Q4 2021 Tecnoglass Inc Earnings Call
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Okay.
Greetings and welcome to Tech No Glass, Inc. Fourth 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Brad Cray Investor Relations. Thank you you may begin. Thank you for joining us for techno glasses fourth quarter and full year 2021 conference call a copy of the slide presentation to accompany this call may be obtained on the investors section of the technical.
Website.
Our speakers for today's call are Chief Executive Officer, Jose Manuel Dias Chief.
<unk> operating officer, Chris diets.
And Chief Financial Officer, Santiago Giraldo.
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 include.
Including statements regarding future financial performance future growth and future acquisitions.
These statements are based on technical on its current expectations or beliefs and are subject to uncertainty and changes in circumstance.
Actual results may differ in a material nature from those expressed or implied by the statements herein due to changes in economic business competitive indoor regulatory factors and other risks and uncertainties affecting the operation of technical losses business.
These risks uncertainties and contingencies are indicated from time to time in tech watches filings with the SEC.
The information discussed during the call is presented in light of such risks.
Further investors should keep in mind that technical asked this financial result in any particular period may not be indicative of future results.
<unk> 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 four.
Thank you Brad.
Every one four but gives you better be able to do this call.
I'm excited to the schools, except through the fourth quarter and full year results.
Which reflect the focus of as usual.
The bigger over the last few years, but across all areas of our business.
During the fourth quarter, we referred to as does our leading industry position.
Produced another quarter of record results across all operating metrics.
There's a lot of those two are the most profitable.
I'll just go slower.
You bet.
Sure.
Our store growth continues to be largely driven by ultra hormones that feels well, there's nobody should go probably rescue visual quotes.
So you can probably shows Rosebel holds a 40% year over year.
In the fourth quarter and full.
The euro or single family, New Jersey Crucible holds around 50%.
This impressive performance it really ranges has been supported by a combination well well penetrated.
So these U S region, and our track record of excellent customer service.
I really do deliver products with lead times, well below industry average despite the supply constraints impacting our industry.
We continue to take a disciplined approach to managing costs.
We are leveraging our vertically integrated structure employer automation investments to drive operational efficiencies.
That has allowed us to further advance our industry leading margins.
And then in the fourth quarter, gross buggers, which increased 700 basis points year over year to a record 42%.
Yeah.
Full year gross margin improvement of 380 basis points to 44, 8%.
In November we took further steps to reinforce our balance sheet through a visual though.
They've been store clothes. Unfortunately.
Would you agree.
She really lose.
Lose our borrowing costs all to support future growth.
These are true friends.
Neutral by our lenders or go through working capital management.
Growing mix of our revenues.
No problem.
Which is a shorter cash cycle.
Together these factors help us judge.
Right.
There's trade quarter Opex was real cash flow.
Produced a record 107, pinpoint 3 million, although very big cash flow in the full year.
Be well.
Oh, and Bruce cousins Erasure Bravo has all moved in the okay, but really piece to it.
Further in automation and capacity plans.
We also won early prepay.
During the year.
Further strengthening of our balance sheet to achieve the lowest leverage ratio in our history.
Paul.
Not bad.
Our adjusted EBITDA.
And given the strength of our business on a go slow in December because it's a new world where knows a holder of 36% increase.
To further boost capital returns for shareholders.
In summary, our fourth quarter results, but the completion of our normal spending year for $10.
We couldn't be more pleased with the value we have created for BOE returns oriented investments.
We have taken to propel our company.
Into a really good cause those drug launch blue.
Through our vertically integrated platform.
Your royalty position and prudent growth investments, we have established an exceptional track record of cash flow generation.
We're just hoping those create real value for our shareholders.
As we said before vision for their very stubborn.
The growth is true.
As we look to 'twenty, two and beyond we are confident the actions we have taken to leverage those talks a lot about the gist of it.
Our capital position.
All of these will collectively allow us to do even though there's a little buggers sure well, maintaining our industry leading margins.
Structurally it has cash flow profile.
I will now turn the call over to Chris.
So provided the visual details on a record backlog.
Thank you.
Moving to our backlog on slide five you have you shipped to external breaking performance discuss the strength of our business is also evident in our growing backlog, which rose approximately seven 2% year over year to a record 585 million.
As I have mentioned in the past the majority of our backlog is weighted towards medium and high rise residential projects, which are all performing most other commercial sectors.
Additionally, our solid single family residential growth trajectory is not entirely captured in our backlog given the shorter term.
Duration of projects.
While we recognize backlog represents multiyear pipeline of revenue is encouraging when the euro or the backlog amount that is in excess of our four year 2022 revenue outlook and provides us with solid visibility on ourselves into 2023.
The majority of our backlog continues to represent projects located in attractive South east and.
South and Central U S regions as well as other throughout the U S.
Our optimism and our end market is supported by recent January a b I reading of 61.0 for the U S South.
The highest reading for this geography since 2005.
That's a prime example of our success they can figure out who's already contractor to supply architectural glass to 20 of the $22 towers under construction in South, Florida in 'twenty, and 2020 to 'twenty three.
The fact that we can deliver quality products section of service and depending on what the lead times all contributed to the impressive accomplishment.
We'll emphasize that short lead times are a critical factor in the Korean market and nobody else can deliver the right product at the right time.
Our customers are clear with us that they value that advantage as well.
Payoffs were a consistent ability to go above and beyond what other companies cant believer and the proof is our incredible results.
We are encouraged by a significant accomplishment in 2021 and the continued momentum in our business.
Through year end and into the first quarter of 2022.
Looking ahead, we remain highly optimistic on the future of our business as we leverage our innovative product portfolio at the Florida capitalize our solid residential macro tailwind.
They continue to pick up in project wins with our commercial customers.
I will now turn the call over to Santiago on the slide six to discuss the strong demand for our single family brothers vertically integrated strategy and financial results and solid outlook for 2022.
Thank you Christian.
We're extremely pleased with our record fourth quarter and full year 2021 results.
Our strong performance reflects the structural advantages provided by our vertically integrated platform focused execution of our growth strategy and a high demand for our innovative architectural glass products, which we can deliver on schedule.
Success is evident in our financial results, where we produced record 2021 revenue and adjusted EBITDA, while expanding margins once again to record levels in both the fourth quarter and full year.
Expanding on a theme we've discussed in recent quarters, we were pleased to see a continuation of outsized growth in our single family residential sales.
Our focused efforts to further penetrate the single family residential market ROE increases of 142% and 151% year over year in the fourth quarter and full year 2021, respectively.
Single family sales accounted for 41% of our total fourth quarter sales and represented 36% of our sales in full year 2021.
Our rapid expansion and success in these markets has also led us to new business wins and further share gains across the U S.
Looking ahead, we continue to expect single family residential sales in the U S to be the primary driver of our revenue growth.
Additional upside expected from dealer network expansion and geographic diversification in the southeast and South Central U S.
We're seeing good traction with new product launches catering to our untapped opportunity with production homebuilders, such as our multi Max product line that we began invoicing earlier in the year.
Yeah.
This upside opportunity is supported by positive macroeconomic tailwind such as.
The robust remodeling activity strong housing starts the euro bodies station trends and upgrades to storm through windows, which are collectively providing us with opportunities to further penetrate these attractive market.
Now on slide number seven.
I'd like to reiterate several key themes that are supporting our success in this tight supply environment.
Our very clean integrated business model and strategically located operations provide us with a cost of fishing operation and entrenched competitive advantages.
A few factors critical to our success that I would like to reiterate include.
Prior high return investments in plant animation and capacity upgrades.
Hedging, our aluminum cost and locally sourcing our float glass supply through our JV with Sangamo.
Being an employer of choice to maintain quality talent and low turnover in a local environment with an ample supply of employees.
Keep in transportation cost.
Less than 5% of revenues due to the current U S and Colombia trade imbalance, which partially insulate the company from other inflation dynamics seen in other places.
And finally, a 15% energy savings from our prior investments in solar and other renewables.
As evident in our fourth quarter and full year results are improvements continued to provide us with structural competitive advantages that have enhanced our ability to introduce new product offerings.
Wrote more projects deliver products on shorter lead time than the industry average and expand our customer relationships through enhanced delivery capabilities.
Turning to the drivers of revenue on slide number nine.
Total revenues increased 28% year over year to a record 131 8 million for the fourth quarter and 32% year over year to a record 496 8 million for the full year attributable to strong growth in single.
Family residential activity market share gains and accelerating demand for our products.
As previously reported we completed the acquisition of antenna solar during the fourth quarter, our Panama Domicile company that serve exclusively an importer and distributor of 10, no glass products in the country of Panama.
After eliminating inter company sales Ventana solar contributed revenues of approximately $2 3 million to our full year revenue.
Our results through the nine month period ended September 32021 have been adjusted to reflect the retroactive recasting of results inline with a S. C. H O. Five that's 50 to account for the consolidation of acquisitions under common control.
Yes.
Looking at the drivers of adjusted EBITDA on Slide number 10.
Adjusted EBITDA for the fourth quarter of 2021 increased 65, 7% to a quarterly record of $42 2 million right.
Representing an adjusted EBITDA margin of 32%.
Adjusted EBITDA for the full year increased 54, 1% year over year to a record $150 3 million.
Representing a margin of 32%.
We are pleased to produce record fourth quarter and full year gross profit on both a dollar and margin basis.
Our gross profit for the fourth quarter increased 53, 6% to 56 5 million representing a gross margin of 42, 9%.
Compared to a gross margin of 35, 8% in the prior year quarter.
The 710 basis point improvement in margin, mainly reflected greater operating efficiencies and a higher mix of revenue from manufacturing versus installation activity as we increased our mix of single family residential products, where we do not carry out installation.
This strong fourth quarter performance contributed to a year of record full year gross profit included 380 basis points of margin expansion to a new record full year gross margin of 48%.
Higher nominal operating expenses for the quarter, mainly reflected incremental variable expenses related to marine and ground transportation and commissions.
As a percentage of revenue operating expenses improved by 100 basis points for the fourth quarter and 240 basis points for the full year compared to their respective prior year periods due to higher revenues and better operating leverage on personnel professional fees.
And other fixed expenses.
Now looking at our balance sheet and leverage on slide 11.
Building upon the recapitalization of our debt in 2020 during November of 2021, we further enhanced our financial flexibility through the amendment of our senior secured credit facility.
This reduced our borrowing costs by approximately 130 basis points tripled the borrowing capacity under our credit facility to $150 million and extended the maturity date by one year to the end of 2026.
During 2021, we built upon our outstanding track record of cash flow generation to end the year with a record operating cash flow, which increased by $45 5 million to $117 3 million compared to the prior year.
Our operating cash flow represents 78% conversion from adjusted EBITDA for the year, reflecting our shorter cash cycle single family revenues exceptional working capital management and lower interest expense.
This impressive cash flow generation provided us with flexibility to drive additional value for our shareholders. During 2021, as we made additional growth investments in our operations.
Terribly prepaid $30 million in debt and increase our quarterly dividend by 136%.
Okay.
A year and we had a cash balance of approximately 85 million and availability under our committed revolving credit facilities of $163 million, resulting in total liquidity of approximately $250 million.
Our efforts to maintain a strong balance sheet allowed us to achieve the lowest leverage ratio in company history, which decreased to 0.8 times net debt to adjusted EBITDA at year end down from one six times at the end of 2020.
On slide 12, I would like to highlight the evolution of our cash generation capabilities over the last several years the substantial improvement in our cash flows he's had direct reflection of that.
Working capital management operational efficiencies from high return investments in our operations and focused efforts to substantially reduce our overall borrowing costs.
The working capital improvements are evident in the reduction in our days sales outstanding that reflect stronger collection efforts overall and a higher mix of sales from single family products, which feature a shorter cash cycle.
We have also significantly reduced our inventory days to 104 days in 2021 compared to 132 days in 2018.
In part due to streamlining our aluminum operations through automation. In addition to other mix shifts in our business.
Overall, we are extremely pleased with all of our efforts to enhance cash generation, which has provided us with the increasing financial flexibility to continue investing in our operations as we prepare for future expected growth.
Moving to our outlook on slide number 14.
Based on the strong momentum in our business through 2021 and into the first quarter of 2022, we are confident in our ability to continue our track record of growth in the full year 2022.
We are introducing our outlook for full year 2022 revenue to be in the range of 575 million to 600 million.
This outlook represents growth of 18% at the midpoint.
Led by single family residential.
Based on these sales outlook and anticipated mix of revenues, we expect full year adjusted EBITDA to be in the range of 170 to 190 million, representing a 20% growth at the midpoint of the range.
Gross margins are expected to be in the range of 40% benefiting from our previously completed high return Capex investments and the supply chain benefits of our vertically integrated operations along with the structural advantages of our operations that I discussed earlier.
Additionally, we anticipate that we will have a higher mix of product versus installation revenue during the year.
We expect Capex in 2022 to approximate 17% to 25 million primarily related to the tail end of our most recent automation investment as well as further grow investments into our glass and aluminum operations to efficiently manage increasing.
Demand for our products maintenance Capex continues to represent less than 2% of our sales.
We believe our structural advantages the partial insulation from inflationary pressures.
Working capital management and project mix will continue to drive strong cash flow generation in the full year 2022.
In summary, 2021 was another milestone year for technical glass.
With our strategic geographic positioning very clean integrated structure and target any investments we have confidence in our ability to capture an increasing share of demand while continuing to deliver significant cash generation and provide superior returns for our shareholders.
In 2022 and beyond.
With that we will be happy to answer your questions. Operator, Please open the line for questions.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
I'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Julio Romero with Sidoti. Please proceed with your question.
Good morning, guys. This is Neil on for Julio Thanks for taking the questions.
Yes.
Good morning.
With the adjusted EBITDA outlook of $170 million to a 190 implies very strong growth, but it also has a wide variance can you talk about the puts and takes that could put you at those high and low ends of that range.
Okay.
Yeah, it's obviously going to be determined by gross margin, we're implying 40% for this year, which is in line with what we ended up in 2021, obviously input cost on raw materials are going to play a part SG&A, we're expecting to be kind of in line of what you've seen in the in years past.
It's fairly flat.
So I think it's gonna depend mostly on gross margin and the mix of business that we do installation versus manufacturing, which as you know manufacturing carries a higher margin.
Okay. Thank you and I are another one could you give a progress update on the multi Max flying and how much revenue did it contribute to the quarter.
Well sure.
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The rest of that show.
No.
Thank you Brian .
Right.
Sure.
12, 3%, so those would be 6%, so it's sort of a per.
Furthermore shows.
Google.
Thanks Robyn.
Barbara.
Alerted the market no.
But I think is going to be a larger percentage.
Okay. Thank you very much guys.
Yeah.
Our next question comes from the line of Tim Walsh with Robert W. Baird. Please proceed with your question.
Hey, Hey, guys. Good morning, nice nice job.
Morning, maybe just maybe just to start on on the on kind of the revenue guidance.
Santiago and I know you said the growth is going to be led by single family residential and any kind of.
Can you unpack that a little bit just in terms of maybe where you expect U S residential to kind of grow and then maybe the contribution you would expect from the commercial business and maybe Latin America within the guidance.
Yeah. So if you look at the higher end of that guidance, Tim We're looking for.
To grow between 30%, 35% and commercial to grow about 15% that's the.
The higher end of the guidance range. So in line with what we were saying residential continues to lead the way, but obviously commercial lease making a nice comeback. So we are looking for both segments to contribute.
Okay, Okay, and then on the residential.
No.
The two proposals.
Herschel co.
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Rob.
There are more than their home building.
No.
The award.
So slowly.
Oh.
So we are good.
So commercial go.
So by law.
Okay. Okay, that's great.
Then when you when you think about the long term scope for the residential business I mean, you're ending this year at call. It up just over $200 million kind of run rate.
What is is kind of the I guess three to five year type of opportunity for the residential business as a whole.
Oh.
The first one to grow.
Towards the pursuit of a year.
Joe.
Hello.
Dave.
Okay.
So.
Yes.
Which we're conservative.
Yes.
Okay.
The actual bill.
There are those who are really good.
Go into other states.
Okay.
Hello.
Right.
Great.
So we confirm the order stage or residential.
Yes.
So March April this year.
Okay. Okay, that's great.
And then and then maybe on <unk>.
Just the commercial side of the business I mean, what what are you kind of I know, there's a lot of buildings going up but what are you seeing around just kind of the pace of construction for some of those projects and how are you kind of factored in any kind of risk of delays just based on.
Labour installation or things like that that might be out of your control.
Yes.
Let me explain this.
Yeah.
Commercial.
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Okay.
Uh huh.
The Permian basin.
Because there is a lot of.
Marco.
Uh huh.
Okay.
And the oil prices because it's the unprecedented.
Buildings.
Q4 program.
Okay.
But they're all told.
So I mean.
Does it go perfectly.
For central.
So.
Wow.
No.
What you see is and these are the.
I'm only.
And the growth there was already have birthday.
The ones that already have a D C.
And we have a contract.
Okay.
Baird.
So there you go.
As to Brazil.
All of them will be.
Google.
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Yes.
At least 40%.
Earlier this year.
It's already started.
For sure.
Hi.
Yes.
Okay. Okay. That's really helpful. I appreciate that I'll hop back in queue, but good luck on 22 guys. Thanks.
Thank you.
Our next question comes from the line of Alex Rygiel with B Riley. Please proceed with your question.
Thank you very much good morning, gentlemen, great quarter can you talk a little bit about capacity utilization and the incremental cost there, but can you talk a little bit about capacity utilization and the incremental cost to add additional capacity.
The capital utilization, while waiting the topics that we put in place last year.
Okay.
Just as it relates to manufacturing capacity utilization you know how about your plant is right now.
How much more capital do you believe you need to add for growth.
Opportunities show up.
With the investment.
Any last year.
Would the Capex that we filed this year.
We'll be able to reach.
700.
Okay.
Yes.
If we have demand from the problems, which I think we win.
We won't have any problem reaching.
So on the North Sea is hung around 50 this year.
If we can make it all happen.
I mean, we all like we added on in March and April were coming in with too.
Canadian lung when coming up with another.
Sure Brian .
We're coming up with six new lines of Windows, So we should be able to reach.
With the more invested last year and this year up to $750 million each without any.
Excellent and then I think last quarter, you mentioned that you had maybe about five relationships with U S. Homebuilders.
Maybe you could update us on that assuming it's expanded a little bit as well you talked a little bit about expanding your residential product outside of the state of Florida, maybe you could give us an update there.
Gross.
And the good repeat business.
As I mentioned in the last call.
Realize too slow.
The business grew and is growing.
Very good and there's no more communities.
And we are refining those or no.
Four of those will be.
We are studying.
March or April .
Every business is outside of Florida.
And what do you expect.
The residential side to grow like I said before.
It is pretty brisk at.
At the Holdco LIBOR.
Yeah.
Great. Thank you very much.
I'm sorry your question.
Our next question comes from the line of Joshua Wilson with Raymond James. Please proceed with your question.
Good morning, Thanks for taking my question and congrats on the quarter.
Thanks, Good morning, Josh.
First just to clarify on the capacity question. So exiting 2022, you'll have capacity for $750 million in sales did I hear that right.
Yes.
Yeah, Okay. So and then after the topics that was put in place last year plus the capex that is being invested this year that that would be their capacity.
Got it.
And then as it relates to the true like commercial nonresidential office as part of your business what are the latest readings youre seeing there in terms of activity.
So.
Most of what we're doing in steel and you can see it in the presentation is related to multifamily within that commercial space right.
But they are reading in other places, especially in the main geographies, where we are in the southeast are strong like like hotels and office space. There is a lot of Oh man now.
H B.
Okay.
A lot of companies moving to Florida.
Sure.
They are building new.
The hotels by that'd be our goal.
The problem is like 97%.
Capacity.
So now so.
Those also all in all.
Yeah.
Are we good.
Okay.
I mean, we did 70, 80% already.
Oh.
Excellent. Thanks, so much.
Our next question comes from the line of Zane Karimi with D. A Davidson. Please proceed with your question.
Good morning, congratulations on the quarter and thank you for taking my questions.
Good morning, Tim.
So to follow up on Tim's question earlier on residential growth.
Are you seeing or are there supply chain and labor issues, which some of the homebuilders are experiencing creating bottlenecks for your residential products.
Well.
Okay.
Great.
Great.
Sure.
On crude.
Ooh or whatever.
In my true, which is aluminum windows.
Everybody that we are serving.
Very happy because we are all time, we have short delivery times.
Quarterly fee or grow their compared to our peers.
It's way way way better and they are a big company.
Okay.
Okay. Thank you for that and maybe on the backlog how is pricing on new work in commercial backlog and what are some of these competitive dynamics looking like currently.
The prices are.
Brian .
With time, we sell a business.
We already know the prices of everything for the future.
These are margins look good.
Okay.
We obviously are in.
Sugar prices because aluminum has jumped.
A year from <unk>.
Two.
700 today.
So every month.
Sure.
The prices drop we increase the prices to whatever is also.
So do we have to load the price we're doing also with our suppliers.
Just to add to that the same if you look at what we are guiding toward this year, where we're implying gross margin in line with last year right. So 40%.
Basically accounts for what I'll say to yourself I mean to the extent that input costs go up well, we'll pass that through to the end clients, but on the commercial segment. When you have these long term contracts youre ready to kind of lock up pricing and input costs.
So that's what we based our gross margin projections.
Okay. Thank you for that and last one from me, but what are you guys thinking about buybacks at the current price versus other investments.
I think that's something that has to be on the on the boards played to evaluate everything.
And we'll just kind of a base that on.
The projected cash flow and the opportunities that are presented to the company, but we'll evaluate every option and as you know we already increased the dividend for shareholders to return incremental cash to shareholders. So everything's on the table and if it makes sense you'll be evaluated.
Okay. Thank you again and congrats on the quarter.
Thanks.
That is all the time, we have for questions I'd like to hand, the call back to Jose Emmanuel days for closing remarks.
Hi, everyone.
On today's call.
Okay.
But improving.
And everywhere, we can and promotion.
Yes.
And expanding geographically.
And we'll keep giving good news will become clear.
We manage it is.
The best.
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.