Q2 2022 Tecnoglass Inc Earnings Call
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Of the technograph: second quarter 2022 earning.
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Please go ahead. Thank you for joining us for technowest- the second quarter 2022 conference call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the techno West website. Our speakers for today's call our Chief Executive Officer, Jose Manuel bias.
Chief Operating Officer Chris diis and Chief Financial Officer Santiago galdo.
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 technos's 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 and or regulatory factors and other risks and uncertainties affecting the operation of techcnoloss's business.
These risks, uncertainties and contingencies are indicated from time to time in tetechnoac's filings with the SEC.
The information discussed during the call is presented in light of such risks.
Further investors should keep in mind that tecnoass's financial results in any particular period may not be indicative of future results. tecnoasses 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 and assumptions or otherwise. I will now turn the call over to Jose manel, beginning on Slide number four.
Thank you Brad, and thank you everyone for participating on today's call.
We were very pleased to win the first half of 2022 with record levels of revenue, gross profit, adjusted EBITDA and backlog.
Our total revenues in the second quarter increased 39% year over a year to 169.1 million.
Marking our fifeest strade quarter of record rius, driven by our continued expansion in the single family residential end market and accelerating growth in our commercial business.
Our single family with in Asian business, which is mainly focused on remoden innovasian based projects, was of approximately 86% year over-year to our record 75.9 million.
Or 45% of total revenues.
This achievement reflects the rapid expansion of this business.
In key U's regs.
Our track record of exceptional client service and unique product offerings have allowed us to continue to gain market share with new and existing customers.
momentmenum in our results is also supported by accelerating activity in our commercial business.
Which we expect to continue for the foreseeable future.
Build on ary presasive feield performance.
We produced over a quarter of record adjusted EBITDA, while sustaining an industry leadving adjusted EBITDA margin in cess of 30%.
Our discipline, cost control efforts for other innovation, capacity enhancements, a higher mix of single family with eventual revenues.
All continued to lose his strong merger.
The momentum in our results and established track record of exceptional cash flow further validate technabizes univerically integrated business modela. Strong cash flow has allowed us to deleverage our managing to the lowest net debt.
To L P M. adjust a milinar ratio in the company's history at zero point five times as of June .
Additionally, given the strength of our business and cash flow, today we announce a 50% increase in our dividend to further boost capital returns to shareholders.
Overall we are proud of our entire team for the continued location to excellence and I excited by the trajectory of our business.
Looking to the remainder of 20 20- two, we are confident in our ability to achieve our increased guidance to deliver another year of record results.
I will now turn the call over to Chris to provide additional details on the record backlog.
Thank you, Bo sanuel. Moving to our barlog on Slide 5, our second quarter results reflect a strong performance in our key U's regions across our single, amily and multifamily residential work, in addition to an acceleration of activity on the commercial side of our business.
We continue to see solid levels of coorine and bidding activity contribute to a record backlog, which was 668 million up coarter and representing a level that is one point two X our mulifamilyian commercial revenue over the past 12 months.
Backlog increased 20% year-over-year primarily due to an increasing number of project wins, mostly in the attractive souuers and U's market.
I am pleased to note that our shipments into mid- to high-rise projects have enjoyed accelerating sequential growth in each month of this year. We expect this strong tivity to continue and have already experienced other record month that we poisoned in July .
Our positive outlook is supported by the June ABI index reading of 53.2, marking the seventeenth sstrlate monthtly Re expansion territory.
The ABI multifamily shop index within of 52.6 also supports the federable trends we are seeing given to zn. Our backrop is tied to multifamily reidentation. Our largest pres is in the Southeastern U's which is currently experiencing healthier activity in other markets.
We are also experiencing additional tailwinds of Flora from the ST's recent home hardening build that makes impact resistance windows and door more avadable by granting a two -year sales tax inserion.
Furthermore, our track record successfully delivering on high-profile multifamily projects has opfeened up an increasing number of opportunities that growve attractive U's regions.
We believe our customer view up as a supplier of choice, given our ability to maintain timely deliververs to help keep large projects from a schedule.
I would like to remind everyone that single family housing is only represented in our backlog because of the shorter-term spotter duration of those projectstherefore, a significant portion of our growth trajectory is not fully capturing our growing backlog of work.
S garll will provide more details on our single-family business in a moment.
In summary, we are very pleased with our results todayate this year.
We are new and long-standing partnerships, our structural competitive advantages and our attractive geographic focus. We are able to continue growing organically while invest imprmentently in our operations.
Our CapEx investment will allowus to win. The year will stock capacity to inboys approximately eight million of revenue.
We anticipate this high return of investment. Capital CapEx will help us to service incremental demand effectively, with a payback period of less than 12 to 15 months. These investments, in combination with our performance in the single family residential market, continue to surpass our expectations and support our optimism for the quarters and the years ahead.
I will now turn the call over to pyon, Slide 6, to disclover our operations financial results and improve on outlook for the year. Thank you, Christian. Our strong performance in the second quarter is that the direct reflection of our ability to execute on our vertically integrated platform and leverage our strategic positioning in an attractive geographies.
We are providing exceptional service to our clients.
Strengthening our customer relationships and win new business.
This is particularly evident in our single-family residential business, in which we are gaining additional market share due to our ability to supply superior quality products at an attractive value with shorter lead times.
We are extremely proud of our established track record of strong financial results, particularly as here relates to our single-family residential business, which saw an 86% year-over-year revenue increase in the second quarter.
This business now represents 45% of our total revenues compared to 34% in the second quarter of 2021 and.
Our increasing presence in the highly profitable end market has helped to create a step change in our profitability.
A very important point I would like to highlight is that approximately 65% of our single-family residential revenues are tied to remodel and renovation projects that are not highly sensitive to mortgage rate fluctuations.
We also see further market share upside to our expanding baler base, our geographic diversification in the Southeast and South Central U's and the expansion in sales in our innovative multimac line of products catering to the largely and top opportunity with production homebuilders.
These world tailwinds are further supported by the secular trend of population migration into Southern states, where we have our most significant presence.
Now on Slide 7, I would like to reiterate how our vertically integrated business model and strategically located operations are driving our success in the current tight supply and cost inflation environment.
More specifically, the differentiating factors we see in our business are number 1: prior high return investments in plant automation and capacity upgrades.
Number 2: stabilizing our cost through hedging on aluminum inputs and dependable supply of ROP glass through our joint venture with sangova.
Number three being an employer of choice to maintain quetly talent and low turnover in a labor market with ample talented supply.
Number 4: keeping transportation costs are around 5% of revenues. And number 5: 15% energy savings from green energy to our solar power and our cogeneration of power through onsite natural gas emissions.
As evidident in our results in the first half of the year, our strategic investments continue to provide us with meaningful structural advantages over our peers.
Our control over most of our value chain has allowed us to quote more projects and deliver products with shorter lead times.
Now turning to the drivers of revenue on Slide number nine.
Total revenues increased 39% year-over-year to a record 169.1 million for the second quarter.
This increase was driven by strong growth in single family residential activity, market share gains and the ongoing ramp-up of our commercial projects.
As scriid mentioned, our commercial construction revenues saw sequential growth each month year-to-date through the second quarter.
As a reminder, we completed the acquisition of vent anoolar during the fourth quarter of 2021, a panamaomomeal company that served exclusively as an importer and distributor of tnoass products in the country of Panama.
After eliminated intercompany sales vent anesto, our contributed revenues of approximately two point two million to our full year 2021 revenue. Our results for 2021 have been adjusted to reflect the retroactive recasting of results in line with ASC eight or five Dash 50 to account for the consolidation of acquisitions on their common control.
Looking at the drivers of adjusted EBITDA on Slide number ten.
Adjusted EBITDA for the second quarter 2022 increased 52% to a quarterly record of 54.6 million, compared to 36 million in the prior year quarter.
Adjusted EBITDA margin of 32% increased 280 basis points compared to the second quarter of 2021.
Second quarter, gross profit grew 50% to 73.6 million, representing a 44% gross margin.
This compares to gross profit of 49.1 million, representing a forty-point 4% gross margin in the prior year quarter.
Our 310 basis point improvement in margin mainly reflected higher sales, greater operating efficiencies related to automation and a higher mix of revenue from manufacturing versus installation activity due to an increase in the mix of our single family residential products where we do not perform installation.
lgna as a percentage of total revenues improved to 17%, compared to 17% in the prior year quarter.
Primarily due to higher sales and better operating leverage on personnel, professional fees and other fixed expenses more than offsetting higher shipping rates, certain nonrecurring expenses related to professional and accounting fees.
Now looking at our improved balance sheet and leverage on Slide number eleven.
Our exceptional track record of cash flow generation continued into the second quarter, with operating cash flow of 35.9 million.
This cash generation, along with the prudent actions we've taken over the past several quarters to strengthen our balance sheet.
Have given us financial flexibility to reinvest in growth CapEx to prepare for future demand, as evidenced by our increasing backlogad.
We have also improved our leverage ratio to a record low of zero, zero point five X net debt to LTM adjusted EBITDA at quarter end, down from one point one X in the second quarter of last year.
At quarter end, we had a cash balance of approximately 98.6 million and availability under our committed revolving credit facilities of 17 million, resulting in total liquidity of approximately two hundred and sixty-nine million.
Based on a record of exceptional financial performance. In may 2022, we amended our credit agreement with our syndicated banks. The main change from this amendment removed the previous cap on deployable capital as long as we keep our leverage ratio on their one point five X net debt to LM adjusted EBITDA. This provides us with additional flexibility in our capital allocation opportunities.
I'd now like to highlight the progress of our strengthened growross margin and cash flow generation on stride number Twelve and.
The step change in our gross margin performance has been driven by the structural and sustainable operational improvements related to automation initiatives and our further expansion into the single-family residential end market, where we do not carry out lower margin installation work.
As our revenues grow, So to do the operating leverage on fixed and semi-fixed costs, such as depreciation labor in manufacturing overhead.
Taking these factors into account, we continue to expect our growth margins to normalize in the low to mid-for Ty S.
For 2022, compared to 32% or the full year. Two thousand and nineteen.
Our operational improvements have also benefited our cash flow generation.
Increased profitability, better working capital management, reduced interest expenses and a more fvorable mix of revenues have all contributed to our strong record of cash flow generation, given the structural transformative nature of these enhancements, given us significant financial flexibilityto execute growth and value creation, including the 15% increased to our dividend that was announced today. Moving to our outlook on Slide number 14, based on the strong momentum in our business in the first half of 2022 and our growing project pipeline, we are increasing our full year 2022 outlook for revenue and adjusted EBITDA growth.
We now expect full year 2022 revenue to be in the range of 62 million to six hundred and forty million.
This outlook represents growth of 27% at the midpoint, led by single family residential.
Based on this sales outlook and anticipated mix of revenues, we now expect full year adjusted EBITDA to be in the range of 208 to 22 million, representing 44% growth at the midpoint of the range.
As I mentioned earlier, growross margins are expected to normalize in the lowad to mid- forty's range for 2022, mainly attributable to the structural advantages: vertically integrated operations and higher mix of product versus installation revenue. We reiterate are expectations for a strong cash flow from operations to field the tail-end of our most recent automation investments, as well as other investments in our business.
To that end, we expect to deliver another strong cash flow year, which will further position us to deliver on our long-term growth strategy.
Our growth. Capex investments are on pace to provide a new in-all capacity of over $8 million by year-end.
Overall we are extremely pleased with our exceptional performance in the first half of 2000 and twenty-twoour strong year-to-today results puts us on track to deliver another year of double-digit growth in sales and adjusted EBITDA as we leverage our unique vertically integrated platform to capitalize on the many positive catalyst outline. On today's call. We are confident in the direction of our business and look forward to executing further on a strategic objectives in 2000 and twenty-two and beyondwith that we will be happy to answer your questions operator. Please open the line for questions.
Thank you, Ladies and gentlemen. The floa is now open for questions.
If you have any questions or comments, please press star one on your phone at this time.
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qandaq and please hold why we pull for questions.
And the first question is coming from Alex ragel from breily.
I ex your line of life.
Thank you for taking my question in. Gentlemen congratula, tions. Another fantastic quarter. A couple of questions here. First, your margin expansion has been fantastic. Can you talk a little bit about some of the inflationary pressures that aren't developing? I understand?
You mentioned a number of different controls that you have in place that are managing that inflation. But if you could talk to a little bit of that inflationary pressure and how you see it progressing over the coming kind of 12 months, that would be aable.
thanksalex with see normalizing. I think we've talked about this in the past- that we have been somewhat insuated from some of the same pressures, given a very clean, integrated process. Our joint venture we sanggo on to provide glass, being able to hedge aluminum as reasonable pricing, not having the same labor constraints as some of our peers in the? U's, where we labor forces, is tied versus Colombia, where you have an unemployment rate of 11% and we have very little turnover. So I think that dynamics are significantly different and that's also helping us with lead times, maintaining lead times at prerecovid levels right. So I think is a combination of factors that puts us in a different position. We are seeing things normalizing or getting back to some type of normal type world, So we don't expect in what we're baking for the rest of the year. We're not expecting headwinds associated with inflation, given our structural position and what we're seeing from a macro perspective.
Very very helpful and then as it relates to your residential business.
You know what do you think? Some of the primary reasons for your market Sha share gains have been, and clearly, the residential housing market in the U's and it's certain geographies.
Has softened a bit here because higher interest rates. Do you think your market share gains are sustainable and can continue to grow even in a more challenged housing market?
I believe I hostthey take government. I believe So.
I believe UH that we can be growing. I mean the.
First of all, let me tell you V a lot about you.
Every competiittor of ours is growing. The market is growing by itself.
We are outpaging everybody else.
Because UH, we have a better, we do.
We have a better package.
It.
I believe the the whole concept of UH.
The many products and that we have is getting into the marketplace. Very nice and everybody's adoed to it and they like it. I mean today.
A lot of people close to open their accounts. We don't have to start UH changing new accounts, they come to us.
It's great here, nice quarter gentlemen, keep it up.
Thanks thanks, Alex boxing.
Thank you. The next question is coming.
From zane Ka.
From D a Davidson.
Plain your line of life.
Hey good morning gentlemen, and congratulations on the strong results.
Good morning, Thank you.
So either. Understand that the outlook implies low to mid- 40 margins, but what would cause the gross margin to fall below your 40% target at this point?
I think the main variable thinging is the mix of the business. As we have discussed in the past, the more that we penetrate the residential segment, the more accretive to margins that is, given the fact that we don't perform installation services on that segment. So I would say that that the the main variable that we potentially shift anything or the derail what we are projecting. To the contrary, if we outperform revenue, we do expect to get operating leverage on the business. So I would say at the end of the day, that would be the main to considerations: whether we're able to hit our revenue target, which we're very confident on, and what kind of mix of business we end up with.
ok Thank you for that and.
On the flip side, your backlog has been heavily folks in the Southeast. Are you seeing more markets open up outside of this core territory?
Yes Yeah, we are Yeah, we're penetrating the Northeast.
Very ationally.
And UH, we plan to expand the.
A resilial to all the Northeast.
We're finishing the design of.
Whole new line of women.
That we with different requirements.
ferbally.
And we plan to expand to the West.
Slowly but surely.
Don't know, want to grow too much, too soon.
But you want to be too slow either. So we, we're doing no job, we're doing good.
Thank you for that and last one for me. yesysit's done a really good job managing cost volatility, but what are you seeing in terms of the availability of materials such as aluminum, and has that become more ching?
No we think that we are vertically integrated and we have very good suppliers. We have a veryarious stable situation right now. We have a lot of movement between February and and June , but July was very MO and it looks is looking better for the rest of the year from now. So we are getting the company ready to sell. aone hundred million dollars can a lot of win next year.
Well that's great. Thank you, guys. So much for the time.
horizing. Do soon TA.
Thank you. The next question is coming from who you amero from cido.
Do you, your line is life.
Hey good morning guys to take the questions.
Hold you.
oky. So just staying on the residential side, you know your growth runway- a new residential- given how small those sales dollars are, I mean your growth run way of like gaining share with the home builders and you know increasing that that shouldn't really change much with rising rates. I mean I would think you're a little bit more immune to the market relative.
To others. Is that kind of a fair characterization?
I believe I agree with you.
Like UH sjoi was saving the presentation.
We are more the R on our place, that model.
thebubble.
I I mean I see a strong growth, especially in Florida.
Because the governor gave an excription to the pack.
The 7% tax for the next two years.
A lot of people are jumping into the change. The windows and.
I mean we've seen no recessions so far.
Yes it's important to highlight wholiyear, that I think sometimes people get the wrong impression that we're heavily tied to new home construction and that's not the case. That's why we wanted to highlight the percentage of rnr business, as was they mentioned, which is obviously not as closely correlated to higher mortgage rates.
Yeah and absolutelyum.
But one key driver I mean, other than the market, is just like your lead times right relative to your competition. How are those trending these days, both on an absolute basis and maybe relative to others?
Well mainly the minority of the business that we are doing- we are able to deliver within seven to a weeks maximum.
Does 90 90, five percent of what we do on the commercial side. We get a the plan to deliver ahead of time So we can plan for delivers are mainly on time, Thank got. We are outperforming growing production. These montht of hourgust we start to new lines of windows and we plan to keep growing all year and all 2000 and twentthousand three and 2000 and twenty four.
ok great and then last one for me is just.
A little more broader question, but we're about a month and a half post columbian presidential election. Any change to the operating environment at all or any change you expect going forward for you guys?
Oh we, we know W where those are, roogressp.
We don't expect much to change. A new personcent have said that he is looking to keep companies very profitablethe world that we are- the heart of the economy, you know- is politics and we tryed to stay away from it. But we are not worry about the political situation in Colombia as of today. So we see it good future ahead. That is why we keep expanding. That is why we spanding CapEx this year, because we want to make sure that with with the pavement, we get ready for the thirventy percent increase that we plan or that we want to grow next year. Obviously too early to say how much we grow next year, but we will have the capacity install So we get to grow thiry percent. We can deliver the prograch of time just to the UE. From a macro perspective, a couple of things under this new presidential regime. Number 1: the fiscal reform that they are intending to pass is actually going to increase taxes at the personal level, but they'are talking about actually reducing taxation for corporates. So that is at a net positive. We will see what comes out of that. In number 2: see the new regime. What announced the peso has actually the evalueuight about 5% which, on a net basis is, given our cost structure, that is a net positive for the company.
So we have not seen any potential impacts- negative impacts as a result of the new administration.
ok Thanks very much, I'll pass it on.
Thank you once again. Ladies and gentlemen, to remind you, you can enter the Q and a Q by pressing a star one on your telephone key pad at any time.
The next question is coming from.
Chan from bared to Joshua line of life.
Hi good morning. congression the good quarter.
Morning job. Good morning, I guess. Maybe Turning to the nonresidential business, which also had a very good results this quarter, I guess are you seeing that the projects in the pipeline startar, could come through post post COVID-19 and then could you talk about what you see in terms of project timing on the nonred side over the next couple of quarters?
Well I wish he is a very strong growth.
In commercial projects.
Miami is booming every. I mean there is a longer companies.
Moving to Miami. That UH requires a lot of Officer space. It requires a lot of apartments for the people who move here to work here.
And.
The springth of the market is there.
Where the projects are not be delayed on. The countrytr cells are strong for them. We talk to them all the time. On to the developers.
And we're very excited and happy. We have a huge backlock.
Growing and growing by the day because of new closes.
That's great to hear. And then yes, on the backlog point, I know that your backlog continues to grow. Could you talk about kind of the activity that happens before the backlog, how quoting activity, how the initial indication of interest as we think about kind of the macro environment?
Well we we have. We had to hire a few more people in the quality department because we are overwhelmed with quotes.
And not only in Southeast fya, I mean everywhere. I mean tappa is going to be doubleed the size in the next five years- and also in the Northeast, in the Massachusetts. I mean most of them particularly.
New York. New York is going back as frunk.
Who.
We don't see any sdown. I mean I I believe this time there's going to be a soft landamp into the economy, which is necessary because of the high inflation.
Which is pressureuring in the middle class.
But UH, it's not going to be like the last time, because the last time the fundamentals F, I mean.
All the mortgages were for were flock. This time is just too much more in the market and with the higher range UH, things are coming down to what they should be.
Noa.
Thank you very much and good luck on the second half.
Thanks dockun.
Thank you, and that's all the questions we had in Q at this time. I would now like to hand the call back to Jose Manuel for closing remarks.
Okay thanks everyone for being on the call. Uh, we keep working hard to.
Please are.
Sir holders, and to keep the good news coming. Thank you.
Thank you, Ladies and gentlemen. This does conclude today's conference.
You may disconnect your lines at this time. And how a wonderful day.
Thank you for your participation.