and was associated with what we're seeing based on input cost and based on the revenue mix that we're expecting going forward for the rest of the year.
Okay, and when would you expect the capacity from the new glass plant and become available to you just given that the crush timelines you guys provided today.
Well the the expectation is for for that to break ground in the first half of next year and.
And it is expected to be completed by the end of 2024, but that being said.
Separate business because that's the the raw glass manufacturing, we are and have.
A lot of excess capacity right now, we're roughly at 65% installed capacity.
To grow on the transformation of glass right. So that's that's not gonna be of constrained and we continue to grow at this pace the.
Sangamo and joint venture plan.
I'll add to the to the raw glass manufacturing, which which is a separate business right. Now is just going to provide incremental raw glass to us to transform and make windows, but for the time being we're set to grow well beyond where we are.
Yes.
Okay and then just my last question I mean and southeast.
Appears to be at the important driver for you.
And I guess, just wondering if you're starting to see some expansion of growth and some other regions of the U S. What you're seeing around the country.
We have been growing.
The commercial and.
New York both true.
Why should the.
The <unk>.
And you should go area.
And the.
Thanks Jos.
And so we're doing some businesses and.
California.
And the rest of the visuals.
We are first the truly global of orders.
The mid the Florida.
And where the.
And third growing whereas to all of the Gulf Coast, which is very good groove.
And also of.
The doses.
The all the way to the agenda, which is also.
Hurricane related.
Yeah.
We are starting to do it.
The.
The logo, we're mostly there.
As you were just to flow.
Yes.
Okay, great well congrats again, thanks for taking the questions. Thanks Brent.
Thank you our next questions come from the line of Tim <unk> with Baird. Please proceed with your questions.
Hey, guys. Good morning, Thanks, Tom Thanks, John.
Good morning, Tim.
And maybe.
And my first question just about visibility as you kind of look at the second half maybe relative to where you were a few months ago.
Obviously, you've seen a lot of backlog growth and.
And I think one of the kind of.
The question marks.
Last quarter was just if some of the projects would hit in the second half versus kind of 2022. So could you just kind of give us a little bit of and update on and maybe some of the but the.
It's the ability there and the.
It is.
The guidance range basically better visibility into Q2 or are you actually think better visibility of the back half.
Well the.
The backlog started to grow and good.
And this is going to keep growing and we see because there is a lot.
Of quoting.
Right.
Quoting hundreds of millions of dollars and jobs new jobs.
The.
And going to grow during the day.
Yes.
Six months to a year.
And the global process.
As we before the job of starts of way way before we actually ship.
So we believe.
'twenty 'twenty two is going to be a normal level all year, we have a GAAP <unk> last year.
Really do any commercial new jobs.
And we do the conversion of new jobs.
So the <unk>.
First the.
Six to nine months.
Really soft and this dilution.
The commercial jobs.
Broadband.
Third quarter two.
12 of 22.
And we're going to be unbelievable because.
The strength of the bulk of locally, especially in Florida.
I mean, everything the people put out for sale the Shirley.
So all of the buildings of edge really big growth and we're going to go all but one of them.
And we look and just just to add to the team to address your question the way that we projected the rest of the year was basically.
The schedule of commercial projects that we had but us wholesale was saying it seems there was some activity that was pushed out at the end of last year. You, obviously have a temporary air pocket that moves into 2022 right. So the expectation is that the commercial segment does better and the first half of the year rather than in the second half.
But that is going to be more than compensated from the activity into the single family residential.
And that's.
And really how we projected the rest of the year now in the single family Resi continues to grow as it is and we have more visibility as we move along into the year then.
We'll probably be comfy and to end up at the higher end of the range if not higher.
Okay. Okay. That's helpful and then on the residential business.
You're obviously taking share.
Are there anything are there any things that you're doing just to make sure that once some of your competitors lead times normalized that youre still.
And the Oems.
Kind of new contractors are going to turn to.
And.
True.
Yes.
The delivered to a close the deal.
The fruit.
The only new types of every of our.
<unk> is a much much better and.
And every aspen the.
The freedom mobile.
And the quality of the design and.
And the pressures.
And the water.
The ease of installation.
So after we learned the clarity.
We rarely lose but thats the way, we will need to buy antibody to growth.
Grow organically.
Because of our claims is clearly we are always forever.
Okay. Okay. So it sounds like pretty satisfied.
And after you get and that customers and then I guess the last question I've got is just how should we think about free cash flow for the year Santiago.
I think we're going to continue growing on what you saw first Q was exceptional from a from a free cash flow perspective, depending on working capital and the rest of the year.
We estimate that we continue to grow maybe not at $30 million.
And of operating cash flow per per quarter.
But certainly we're going to continue to generate free cash flow each subsequent quarter and the rest of the year. Tim you just going to be a function of what working capital looks like and and how we end up growing especially on the on the single family of <unk> April and May were outstanding right I mean April.
And what we up for May so far so.
And it's all going to depend on that but even with the projected growth, where we're definitely expecting robust.
The robust free cash flow each subsequent quarter and the rest of the year.
Okay, Okay great.
Thanks for the time and growth on the rest of your guys nice job. Thanks.
Thank you.
As of.
A reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next questions come from the line of Alex Rygiel with B Riley. Please proceed with your questions.
Thank you Jose Manuel and Christian and fantastic quarter Congratulations.
Thank you.
A couple of quick questions here first.
Can you expand a little bit more upon sort of your interest in M&A.
Over the next.
Kind of 12 to 24 months.
Yes.
Well.
Normally we have.
<unk>.
Yes.
And.
The lay of the Labor day.
Boat shoes, our growth.
Cosby sulfur burner.
Got it.
And the onshore markets, though we are not.
And then.
Difficult to the.
For growth.
We look at it to sort of opportunities.
And with products that we are.
At the moment to the observed.
Sure.
Julie as of <unk>.
For example.
Those are the secured.
And we're looking we're looking we're always open to look for opportunities.
And I believe.
The issues, we need to grow geographically.
The pro the globe.
We will talk and 24 months I believe maybe one of two good opportunities will arise.
And it's very.
And Santiago. Thank you very much for the guidance Super helpful.
And one additional challenge that we have is the seasonality last year wasn't really normal and seasonality.
Seasonality from a demand standpoint, especially on the residential side and even on the commercial side. This year does not seem normal.
Can you help us to sort of understand a little bit about where you're thinking for revenues sort of in <unk> relative to <unk> and then.
Are we still looking at sort of and the third quarter being the peak for the year.
This year is a little bit different right because last year because obvious reasons. There was some backlog that was not booked and therefore 12 months later, you don't get the benefit of invoicing.
Backlog right. So that's what we're talking about the second half of the year.
Having a temporary air pocket the moves into 'twenty two right because you just don't.
And I'll put things into bag of Logan and invoice them right away.
So this year and just a little bit different and the way that we model these out.
The first half of the year.
He is going to be stronger than the second half on the commercial side.
But if things continue to go the way they are on the on the resi side. The rest of these items is more is going to have more than compensate that temporary air pocket right. So all in all of <unk> to answer your question, we're not expecting seasonality. This year, we think the <unk>.
All quarters should basically be around the same.
You're just going to be a different mix of commercial versus residential debt you have historically seen.
Very helpful. Thank you very much.
Thank you Alex.
Thank you there are no further questions at this time I would like to turn the call back over to Jose Manuel debt.
For any closing remarks.
Well, thanks, everyone for both <unk> growth.
We will keep you posted.
The really good but we believe the future is.
Embraer for flow.
The third level.
Looking ahead, we are confident that we have.
And really good position to deliver.
And the bulk of growth of the U S.
The operating leverage to support or the.
Clearly the margins.
Free cash flow.
Most of all led to exceptional shareholders reduce the use of.
We appreciate your continued interest and support.
Thank you.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Have a great day.