Tecnoglass Inc. Q1 2023 Earnings Call
Hello, and welcome to the Texas Last Inc. First quarter 'twenty 'twenty earnings Conference call, all participants will be in listen only mode.
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Please note today's event is being recorded and now let's turn the conference over to Brad Cray Investor Relations. Please go ahead Sir.
Thank you for joining us for the first quarter 2023 conference call a copy of the slide presentation to accompany this call may be obtained on the investors section of the technical glass website.
Our speakers for today's call are Chief Executive Officer, Jose Manuel bias.
Operating officer, Chris bias.
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, including statements regarding future financial performance future growth and future acquisitions. These statements are based on <unk> current.
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 in economic business competitive <unk> regulatory factors and other risks and uncertainties affecting the operation of taking lessons business.
These risks uncertainties and contingencies are indicated from time to time and technical Watson 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 and financial results in any particular period may not be indicative of future results, taking a 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.
Changes in assumptions or otherwise.
I'll now turn the call over to Jose Manuel beginning on slide number four.
Thank you Brett and thank you everyone for participating on today's call.
We are very pleased to serve pardon me burgers were on solid footing with very strong year over year growth.
First quarter results, even though there are a few operating metrics.
This includes record revenues gross pro fruits Joe.
Free cash flow a bug globe amongst several older merger.
Okay.
Our.
Growth was driven by a full true.
<unk> competitive advantages.
Hello <unk>.
Sure.
Martha.
Our bone 'cause your food to improve our operations through a severe but who knows maybe we should go bust.
Further boost to our bottom line.
These are structural improvements to our vertically integrated platform. However, the ability to support our ongoing growth was hardly a broader market and broader broader gulfport.
Real delivery high quality reserves.
The store goes to work with lead times, well below industry average.
Oh, there's no blood.
Bolster our ability to meet the higher levels of demand for not only our legacy products.
But also for newer pros time for all of the geographies and segments.
Multi mugs.
Recently design there are still a problem.
Both our commercial and Windows I believe if you raise your business, we were still experiencing rapid growth and.
Demand for our products.
But particularly in the southeast U S.
Where we enjoy the benefit the secular tailwind.
Furthermore, our strong momentum in our single family residential business.
Which has a shorter cycle.
So along with our improved working capital management collectively helped drive our 13th consecutive quarter of exceptional cash flow.
Yeah.
Our ability to generate cash.
Turning to the financials looks really good.
So we get up to higher levels of demand and reinvest in the business.
Through ongoing operational capacity.
Right.
We are on track to affirm the installed production capacity.
It could be equivalent to roughly.
Familiar what level of sales.
We ended the second quarter this year.
Our track record of delivering strong financial results. Both for goes is struggling with.
We're committed to consistent performance.
Operational excellence.
It doesn't value through product innovation by Liberals and are vertically integrated platform.
As a result, we continue to enjoy a healthy competitive advantage, which contributes a merger surgeries.
So those are trends so far this year.
The opportunities we see ahead.
We are pleased to increase our full year revenue and adjusted EBITDA growth.
We were very pleased with our team's dedication to driving exceptional results.
To deliver another year of record performance.
We look forward to maintaining our position as a leader.
Architectural glass.
We believe at Accenture, both bugs or growth.
I really do and value to our shareholders.
I will now turn the call over to Chris to provide additional details on the reticle Butler.
Thank you Jose Manuel.
Moving to our backlog on slide five we are thrilled to report.
Strong start to the year for technologically we have solid momentum in our business even into the second quarter reflected by record in Boise months in March and April .
Our strong performance in these challenging microeconomic environment demonstrate the resilience of our business model.
Our sales reflect the continued strong momentum in commercial demand and market share gains in single family residential.
We are delivering exceptional service innovative product offerings and shorter lead times.
Our track record of successfully delivering on high profile projects and maintain consistent lead times has earned us an increasing number of opportunities.
The U S.
These along with our showroom is fine.
I went out to further penetrate attractive geographies.
Strong demand for our multifamily residential and commercial program has resulted in accelerating backlog growth, which climbed to a record 776 million at the end of the first quarter.
Beyond our backlog or the pipeline of project continues to be strong providing visibility well into 'twenty 'twenty, four and they're starting to willing to 'twenty to 'twenty five.
Supporting the positive momentum in commercial we are pleased to see the Abi index return to expansion I readings in March I said.
A reminder, approximately two thirds of our backlog is mainly composed of medium and high rise residential buildings, which are currently outperforming most of other commercial sectors.
And last one Sir is related to a wide variety of commercial projects where demand remains firm.
And finally origination growth trajectory is not fully captured in our backlog given the shorter term spot duration of projects.
Kevin.
There are important factors driving our consistent ability to produce exceptional results our strong customer relationships.
<unk> partnerships and new product innovations.
We were thrilled to announce our partnership with storm shield Windows and doors during the first quarter to develop a new protocol storm AMR that target ski geographies, we operate in where severe weather conditions, such as hurricanes torrential rains and high winds are permanent.
Product launches such as storm armor, and our existing multi mic product line should help us generate additional organic growth as we expand our addressable market through new and unique solutions.
We were also excited to recently announce our strategic.
Partnership with Wells Fargo, who will offer a variety of very competitive and affordable financing options to our customers.
Partnerships such as these highlight our dedication to providing value added solutions for our customers. In addition to participating in ongoing industry innovation.
I will now turn the call over to Santiago to discuss our operations financial results and improved outlook for 2023.
Thank you Christian turning to slide number six.
Our exceptional performance in the first quarter reflects the ongoing strength and resilience of our business model.
We had a very strong year over year organic growth in both our commercial and single family residential business.
We're executing on our growth strategy to capture demand for innovative products and remained better positioned than ever to take advantage of the tailwind for same unreal unchristian highlight.
Given the unique benefits provided by our very clean the greatest platform and deepening customer relationships across our increasingly diversified footprint.
Single family residential revenues grew organically, 40% year over year in the first quarter now.
Now representing 43% of our U S revenue.
Our continued growth in single family is a direct result of our ability to deliver superior quality architectural glass products, which my shorter lead times at an attractive value.
It is also important to reiterate.
Is that approximately two thirds of our single family residential revenues are tied to repair and remodeling demand.
Which has remained relatively resilient.
Our markets for our products and has historically low correlation with interest and mortgage rate fluctuations.
As we look ahead.
We see additional market share upside to single family rental revenues through our expanding dealer base geographic expansion within the southeast and South Central U S. The introduction of innovative new products such as those Christian just discussed and the opening of new showrooms in key geographies.
Okay.
Additionally, we continued to see favorable demographic trends of population migration into the southern U S, where we have significant exposure.
Now on slide number seven I would like to reiterate the important differentiating aspects driving our industry leadership and outperformance.
Our very clean integrated business model and strategically located operations are supporting our success in the ongoing tight supplies and dynamic cost environment.
More specifically the differentiating factors benefiting our businesses are.
Number one.
Previously implemented and ongoing high return investments in plant automation and capacity upgrades.
Number two.
Utilizing our cost through hedging on aluminum inputs and dependable supplier of raw glass through our joint venture with Sangamo.
Number three our people.
People focused culture to retain quality talent and achieve low turnover as an employer of choice that pays well above minimum wage.
Number four keeping transportation costs under 5% of revenues and number five a sustainable energy model, including solar power and cogeneration of power through onsite natural gas.
Turning to the drivers of revenue on slide nine.
Total revenues increased 56% year over year to $202 6 million for the first quarter.
This increase was driven by a significant growth in our multifamily and commercial activity as well as a strong increase in single family residential activity. In addition to market share gains.
Of note both.
Single family residential and multifamily and commercial revenues are benefiting from the positive demographic trends in our main market that I touched on earlier.
Looking at the drivers of adjusted EBITDA on Slide number 10.
Adjusted EBITDA for the first quarter of 2023, nearly doubled to a first quarter record of $85 8 million.
Adjusted EBITDA margin of 42, 4% increased 860 basis points compared to the first quarter of 2022.
First quarter gross profit increased 78, 6% to 107 8 million.
Presenting a record 53, 2% gross margin.
These compared to gross profit of $60 3 million, representing a 44, 8% gross margin in the prior year quarter.
Our significant improvement in margin, mainly reflected operating leverage on higher sales favorable pricing dynamics and greater operating efficiencies, partly due to prior automation initiatives.
SG&A was $34 1 million compared to $26 4 million in the prior year quarter.
With the majority of the increase.
<unk> two higher shipping and commission expenses as a result of higher sales volume.
As well as a higher provision for bad debt expenses, and incremental marketing and administrative costs associated with the expansion of our new showrooms.
As a percentage of total revenue SG&A for the first quarter improved 280 basis points to 16, 8%.
Now looking at our improved balance sheet and leverage on slide 11.
In the first quarter, we built on our solid track record of cash flow generation with operating cash flow of $43 1 million.
This has left us with significant financial flexibility to drive additional value in our business, giving us the ability to reinvest in growth capex into our operations in anticipation of higher levels of demand in the future.
At quarter end, our leverage ratio once again improved to a new record low of 0.1 times net debt to LTM adjusted EBITDA.
Down from 0.6 times in the prior year quarter.
So March 31.
We had a cash balance of $128 5 million and availability under our committed revolving credit facilities of $170 million.
Faulting and total liquidity of approximately 300 million.
Turning to our structurally improve margins and cash generation on slide number 12.
The significant improvements in our gross margin are mainly attributable to the themes that we highlighted in recent calls.
Namely this.
Structural and sustainable operational improvements related to automation initiatives and our shift in business strategy to further penetrate into the more profitable single family residential end market, where we do not carry out lower margin installation work.
Additionally, our operating leverage on higher revenues has more than offset depreciation labor and other indirect manufacturing cost.
Further bolstering our profitability.
Taking these factors into account, we now expect our gross margin to normalize in the 50% range for the full year 2023 based on our current expected mix of commercial versus residential roofing.
Our impressive cash generation has benefited from our careful working capital management reduced interest expense and a more favorable mix of revenues, providing us with financial flexibility to drive additional shareholder value through the 20% increase to our dividend in March as well.
Well as the funding of our investments to increase production capacity by over 35% by the end of the second quarter of 2023.
Which are being financed entirely by our operating cash flow generation.
Well, we continue to anticipate strong cash flow for the full year 2023 cash flow from operations is expected to trend down in the second and third quarters of 2023, given the timing of 2022 income tax payments in the U S and Colombia.
Now on slide 13.
I would like to highlight our strong returns.
Seems to becoming a public company.
No glass has been focused on making accretive investments with a returns oriented mindset.
This is evident in the value we have created for our shareholders through our return on equity.
And return on invested capital.
As evidenced by the charts on this slide.
The stronger profitability and meaningful step up in cash flow has driven significant average returns over the past three years.
And when comparing our ROE.
And ROIC metrics to those U S building product peers their returns of our investments into our business and driven substantially higher value to our shareholders further validating our strategic approach to driving returns.
As you can see on slide 15.
Upward trajectory of our revenue and adjusted EBITDA remains positive.
And there is a lot of runway for growth with the additional capacity slated to come online by the end of the second quarter.
We are as confident as ever in our ability to achieve many years of exceptional growth.
Now moving to our outlook on slide 16.
Based on our strong results in the first quarter and positive momentum into the second quarter, including record invoicing month in March and April we are increasing our full year 2023 outlook for revenues and adjusted EBITDA growth.
We now expect full year 2023 revenues to be in the range of $810 million to $850 million.
This outlook represents an organic growth of 16% at the midpoint.
Based on these sales outlook, our anticipated mix of revenues and our expectations for cost and expenses, we expect full year adjusted EBITDA to be in the range of 315 million to $335 million.
Representing a 23% growth at the midpoint of the range.
We expect gross margins to be in the 50% range for 2023, mainly attributable to strong operating leverage on higher sales.
Structural advantages from our vertically integrated operations and favorable pricing on revenue mix.
In closing we are very pleased with the momentum in our business.
Our high return investments very clean integrated low cost operations.
Growing portfolio of best in class products and conservative balance sheet.
Actions taken over the last well to deliver another year of above market growth in 2023.
Maintaining our industry, leading margins and superb operating cash flow generation.
With that we will.
We'll be happy to answer your questions operator, please open it up for questions.
Yes. Thank you.
This time, we will begin the question and answer session.
The last quick question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Julio Romero with Sidoti <unk> Company.
Thanks, Hey, good morning, I was I'm unaware of Christian Santiago.
I wanted to start on the on the sales growth in the first quarter, you know really solid on the commercial construction side and Christian you talked about the project pipeline and the backlog starting to go out to even 2025.
Just talk about what type of projects are driving the commercial demand maybe what geographies on the commercial side are driving the orders.
Okay.
Hi, Julio.
Yeah.
We have a lot of.
High rises.
Right.
Yeah.
Yeah, very Broward Palm Beach County also in the Tampa area there.
Yeah.
It's unbelievable the amount of people moving to Florida.
So we see a strong growth.
Yeah, that's right.
And also.
New York as.
Well so to speak at all.
Sure.
Mercedes.
And no.
Sure.
New York floor.
Sure.
So.
We believe.
24.
It'd be a stronger year.
No problem.
It goes to 25.
Okay.
Okay got it that's very helpful. And then I just wanted to turn to the cash flow in the quarter.
You know really solid cash flow for the first quarter, but you talked about cash flow trending down in the second and third quarters any sense of how much the tax payment impact should be and do you still expect positive cash flow from operations on an absolute basis.
Yes, absolutely positive cash flow from operations Julio the thing is that in both Colombia and the U S. The timing of payments our April and July .
And not so much in Q1, so there's a seasonal component to it.
But he's not going to be a dropped where we're gonna be.
Nir.
Anywhere near not generating positive cash flow I would estimate that.
<unk>, maybe 10 to.
$50 million for the quarter.
So nothing dramatic.
Got it that's really helpful and then.
This is the highest cash balance.
It might be in company history for you guys does that sway you to be more aggressive with debt reduction or maybe building out capacity a little earlier than usual.
The build out of the capacity is going to be determined by the pipeline as you just heard how sad that pipeline continues to be strong and you can see how the backlog is growing.
So throughout the year, we're certainly going to make decisions as to whether more capacities needed down the road as we have mentioned by the end of the quarter, we'd be north of 950, but the pipeline continues to grow up these pace I'm sure there's going to be more investments coming down the road.
<unk> is also an option.
Just to increase our dividend.
So we're assessing all different avenues to return capital to shareholders time to reinvest in the business to continue supporting our growth.
Okay.
That's helpful. Thanks, very much I'll pass it on.
Thanks.
Thank you and the next question comes from Brent Thielman with D. A Davidson.
Hey, Thanks, good morning, congrats on a great quarter and outlook.
Santiago I guess, just thanks for that update on the gross margin.
It's going to normalize in the 50%.
<unk> range. This year just wanted to get your thoughts on kind of the appropriate long term gross margin range for the company at least for us to think about.
I guess looking beyond this year, obviously very high level of what we're going to see here in 2023.
Yeah. Good morning, Brent then and what's going to be driving gross margins upwards.
Beyond the level that we have guided to is going to be the operating leverage we were able to gain about 300 basis points of operating leverage.
On a gross margin perspective quarter over quarter.
So that continues to be a tailwind.
Q2 gross margins some of it is coming from from pricing, but obviously, we adjusted pricing in Q2 of last year or so from a comparable basis that that will not continue to be the case going forward.
So anything above what we're doing is going to come from operating leverage and further automation.
Think we over time, we can steal game, maybe another 100 150 bps, depending on the level of operating leverage that we can get.
But we've been pleasantly surprised over the last couple of quarters, obviously more more to come but the expectation is that we'd be able to sustain.
Well, we've been doing and depending on operating leverage hopefully getting a little bit more.
Yeah.
Okay.
Helpful.
I was wondering if you could talk about a little more about the allowance Fargo partnership it seems really interesting.
Obviously early to talk about financial implications.
Maybe you could help us think about how this expands your total addressable market from where you are and its.
Previous cleanup with this opens an opportunity for you going forward.
Yeah, absolutely we were very exciting to sign that agreement with them.
Every large financial partner that has a presence.
<unk> white, which bodes very well with our expansion strategy into different markets.
And we think is certainly going to help sales over time, we have already signed.
Several dealers into the program in these early stages.
And clearly we feel that he's going to help out and clients to finance our windows are very low finance rates, even in an environment where interest rates are high.
We're being able to provide very competitive rates for foreign clients. So.
So I think over time, it's going to be.
Now quite up quite a bit of a.
Of a tailwind to two revenues once he gets going.
But as you mentioned, it's clearly in the early stages still but the early signs are encouraging.
Okay really interesting lastly, I was just looking at the map on.
Slide decks, Florida has been obviously a huge driver for your single family business.
Yes, I wanted to get your maybe an update just on your progress in Texas, which seems like it's sort of the next great opportunity for you in some of the.
You're gaining that.
Yeah.
Yeah.
Nope.
We have.
Already our partner.
Sure.
The Houston.
We're working on.
And then also.
Oh.
Antonio.
Yeah.
Will it be by the end of the year.
Sure.
Uh huh.
Oh dealer.
In fact.
We're also reward.
So I won't go through them.
And all the way up to New York.
We're very enthusiastic about.
Our newer lines going in.
Do all those things.
Yeah.
Yeah.
Okay, great. Thanks for taking the questions I'll pass it on.
Thanks, Brett.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from Alex Rygiel with B Riley.
Thank you very much not understanding that a very large portion of your residential business is in the R&R.
But looking at the other segment as it relates to penetrating into National Homebuilders can you talk about some of the successes there in directionally.
How how that has grown over the last couple of quarters.
Yes, we have.
Our national builder.
Bye.
Goodbye for malls.
Right.
Very helpful.
Much better.
The performance of our Windows.
Really good point David.
Yeah.
Moodle.
That's right.
Just.
No.
So.
Well.
We are developing products to go.
Of the.
No hurricane impact Windows.
We're working on that.
We believe.
Yes.
For the company.
With the home with the homebuilder.
Just just to add to that Alex just to give you. Some perspective Q1, we were able to drive.
Multimap sales about $20 million for the quarter, which is a step up versus what we were doing and I think with the incremental capacity that we have in place and that we have increased over the last few months, that's only going to help out even more.
Because now we can allocate capacity to both their legacy products as well as the multi Max line.
That's great and then any update on the Saint Gobain glass plant.
Thanks.
Yes.
I'll, let Chris take that.
Well.
We're still waiting on the Tango mine too.
To make a decision when to start building you have to remember that the.
We have only 20 some percent of the.
The company.
They have gone to the us.
Because we haven't.
In writing we have a contract with them.
The place is not built by next year we.
Good prices.
If we if the plant was already built next door. So.
So.
We're not really in a hurry to see a big deal.
<unk>.
Obviously, it will be a lot better to have it closer to our plan.
The entire okay like they are today.
That's great. Thank you very much nice quarter.
Thanks, Alex Thank you.
Thank you and the next question comes from Tim <unk> with Baird.
Hey, guys good network.
Good morning, Tim maybe just maybe just.
A modeling question.
If I.
I take your adjusted EBITDA number for the first quarter and just kind of annualize it.
To get to a number that kind of above your guidance I'm, just trying to kind of understand what the puts and takes that might be.
So if you take the same kind of EBITDA that we didn't in Q1 throughout the year you get to the higher end of the guidance.
The big issue is what happens.
Kind of like the single family orders in the second half of the year, because we already know that Q2.
Question comes as to what happens in Q3, and Q4, but what we're baking in east.
It's essentially just kind of stable.
EBITDA for Q2 on Q3 against Q1, and then a seasonal step down in Q4, and that's how you get to about 335.
Okay perfect.
And then just from a capacity perspective.
The revenue trend.
Similarly to what the EBITDA is trending.
What is the capacity will be there to even increase ourselves above 950 million, if we need to but it all depends on how much.
We can sell.
And my brother and hear what I'm, saying is saying that he is going to sell all of it so.
We will fill capacity again.
From a modeling perspective team again, Q2, and Q3, where our base case is that there is a step up from Q1 and in revenues and top line.
And then a seasonal step down in Q4, but again.
He is risky outperforms our base case.
And there's definitely upside on both metrics top line and adjusted EBITDA.
And the resi base cases, it's flat for the year.
Flat versus Q1.
Oh, Yeah, I guess preferences Q1, what is the base case for the rest of this year.
No. It is higher than Q1 remember that in Q1.
Where their scheduled maintenance and pretty much shut down right. So there is there's a step up in the base case in Q2, and Q3 and again.
Trending down seasonally in Q4.
Okay, Okay, well keep up that can work that's thank you. Thanks.
Thanks, Tim.
Thank you.
Everyone today's call.
We'll keep working hard to give you good news to all of our shareholders.
Sure.
Thank you.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.