Q2 2021 Tecnoglass Inc Earnings Call
Greetings and welcome to technical has incorporated second quarter 2021 earnings conference call.
At this time all participants are on a listen only mode. A question and answer session will follow 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.
I would now like to turn the conference over to your host Brad Cray Investor Relations. Thank you you may begin.
Thank you for joining us with techno glass in second quarter 2021 conference call.
Copy of the slide presentation to accompany this call may be obtained on the investors section of the technical loss website.
Our speakers for today's call are Chief Executive Officer, Jose Manuel Dias.
<unk> operating officer, Kris <unk> and.
And Chief Financial Officer.
And Tiago.
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 <unk> current expectations or beliefs and are subject to uncertainty and changes in 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 <unk> business.
These risks uncertainties and contingencies are indicated from time to time in Tech Mcglasson filings with 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 losses financial results in any particular period may not be indicative of future results.
On the glass 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'll now turn the call over to Jose Manuel beginning on slide number 4.
Good day, everyone for the Juicy pedigree on Dubose cool.
Right.
Those are the most profitable quarter on record.
Building on our trip sugar performers.
Their door working with sold nearly all metrics.
We closed.
The first 2 book.
We've learned to live on sort of revenues gross profit adjusted EBITDA growth.
Flow.
No.
Of course as usual.
Operational excellence.
Looking at the February.
Total revenue.
<unk> grew shorted on preferred.
To a whole new area of jewelry Worboys revenue.
But as Jim U S revenue rose, 39% year over year.
This expense was largely.
Due to rapid expansion into sugar doing probably Rishi visual.
On the overall merger share gains in the U S.
To that point, we were extremely pleased to growth should come February revenues.
59% year over year.
These represent the citizens preserved, although our U S sales during the quarter.
We're going to deliver on the brewery lizard.
And deliver high quality products with better lead times.
A bunch of tools.
We'd go do do to move that good.
Ames bullshit.
Circular drugs on scalpels pools available load per relationship.
So where do further expert or a burger share.
This is clearly showing no I didn't know if those.
Real performers that'd be well, we have a third for the foreseeable future.
The extents of our low cost efficient and vertically integrated operations.
Sure.
Sure.
That continues to provide us with further room for vision 2 infusions.
On our supply chain.
Believer short lead times for our customers.
There's a lot of those to not only make do their interest to really emerges.
We generated a record second quarter gross profit margin of 40%.
This was driven largely by the positive reception to our how do you imagine single family residential book and better efficiencies.
Boosters the hub resulted from a prudent high return on investment in our operations.
This margin performance.
Also tube or future strength quarter of substantial cash flow generation.
Reflecting the group's profitability.
Cuz working capital management.
Given our strong cash flow performance year to date, we plan to invest on Israel capital They know about it.
Your furniture facility.
To further automate and hands on production range.
Which had a drag on will discuss later in the call.
We are profit.
Very good execution and a really beautiful did you survey customers with very strict cash flow, while delivering short lead times.
There are attractive.
Overall, we are very pleased with our positive momentum as we move into the second half of the year.
Our reputation as a good thing.
Thanks Margaret.
I have never been stronger and we're confident in the strength of our business.
Moving forward, we would call of duty to breathe on the Bruins work reticle revolvers confusion.
Capture a strong signal carbon University verso.
Commercial demand in the U S.
Our approach is comparable or what goes on with.
We have a growth order book.
Uh huh.
Our strong balance sheet.
Very low leverage profile and ample capital resources are squarely position.
To deliver on the ultimately revised outlook for full year, 2 I pick up your work.
The future remains extremely birds or per dollar.
Look forward to another year on record financial results.
I will now turn the call over to Chris to provide an Israel barrels on a roll.
Demand.
Thank you have somebody who is moving.
Moving to our backlog on on slide 5 our ability to timely deliver best in class products led to outsized revenue growth on market share gains in the U S. The second quarter.
You shouldn't do that.
Strength of our single family residential business.
I will discuss shortly.
Also continued to have a growing pipeline of attractive commercial and multifamily projects in our backlog.
As a reminder, our single family residential growth trajectory is not fully capturing our backlog, giving shorter term spot duration.
Yes.
You have only 2 thirds of our backlog is comprised of medium and high rise.
And Asia projects as well as single family residential.
Already in production.
Third is related to a wide variety of commercial projects.
Quoting and bidding activity.
Covered nicely as the year on its progress.
Our second quarter backlog growth.
1 on 7% year over here.
Record level of 500 on $59 million.
These backlog levels represented more than 1.25 times, our last 12 months' revenue, which is very encouraging entering horses.
Strength of our strategy in all of these brands and customer relationships.
The U S market continues to represent in excess of 90% of our backlog as compared to 88% of our backlog in the prior year quarter.
We are benefiting from on active residential and commercial construction environment in the U S. At our experienced sales teams recently either.
Several large scale project wins to our portfolio in several states, where we have strength footprint on where population migration continues to take place.
Additionally, we have been pleased to see increases in the Abi index.
Which moved farther into expansion very volume for the fifth consecutive month in June.
June Abi index increased to 57.1 compare to 55.6 in March maintaining levels not seen since early 2019.
Overall, we have continued to diversify our revenue base, while providing short lead times on exceptional customer service, which reinforces technical answer.
Architect charge last provider of choice.
I will not on the call over to Santiago on the slide number 6.
Of course, there's strong demand for our single family products vertically integrated strategy financial results on our improved outlook for the year.
Thank you Christian during the quarter, we were able to drive substantial operating leverage while expanding our mix of single family residential sales in the U S, resulting in another quarter of record revenues margins and cash flow.
Our single family residential revenues increased by 159% year over year.
And nearly doubled compared to the second quarter of 2019.
Our growth is a direct reflection of our operational stability, resulting from both our vertically integrated model.
Physically located operation.
Our impressive results also continue to be supported by the robust construction environment in the U S markets as record low mortgage rates on strong economic and housing fundamentals provide a strong foundation for architectural glass demand.
Single family residential sales accounted for 37 per cent of our U S revenues in the second quarter and on.
On LTM basis single family now represents 27 per cent of U S revenues up significantly from just 3% of revenues when we entered the single family market in 2017.
Our single family sales in the second quarter were primarily comprise of our prestige and elite product lines. However.
As we mentioned last quarter. We are also targeting production homebuilders to our multi Max product line, which we expect to contribute more meaningfully to our single family sales in the future.
We continue to focus on expanding our single family presence through dealership expansion and geographic diversification with a primary focus on the high growth Southeast U S region.
Gulf Coast in Texas.
Our accomplishments in single family residential are a testament to their market, leading architectural glass platform. We have created and we cannot be more pleased with our progress since we entered this business 4 years ago.
Into the third quarter, our performance in the single family market in the U S continue to surpass our expectations and we maintain our conviction that strength in residential demand will drive the majority of our growth into the foreseeable future.
Now on slide 7.
Given our exceptional performance during these extraordinary times I like to reiterate several factors that are allowing us to win in our marketplace.
Our strategically located vertically integrated low cost operations provide us with sustainable competitive advantages that truly differentiate us amongst peers.
And especially during the tight supply environment that others in our industry are experiencing.
Several factors critical to our growth strategy that we have mentioned previously include.
Prior high return investments in plant automation capacity upgrades and energy.
Hedging our aluminum cost and locally sourcing our float glass supply through our joint venture with tangled on.
Maintaining efficient access to talented employees with low turnover and minimal wage inflation and.
And finally, keeping transportation costs at less than 5% of total revenues due to the U S and Colombia trading balance and the amount of available containers going from Columbia into the U S.
Our very clean integrated platform stretches across the entire architectural glass and window value chain.
Providing us with substantially shorter lead times than the industry average opening new avenues for further expansion and share gains.
Because we have significant control over most of our inputs. We continue to experience no material pressures from raw material inflation or material availability impacting our industry. We.
We are also not experiencing material wage inflation or labor constraints. The key takeaway is that we are producing outstanding results. Because we are able to supply superior quality products with short lead times on an attractive value.
Which is undoubtedly advancing our reputation for excellence and getting us in front of a growing roster of prospective customers.
Our existing installed capacity is currently running at about 80% nameplate utilization and we have no operational constraints to meet demand for the foreseeable future.
Let's now move to our second quarter financials, starting with the drivers of revenue on slide number 9.
Total revenues increased 49% year over year to a record $121.7 million for the second quarter.
In the U S, which represents 90% of our total revenues, we saw growth of approximately 39% to $109.9 million compared to $79.1 million in the prior year quarter.
This strength was primarily driven by strong growth in single family residential activity.
Continue recovering commercial construction activity and market share gains.
We're also pleased to see strong revenue growth in our Latin American markets as the cadence of construction continues to normalize.
Looking at the drivers of adjusted EBITDA on Slide number 10.
Adjusted EBITDA in the second quarter of 2021 increased 52, 7% to a record $35.6 million.
Compared to $23.3 million in the prior year quarter.
Adjusted EBITDA margin was 29, 3%, a second quarter record and a solid 80 basis point improvement compared to prior year period.
We were pleased to produce record second quarter gross profit on both a dollar and margin basis.
Our gross profit increased 52, 9% to 48.6 million, representing a gross margin of 40%.
This compared to gross profit of $31.8 million in the prior year quarter, representing a gross margin of 38, 8%.
Our 120 basis point improvement in margin was mainly due to greater operating efficiencies and a higher mix of revenue from manufacturing versus installation activity.
Given our increased mix of single family residential products, where we do not carry out installation.
Higher nominal operating expenses for the quarter, mainly reflected higher variable expenses related to marine and ground transportation and commissions.
As a percentage of total revenue operating expenses were lower by 360 basis points compared to the prior year period due to the higher revenues and better operating leverage on personnel professional fees and other fixed expenses.
Now looking at our improved balance sheet and leverage profile on slide 11.
As we've highlighted in recent quarters, the recapitalization of our debt structure in October of 2020, combined with our impressive record of cash flow generation has significantly enhanced our financial flexibility and during the second quarter. These factors allowed us to achieve our lowest lever.
<unk> ratio since 2015 at 1.1 times.
In the second quarter alone, we converted 89% of our adjusted EBITDA to record operating cash flow of $32 million, representing higher operating cash flow in the second quarter of 2021 than we generated in all of our full year 2019.
We are thrilled with this performance.
Our higher margin shorter cash cycle single family residential revenues combined with strong working capital management and lower interest expense are all helping to drive additional shareholder value.
The step change in our ability to generate cash leaves us well positioned to deploy capital in areas. We believe makes sense for our strategy.
While we have capacity to meet demand for the foreseeable future. We are focused on long term growth and believe that in addition to returning a portion of capital to shareholders through our dividend.
The most prudent use of capital for our business at this time is to invest further in creating efficiencies in our operations.
To this point, we are investing an additional 10 to 15 million in capital expenditures within the next 6 to 9 months to build out our new aluminum line and implement a new automated glass line within our manufacturing facility in <unk>.
We expect these lines to be operational in the fourth quarter of 2021. Therefore, we now expect capex in 2021 to be approximately 30 million for day year.
Furthermore, the construction of our previously announced second state of the our flow glass plant and better on key Jeff.
Through our joint venture with tangled on remains on track to break ground in the first half of 2022.
As previously discussed our capital contributions toward that project have already been completed so we do not expect any additional capex as it relates to that project.
Moving to our outlook on slide 13.
Based on our continued positive momentum in the first half of 2021 and solid demand into July and the beginning of August we are increasing our full year 2021 outlook.
We now expect full year 2021 revenue of 450 million to $465 million representing growth of 22% at the midpoint we.
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 we had in the <unk>.
First and second quarters of 2020.
Looking at the remainder of the year, given the solid recovery in commercial activity and the increasing mix of those projects in our backlog we.
We do expect the second half of 2021 to include more installation activity.
However, based on our strong mix of single family residential revenues in the first half of 2021, and our ongoing penetration into the U S single family residential market, we reiterate our expectations for a higher mix of product versus installation revenue in full year 2021.
We also continue to expect the U S to represent the significant majority of our growth.
Based on this sales outlook and anticipated mix of revenues, we are raising our full year adjusted EBITDA outlook to a range of $125 million to $135 million.
Representing 33% growth at the midpoint of the range as well as margin expansion or.
Our gross margins should continue to benefit from our ability to efficiently manage costs as well as our high return capex investments in automation initiatives.
As a reminder, we do not carry out installation for our single family residential sales. However, we do carry out installation for many of the commercial projects in our backlog.
That said as I.
I just these costs given the expected increase in the mix of our commercial revenues with installation during the second half of the year, we expect our margins to trend closer to the high 30 percentage range in the third and fourth quarter of 2000 on 'twenty 1.
Separately.
As I mentioned earlier in the call. We now anticipate capex in 2021 to be approximately $30 million with a large portion of these expenses going towards automation and growth to efficiently manage robust demand for our products maintenance Capex continues to <unk>.
Represent less than 2% of our sales.
In conclusion, we are very pleased with our results to date in 2021.
Our strong balance sheet and very conservative leverage profile further reinforce our flexibility to invest in additional value creation.
We continue to target new customer relationships penetrate the U S single family residential market and leverage our very clean integrated operations to deliver innovative products with superior lead times on an attractive value.
This along with our consistent truck.
Record execution has propelled technical loss to the forefront of our industry.
With that we will be happy to answer your questions. Operator, Please open the line for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May Press Star 2 if you like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up on your handset before pressing the star keys, 1 moment, please while we poll for questions.
Our first question comes from Alex Rygiel with B Riley. Please proceed with your question.
Thank you and very strong quarter channel make congratulations on that.
On the residential business clearly was a very very strong standout in the quarter can you expand a little bit more upon some of the your view of that market.
Clearly the homebuilders.
Are experiencing a very very strong.
Build period right now historically, you haven't had much exposure to the homebuilders. So how much of that revenue in <unk> was associated with homebuilders and how should we think about sort of the revenue potential from homebuilders developing over the coming years.
Sure.
Hello This is wholesale.
<unk>.
Very little.
New revenue from homebuilders virtually.
Adjusted through the Bank group.
We don't we led to a per.
Slowly.
So if we made mistakes.
Very little.
We keep growing the growth there's a lot of local proposal to good growth.
It does.
We believe were relative do with it.
So far they have been very happy with those.
Orbis pigs.
<unk>.
Book to who also rumored.
We believe the weather over Covid.
The group growth.
We believe those are <unk>.
<unk>.
The homebuilders are.
The demand is unbelievable.
Tableau for Bose.
But we were very careful.
There we go there very new kabuki toward next year.
Okay.
And then turning over to the commercial side of the business it sounds like the sector.
Is rebounding slowly from post Covid can you expand upon that a little bit maybe touch upon some of the geographic markets in the U S where <unk>.
Commercial is experiencing notable strength or weakness.
Okay.
Well every day every 2 to the U S. But we are.
<unk>.
Maybe <unk> 15.
We're really strong in commercial.
<unk> brought on them is the commercial.
Barry Logan.
The day.
Did you close the briefing book.
We'll do the actual day did you deliver the windows, we have closed a lot of jobs good jobs.
The process of negotiating hard goods through reuse of dollars across the board.
I mean, much more than we have ever food.
The figures.
Closer to boot.
The third that we do the shop growers.
There are too big to approve the order approved.
With total boat shoe perks big fixed book.
So we believe the burgers go to.
<unk> cruises are slowly, but surely per <unk>.
He is going to be released on it.
<unk>.
Stronger even more book.
Close to the lead times.
Told you.
Uh huh.
Congratulations on a nice quarter gentlemen.
Drew.
Our next question comes from Josh Chan with Baird. Please proceed with your question Hi.
Hi, good morning, Congrats on the very strong results on the quarter.
Good morning, Josh Thanks.
Good morning.
I guess on my first question is on the residential side could you talk about where your lead times are right now and versus some of the competitors maybe.
It's impressive that you you're saying you don't have a lot of constraints I guess im wondering if youre seeing any bottlenecks in the whole sales process.
Even including after the Windows arrive on the U S are you seeing any logistical bottlenecks or inflation or things like that thank you.
Whoa, you workload, Peru foreclosures.
Third question, where Liberty Liberty go whereby we're number 1.
We have the shorter lead times in the business.
We experience.
Load growth.
2.2 weeks delay.
Although global lead times is the maus of Jordan jewelry.
Because of the pressure crews that we've closed.
The mood.
Okay.
Doble or 2 on the half times the usual orders in the most of June.
Jude.
Oh, well no we're back to normal.
We're doing really good of course the Bulldogs.
Sure.
Everybody would when you normally should ex.
Although the windows of the dealership to ex.
EBIT delivery for dealers, who was a challenge.
Weyerhaeuser was a challenge first per person book.
But everything is back to normal where income.
<unk> will double.
Our warehouse delivery capacity, we're doing really well.
We're very happy.
We have also flow but fuels.
Doing really good.
Uh huh.
We are experiencing so.
Luiz.
We lose on Sogou book.
Materials suppliers book.
We are both poised for bogey for Boulder co producer on everybody's having trouble.
We'll go to you.
No supply book.
I believe that we are the best positioned overall.
That's great to hear all right, yeah, that's definitely encouraging.
And moving over to that kind of the commercial side could you talk about where some of the conversations are in terms of quoting activities.
Particularly projects that are being planned but before they even get to the backlog how are those early early demand indicators looking.
Well we are closing.
Every month every week every day.
We are very close to closing a lot of jobs.
How long it will be we will know, but we're closer to everybody, but we should really quick closes.
Every bowl every week, we are sheep I mean, you'll see on sales.
Crazy.
The field or Butler good growth. So we believe that together with you.
On the bug Lucas really grow fell 2 per preserved.
The.
The northeast is picking up new Yorkers Piccolo Boes total picked it up.
The West Coast, California has picked it up per truck.
Yes.
Every sale that we really took it all but we're really happy.
Early on.
Soldiers burgard reduce.
So first the U S, which is actually flow through.
I mean, it's unbelievable.
Happy to.
The very broad above <unk> <unk>.
That's great. Thanks for the color there and I guess my last question is in the press release, you talked about a returns oriented mindset to the capital allocation. So could you just kind of elaborate on what that what that means to you.
Yeah. So obviously, we're returning some some capital through our D. V. Then, but what we're seeing right now is a huge potential to grow right as I say I was mentioning so we are investing in capex to further expand operations and be ready for what we're seeing coming.
Also we are looking at potentially prepaying some of our debt as you see we have over $100 million in cash as of June which is a substantial amount of capital. So so we are evaluating what makes sense right now.
And finally I think at this point in time M&A may may become more relevant, but we're being very cautious about you know value in multiples and whatnot. So.
We're going to do what's right for them for shareholders and what the.
The most value in and right now that is reinvested in our operations and in growing our capacity to address the growth that we're seeing.
That's great. Thanks for your time and congrats again on a very strong quarter.
Josh.
Our next question is from Zane Karimi with D. A Davidson. Please proceed with your question.
Hey, good morning, and congrats on the results everybody good morning.
Well first off here I know the gross margins once again were really strong and I know a big has been it has been a big part of that but what would cause the mix to change in the second half versus what you saw on the first half and also appears you are managing through raw materials and supply chain constraints.
Really effectively given the environment anything of concern in that area on the horizon, though.
On the on the first question the mix could change based on the cadence of the commercial projects right I mean, as we moving to the year on some of the installation projects start picking up the mix will change, but also as we said earlier.
The residential component of the business continues to grow and that would likely offset that that increase in installation work. That's what we're guiding to high thirties as gross margin goes on the second question by being fully vertically integrated.
We're controlling most of the supply chain as you know.
We're not as concerned about inflation.
As some of our peers are being you know fully integrated we singled on on the on the glass side and having most of our aluminum Culver.
So so far so good as Jose mentioned, there's obviously some other components that you know where were seeing inflation on.
But non not as material as the peers.
Okay. Thank you and then to follow up on the commercial side of things what's implied in the guidance related to the commercial business and do you still see that as more of a benefit 2022 are you seeing more projects filling in that second half.
Yes.
Hum.
Okay.
The commercial side.
Good Spooky law.
Especially on the circled her because.
Now, we're starting to ship new products.
Total total.
Due to scrubber Sky roll group for sure.
And there is an advantage on shipping commercial or residential.
Because normally a window for a for house cost half of what it cost.
Window for a building because they have the aluminum.
The thickness of the glass so.
Right now were doing like 40% more units than we were doing.
Uh huh.
8 months ago, and you only see that we increased sales, probably 20%, 25% but in day.
In the second.
The third quarter on fourth quarter, we're going to see more commercial which day.
The windows cost more money and we should see on increasing.
Actually in sales on.
In invoicing.
Thank you for that and then last 1 if I can can you update us on your initiatives to move the residential business does on the other geographies outside of Florida, I know you kind of talked about either of those Gulf coast taxes, If you will and where are you seeing the most traction on some of these markets.
We are moving.
Those will flow through.
Uh huh.
Go to do for global Jos.
Yes.
Oh Shady Grove Fisher.
Verboten requirements.
We're moving to Georgia.
South Carolina North Carolina.
The virtual solution.
But we're doing the local measure before the normal growth should.
We like to make the specs are.
Small.
Uh huh.
About the abuses alert about their requirements of original group.
Well after we learned that move really strongly.
We will do it but we have certainly those closures.
Very small jobs.
A few hoses to learn the true.
I believe both January to June we're going to move we're full speed.
Do those both groups once we produce.
All the products on a baby.
Over to merge or close to book.
Thank you have a great rest.
Very good.
Our next question is from Josh Wilson with Raymond James. Please proceed with your question.
Good morning, and congratulations on a great quarter. Thanks.
Thanks, Josh good morning.
A question on the guidance can you spell out a little more force, what youre, assuming for Columbia and per single family.
Yes, basically continued growth on on single family.
We're expecting that pace to continue moving up as we moving to into the year.
For Columbia, we're expecting kind of flattish, Colombia, and Latam kind of flattish to what you saw on Q2.
Essentially most of the growth as we said on the call is going to come from the from the U S residential and and really even into July and August we're already seeing those trends materialize.
Got it and then.
Specially on the commercial side, there have been others Express.
Issues with delays either in job site labor or maybe in other materials unrelated to their own business have you seen any projects starts to push out because of that.
No no we haven't.
For all of our projects are moving forward.
We will deliver you were totally right, we're doing really group.
Very good I'll turn it over.
We've reached the end of our question and answer session. At this time I'd like to turn the call back over to Jose Manuel Dias for closing comments.
Good day, everyone for participating today's call will groups.
To do that.
Good work for our shareholders.
We're very happy with the results.
We strive always to do better Burger per group.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.