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Good morning, and welcome to the Tecnoglass Inc. First Quarter 2022 Earnings Conference Call. [Operator Instructions].
I would now like to turn the conference over to Brad Cray, investor relations. Please go ahead.
Thank you for joining us for Tecnoglass First Quarter 2022 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the investor's section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer, José Manuel Daes; Chief Operating Officer, Chris Daes; 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, including statements regarding future financial performance, future growth, and future acquisitions. These statements are based on Tecnoglass' 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, and/or regulatory factors, and other risks and uncertainties affecting the operation of Tecnoglass business.
These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass filings with the SCC. The information discussed during the call is presented in light of such risk. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass 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 will now turn the call over to Jose Manuel, beginning on Slide #4.
Thank you, Brad, and thank you everyone for participating on today's call. We are thrilled to continue our track record of exceptional performance into 2022 as we report yet another quarter of record results. Building from our momentum through 2021, we saw continuing strains across our business in the first quarter, resulting in record total revenues, gross profit, operating profit, adjusted EBITDA, and backlog. This outstanding accomplishment is attributable to the dedication of our team across all levels of our business. We are further solidifying our position as a leader in the architectural glass space. Sales of our cutting edge single-family residential products, which represent the 44% of our first quarter revenues continue to drive our top line growth, increasing by 155% year over year. This was driven by our ability to further expand our relationships with contractors and builders in the single family residential market. We have an incredibly strong footprint in the Southeastern U.S. where secular tailwinds remain strong.
In our multifamily and commercial business, were also extremely pleased to see very strong momentum in large project demand demonstrated by backlog growing to a record of 651 million. A record 44.8% gross margin helped drive outstanding bottom line results that continue to illustrate the success of our growth strategy as we produce record quarterly adjusted EBITDA of 45.4 million growing 75% year over year to a record margin of 33.7%. This was achieved through improved operating leverage driven by structural and sustainable improvements we have made to our vertically integrated platform, through strategic growth investments and automation as well as our higher mix of single family revenues, which carry higher margins with no installation.
With developed profitability in our business and the strong working capital management in the quarter, we were pleased to generate our ninth straight quarter of robust operating cash flow at 27 million. This allowed us to prepare an additional 50 million of debt during the quarter. We strengthen our balance sheet to achieve the lowest leverage ratio in our history of 0.6 times net debt to adjusted EBITDA. In conclusion, our strong first-quarter results provide us with confidence in our strategy. Our emphasis on vertical integration, sustainability and being an employer of choice are paying off. The resilience of our business models puts us on a path to produce another exceptional zero profitability and flow generation. In 2022, we will continue to leverage our industry leading platform to drive profitable growth and deliver exceptional value creation. I turn the call over to Chris to provide details on our record backlog?
Thank you José Manuel. Moving to our backlog on a Slide 5. As Jose mentioned, we were excited to see the additional momentum in our single family residential business as quarterly revenues again more than doubled year over here. At the same time, the ongoing momentum in our multifamily and commercial end markets is evident. Our backlog increased approximately 18% year over year to a record 651 million at quarter end. Supporting our growing backlog and expectations for commercial recovery is a March ABI index reading, which accelerated to 58. That is firmly in expansion territory and back near the index peak in May of 2021. During March, the ABI reading for both new project inquiries and design contracts expanded to 63.9 and 60.5, respectively. These positive data points, in addition to our convers customers, are fueling our production for additional projects breaking ground in 2022. It is again important to know that a large number of our new projects are located in the Southeast U.S. in which new construction is outperforming other regions.
As a reminder, our single family residential growth projections are not captured in backlog, given the shorter-term spot duration of projects. Additionally, the majority of our backlog is comprised of medium and high-rise residential projects, which are currently outperforming most other commercial sectors. The remaining portion of our backlog is related to a variety of other commercial projects, where we continue to see broad demand recovery.
Looking ahead, we are encouraged by the solid trajectory in single family architectural glass demand, in addition to our growing backlog of multifamily and commercial projects, which give us solid visibility on our multiyear project pipeline. Our unique vertical integrated model, innovative pro pipeline, and a strong geographic position have allowed us to better serve existing customers and pursue additional market share as we deepen our presence in attractive Southeast and south central U.S. markets. I will not turn the call over to Santiago, on Slide 6, to discuss the strong demand for our single family products, vertically integrated strategy, financial results, and improved outlook for the year.
Thank you, Christian. Our first quarter results reflect our strong business trajectory. Solid execution demand for our products, and broader micro dynamics continue to provide tailwinds for our business. As we've highlighted in recent quarters, we remain better positioned than ever to take advantage of these tailwinds given our vertically integrated platforms and geographic positioning, which have allowed us to deliver superior quality architectural glass products with much shorter lead times at an attractive value. These Factors truly differentiate our business in this inflationary environment.
Our ability to control cost has allowed us to compete effectively in the marketplace and deepen our existing relationships with customers. And it is for these reasons that we are consistently producing exceptional results. A key theme we've touched upon over the past few quarters is the step change in our profitability, which has been primarily driven by a rapid expansion into the highly profitable single family residential and market where demand remains robust. Single family revenues continue to be the bright spot in business, an increase over 155% year over year in the first quarter. This represented 44% of our revenues.
An important point I would like to highlight is that approximately 65% of our single-family residential revenues are tied to our R and R business, which is much more stable and comes with a much lower interest rate correlation when compared to new residential construction. We continue to see further potential for upside in single family, by expanding our dealer base farther geographical diversification into U.S. regions, and introduction of new products through our multi max line, specifically catering to our growing shipments to production home builders. All of these growth opportunities continue to be bolstered by the secular trends of the large-scale population migration into the Southern U.S. driven by COVID-related factors, more favorable tax environments, and corporate relocations.
Now on Slide 7, I would like to reiterate how our decades of investments and strategic positioning have given us a premier advantage in this supply constraint and rising cost environment. We are winning with customers because they know they can depend on us. Some of the important factors driving our strengths are number one: prior high return investments in plant automation and capacity upgrades; number two, stabilizing our costs through hedging on aluminum inputs and dependable supply of raw glass through our JV with Saint-Gobain; number three, being an employer of choice to maintain quality talent and low turnover in a labor market with ample talented supply; number four, keeping transportation costs at around 5% of revenues; and number five, 15% energy savings from green energy through our solar power and our co-generation of power through onsite natural gas emissions. As demonstrated by our of results over the past few quarters, these differentiators have provided us with structural competitive advantages and have materially increased our profitability and cash flow compared to where we were prior to the pandemic.
We see this step change in our results as structural, rather than temporary, as the investments we've made in our platform have permanently enhanced our ability to introduce new product offerings, quote more projects, deliver products on shorter lead times than the industry average, and expand our customer relationships through our enhanced delivery capabilities.
Now turning to the drivers of revenue on Slide #9. Total revenues increased 20.6% year over year to a record 134.5 million for the first quarter. This increase was driven by our strong sales to the single-family residential market in market share gains. Importantly, commercial construction saw sequential growth each month during the quarter, with this momentum expected to continue through 2022. As a reminder, we previously completed the acquisition of Ventanas Solar during the fourth quarter of 2021, a Panama domicile company that serves exclusively as an importer and distributor of Tecnoglass products in the country of Panama. After eliminating intercompany sales, Ventanas Solar contributed revenues of approximately 2.3 million to our full year revenue. Our results for 2021 have been adjusted to reflect the retroactive recasting of results in line with ASC 805-50 to account for the consolidation of acquisitions under common control.
Looking at the drivers of adjusted EBITDA on Slide 10. Adjusted EBITDA for the first quarter 2022 increased 35.1% to a quarterly record of 45.4 million, compared to 33.6 million in the prior year quarter. Adjusted EBITDA margin at a record of 33.7% increased 360 basis points compared to the first quarter 2021. First quarter gross profit grew 33.2% to 60.3 million, presenting a record 44.8% gross margin, these compared to gross profit of 45.3 million, representing a 40.6% gross margin in the prior year quarter. Our 420 basis point improvement in margin was mainly attributable to operating leverage on 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 carry out installation.
SG&A in our adjusted EBITDA bridge excludes expenses related to 2.7 million of non-recurrent costs associated with professional fees, as detailed in our press release. Higher revenues and strong margin performance more than offset a 4 million increase in SG&A, mainly attributable to incremental shipping expenses for higher sales volume and higher shipping rates.
Now looking at our improved balance sheet and leverage on Slide 11. As we discussed in previous quarters, the recent amendment of our senior secure credit facility and recap of our debt has put us on strong footing to execute on our growth objectives. In the first quarter, we continue our solid track record of cash flow generation with operating cash of 27.1 million. Importantly, our cash flow generation has allowed us to drive additional value in our business, giving us excess cash to reinvest in growth CapEx in anticipation of future demand while also prepaying 15 million of debt during the quarter.
At quarter end, our cost of debt reached its lowest interest rate here of LIBOR plus 150 under our credit agreement. As a reminder, we have no floor on LIBOR. Giving continued growth in adjusted EBITDA, our strong cash flow generation, and debt repayments, we were pleased to see our leverage ratio decrease to a very conservative 0.6 times net debt to adjusted EBITDA at quarter end, down sequentially from 0.8 times at the end of 2021. At quarter end, we had a cash balance of approximately 84 million and availability under committed revolving credit facilities of 165 million, resulting in total liquidity of approximately 250 million.
On Slide 12, we're highlighting the evolution of our gross margin improvement and cash flow generation capabilities over the last several years. The step change in our gross margins can be attributed to the structural and sustainable operational improvements related to our automation, the shift in our business strategy to penetrate the higher margin, single family residential end market, and significantly better operating leverage on the business. Given these factors, we now expect our gross margin to normalize in the low 40s range, compared to just 31.5% in the full year 2019. Our strong record of cash flow generation is a direct result of our increased profitability, better working capital management, reduced interest expenses,, and higher mix of single family revenues, which carry a shorter cash cycle profile. These factors, in addition to our working capital improvements due to their reduction in our days outstanding have structurally improved our cash flow generation capabilities.
Moving to our outlook on Slide 14, based on our positive momentum into the second quarter and 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 580 million to 605 million. This outlook represents organic growth of 19% 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 in the range of 185 million to 195 million, representing 26% growth at the midpoint of the range. As I mentioned earlier, gross margins are expected to normalize in the low 40s range, benefiting from the many structural advantages that differentiate Tecnoglass within our industry.
We are updating our expectations for CapEx in 2022 to approximate 25 to 30 million, primarily related to the tail end of our most recent automation investments, as well as other growth investments in our operations to efficiently manage increasing demand for our products. Maintenance CapEx continues to represent less than 2% of our sales. We anticipate strong cash flow for the year, which in addition to our current liquidity position provides ample flexibility to execute expected growth. In conclusion, we are firmly on track to produce another year of record results in 2022. We have structural advantages, best in class products, attractive end market exposure, and a conservative balance sheet. We are better positioned than ever to meet the strong demand for our products and provide greater returns for our shareholders through 2022 and beyond.
With that, we will be happy to answer your questions. Operator, please open the line for questions.
[Operator Instructions]. Our first question is from the line of Brent Thielman with D.A. Davidson.
Congratulations on a great quarter. Santiago, I know you indicated margins should sort of normalize from here in the low 40s range, though the first quarter for the industry is typically slower and you still put up 45-odd percent margins. So as we move forward through the rest of the year, could we see a scenario even better margins than what you saw in the first quarter, just as you push more volume and benefit from improved operating leverage.
The base case that we use, Brent, is that commercial construction continues to ramp up as we move into the year, right? And with that comes more installation. So that's what we use as the base case. While operating leverage could certainly help, our base case is basically assuming that commercial continues to grow, and installation continues to grow. So it weighs down on margins. That's why we are baking in kind low, low forties, as opposed to continue growing higher than Q1.
Okay. Fair enough. And then, I mean, a tremendous quarter again for cash flow, I mean, any reason we wouldn't see this sort of level of conversion as we move through kind of the remaining quarters of the year?
No, I don't think so. I mean, I think the variable there is working capital. Obviously, if you do the math, we're expecting higher revenues as we move into the year sequentially, right? So there's going to be a need for working capital to support that growth. But outside of that, I mean, our expectation is to continue the positive cash trend throughout the year. And obviously our profitability is much higher, interest expenses are much lower. You saw what we're expecting to do on CapEx to support this growth, but everything held equal. No, I mean, the expectation is to continue as what you've seen in the last 9 quarters.
Okay. Appreciate that. And the last one, just in the medium and high rise backlog based business, is most of the dialogue for new projects now out into 2023. Is it extending kind of beyond your core Southeast regions in terms of where those projects lie? Just what are you hearing there?
Well, this is Jose here. The backlog is growing everywhere. It's growing in the Southeast, especially. But in the Northeast, on the East coast it's moving, even in Texas and Chicago we're doing a lot of work and we're getting a lot of contracts. We're very happy with our products and the clients are loving it. And we we're closing a lot of contracts. I mean, commercial is going to keep going up and up.
Okay. Well, very good. Congrats again, I'll get back in queue.
Our next question is from the line of Tim Wojs with Baird.
Maybe just to kind tail onto the last question, just about backlog, could you just talk through specifically what drove the big uptick in backlog sequentially. I mean, is that all new orders? And I guess, when you think about how that backlog is kind shipping relative to your expectation, any kind of changes there you've seen any project delays at all? Hello?
Hello, I'm here. I'm sorry. I said, I repeat myself, I guess I was shut off. The backlog is growing, with new contracts that we're signing every day here in Florida and in the Northeast, as I said, and just in the Southeast -- I mean, let's say from the middle of Florida down, there is 120 new buildings coming up. We have a majority of those. So, we're selling now 24 -- year 24 and U even 25, because all these projects, when you sell them between the time that you do shop drawings and you design and everything, they will start maybe in 23 and they will extend at least for 2 years, 23 or 24.
Okay. Okay. And, and I guess on the U.S. residential side, I mean, you guys continue to outperform there. I mean, there's a lot of concerns circulating about rates and housing slow down. I guess, from where you are kind of sitting, I guess, what are you seeing? And if things would slow down, do you have enough share opportunity where you think Tecnoglass can be able to kind of grow through any slowdown in residential?
Well, I believe we have shown the resilience of the company and in the slowdown, we keep growing. I mean, we have kept growing in the good and in the bad. So I believe there is not going to be such a big slow down. I believe, next year what we're seeing is that the prices of commodities and the prices of everything is going to stabilize, and the world's going to start coming back to normal, and that will help a lot on the price for everything in construction. And even in a slowdown, we are growing with new customers. Our product is the star the business. And I believe maybe we cannot grow at 25 to 30%, but 10, 12, 15%%. That's not unreasonable.
Okay. Okay, good. And, and then maybe just, just on pricing, my last question -- just how has that kind of factored into your sales and margins? We've just seen a ton of pricing from your U.S. window competitors kind of go into the market. So are your sales, your prices going up as well? Maybe just not as much, or how, how do you think about the sales prices? I guess both in U.S. resi and commercial?
Well, there are different markets and different pricing. We -- I raise the prices for next week, they're going up 10 to 12% in different markets and that's residential and commercial. Since you quote, day by day, they go up, they go down, depending on the price of aluminum, availability of glass. But the trend is the prices are going up. Because of the scarcity of materials the commodities are going up, but we see that China has been exporting more lately. And we believe if it's true that the war in Ukraine is going to stop supposedly the ninth of this month, things are going to get much better, and the oil price is going to come down. And I believe the prices cannot keep going up that much because otherwise everybody's going to get hurt. Anyhow, we are doing really good. I mean, we have our vertical integration. We have much more control on the costs than the rest of our competitors. So we're very happy. We see a very bright future for the company.
Tim, one thing I would add is that also on the single family residential, a lot of our business is tied up to R and R as opposed to new home construction. And as you know, there's not as much correlation with interest rates or sensitivity to interest rates on that business. So we feel that we're -- that we are very well diversified within single family residential.
[Operator Instructions]. Our next question is from the line of Julio Romero with Sidoti & Company.
I'm sorry if I missed this in your prepared remarks, but did you talk about how much the multi max sales were in the quarter?
We, we did not. That continues to trend at about 2, 2 and a half million per month. And the thought is that with the added capacity, we can probably ramp that segment more than we have been in the past where we were more constrained than we are now.
Okay. Okay. Very good. And I guess just talk about the incremental CapEx fund. You're planning, I think 25 to 30 million. What projects that are priority this year and what kind of payback you may be expecting?
So the idea is to put in place another aluminum extruder paint line and oven. We're basically kind of reaching capacity on the aluminum front, 2 more laminating lines, 4 more window and assembly lines. There's just broad need to continue growing pretty much everywhere based on the backlog growth that you're seeing and what José just mentioned for even for next year in 23.
Very good. And I guess my last question is, you're performing very well in this environment. Just about what keeps you up at night and what, what you see as the biggest risk to your business in 2022.
Well, the biggest risk is the recession. If a recession comes to the country, everybody's going to get hurt. If the interest for mortgage go to 10% or 15%. But other than that, I believe the country is poised to keep growing. I hope the external agents are going to come down so that inflation will find settled and there won't have to be any more interest, uh, increases. And I believe that is going to happen by the beginning of this year at the latest.
And there are no further question at this moment. I'm turning the call over back to Jose, and please go ahead, go ahead with your conclusion, any concluding remarks being.
Okay. Thanks everyone for participating on today's call. The future looks very bright for the company. We hope to keep giving our shareholders and great results. Thank you.
Thank you. Ladies and gentlemen, that this conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.