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Greetings. And welcome to Tecnoglass, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]
As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rodny Nacier, Investor Relations. Thank you. You may begin.
Thank you for joining us for Tecnoglass’ fourth quarter and full year 2020 conference call. A copy of the slide presentation to accompany this call may be obtained on the Investors 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 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 Tecnoglass’ business.
These risks, uncertainties, and contingencies are indicated from time-to-time in Tecnoglass’s filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks.
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 José Manuel beginning on slide number four.
Thank you, Rodny, and thank you everyone for participating on today’s call. 2020 was a milestone year for Tecnoglass on many different fronts. On the operational side, during 2020, we further advanced our leadership position in the architectural glass industry to produce results at record level across many metrics.
In early 2020, we announced that we had completed the implementation of several important high return investments in automation and capacity to further strengthen our vertically-integrated operations. These enhancements allowed us to produce record full year operating cash flow, in addition to record gross profit and adjusted EBITDA, both on dollar basis and as a percentage of sales.
Building on the momentum from our structural enhancements, we navigated successfully through pandemic-related challenges to source and win new businesses, which allowed us to end the year with a backlog up a slightly on a year-over-year basis to a comfortable position of $545 million. These exceptional results reflect the resilience and dedication of our team.
We ended the year on a positive note as we capitalized on the strong residential macro tailwinds and recovering commercial end market conditions to achieve our second straight quarter of growth in the U.S. geographic diversification is an important part of our strategy. And we continue to expand and diversify operations within attractive U.S. markets as we aim to capture additional market share, mainly in the rapidly growing southeast region.
As a result of our focus on maximizing our potential in the U.S., the country now represents 91% of full year 2020 revenues, compared to 85% in 2019. Most importantly, our focus on single-family residential end markets has been and will remain a significant driver of growth. At the end of 2020, single-family represented nearly 21% of our sales, compared to 18% in 2019 and only 3% just four years ago when we entered that business in 2017.
Our recently introduced product line called Multimax, includes models of production to homebuilders, which has opened additional growth channels with those untapped large customer.
During the year, we also made significant progress by enhancing our capital structure to create additional value for our shareholders. Starting in the first quarter of 2020, we amended and simplified our dividend to a purely cash-only payment and eliminated the option to receive dividends in stock.
Furthermore, our success with managing our working capital is translating into a step change in cash generation, with our operating cash flow representing over 70% of adjusted EBITDA in 2020. Our outstanding cash flow allows us to improve our leverage profile to a very conservative 1.6 times at December 31st, a level not seen since 2016.
In November, our cash generation and record of success as a U.S. focused company was validated by an extremely favorable recapitalization of our debt. This was funded by a consortium of mostly U.S. and European-based lenders on terms that very comparable to or better than many publicly-traded U.S. companies of similar size.
In further commitment to U.S. shareholder base, we recently completed our plan delisting from the Colombian Stock Exchange. Tecnoglass shares are now exclusively listed on NASDAQ, which we believe better aligns with our evolution as a U.S. focused company. We remain committed to returning a portion of capital to shareholders, while delivering a strong return on our accretive investment to drive improved profitability and cash flow.
In summary, I am extremely encouraged by our performance during 2020. We were thrilled to exit the year with a much stronger and leaner company, underpinned by a significantly improved capital position to further extend our leadership position in the industry.
We will continue to leverage Technoglass’ structure competitive advantages to maintain industry leading margin, while capturing initial market share in the U.S. We are well-situated to achieve another year of a stellar financial performance and returns for our shareholders in 2021.
I will now turn the call over to Chris to provide additional details on our backlog.
Thank you, José Manuel. Moving to our backlog on slide five. Fourth quarter results were encouraging and we were pleased to return to growth in total revenues to close out on this extraordinary year. The resiliency of our business is evident in our backlog, which rose approximately 2% sequentially to $545 million or 1.5 times our LTM revenue with a good mix of project wins in some of our key U.S. markets.
The overall growth in our building environment was strong throughout the fourth quarter and remained very active as we move into the New Year. We ended the quarter with a solid multi-year project pipeline and we are actively pursuing new projects and partnerships to advance our growth in the U.S.
The most recent data from Ivy’s war indicates that the glass and glazing contractors industry is expected to rebound at an annualized rate of 4% to 5% over the next five years to 2025 led by residential.
ABI projects inquirers a new design contracts have continued to recover since the bottom in April and the persistent trend in most of our sectors and regions give us the confidence that we are in the right markets with the right products at the right time.
Based on both our new and longstanding partnerships in all the product lines, structural competitive advantages and attractive geographic focus, we believe we can grow above the market in the coming quarters.
As we mentioned last quarter, our backlog includes all product types and is approximately one-third non-residential, while roughly two-thirds is related to medium and high-rise multifamily projects, as well as single-family in production.
However, single-family is underrepresented in our backlog due to the short-term nature of the orders and these will continue to influence the relationship between backlog and forward revenue as we further increase the mix of our revenue towards single-family housing related projects.
Looking to 2021, we are most excited about the significant opportunities we have to further penetrate the single-family residential market where we see the most attractive growth opportunities in the near-term.
Turning to an overview of this business on slide six. Single-family macroeconomic tailwinds continue to support robust end market demand in the U.S. housing starts. Existing home sales, low supplies, the urbanization trends and low interest rates are providing us with opportunities to continue expanding our addressable markets.
Our rapid expansion into single-family residential continue into the fourth quarter with revenues expanding more than 50% year-over-year in the quarter and representing nearly 21% of our full year 2020 U.S. revenues, compared to 18% in 2019.
We have worked hard to expand the reach of our single-family products beyond South Florida and to other markets in Central Florida and the Florida Panhandle. As a result, we are experienced single-family revenue growth of 17% sequentially since quarter three in 2020.
As we deepen our presence in single-family, we are focused on penetrating the Southeast U.S. These includes, planned efforts to expand our networks of dealers to broaden the reach of our Prestige and Elite product lines in addition to our top tier Multimax product line, which is mainly targeted to -- for large scale production builders and lower impact-resistant threshold. In fact, within the year we expect to widen our dealer network for Multimax into attractive areas of Georgia, Louisiana, Texas and South Carolina.
As a reminder, our increasing facility product mix provides us with greater manufacturing revenue, which positively impacts our margins. This business also strengthens our cash flow, given our single family projects, carrier shorter, cash cycle and no retainage.
Overall, our strong single-family performance in 2020 was augmented by winning new customers, creating new partnership, entering new markets and maintaining our commitment to innovation. We are dedicated to excellence and are excited to drive further improvement across our business in the coming quarters.
I will now turn the call over to Santiago to discuss our financial results and outlook.
Thank you, Christian. During 2020, we reaped significant benefits from high return investments in our facilities, leveraged our remarkable cash flow through strengthening our capital structure, expanded our business into new geographies and captured additional market share in the U.S.
Our 2020 results reflect these collective efforts and allowed us to drive record gross profit and adjusted EBITDA on both a dollar basis and as a percentage of sales, all while retaining our entire workforce throughout the COVID-19 pandemic. Our achievements to-date underscore the resilience of our company and our people.
Turning to the drivers of revenue on slide number eight. In the fourth quarter, outperformance in the U.S. drove growth in that market for the second straight quarter, leading to a return to growth in total revenues for the quarter.
Our strong performance in the U.S. has been the primary driver of our results and helped to offset delayed activity at many customer job sites in Colombia and other Latin American markets in the onset of the pandemic.
Our Latin American markets remain in the early stages of recovery. However, we were encouraged to see Colombia sales up 80% sequentially since the third quarter of 2020. The U.S. continued to mark an increase in mix of our business in 2020, representing approximately 91% of our total full year revenues, compared to 85% in 2019.
Growth in our single-family residential business was approximately 8% for the full year 2020 by ramped-up significantly toward the end of the year with fourth quarter-over-quarter growth of more than 50%. While growth in the single-family residential segment continues to outpace the rest of our business, we were pleased to see recovering conditions continue in all of our end markets we serve.
Looking at the drivers of adjusted EBITDA on slide number nine. Adjusted EBITDA for the fourth quarter 2020 increased 19.3% to $25.7 million, representing an adjusted EBITDA margin of 25.1%. Adjusted EBITDA for the full year increased 6% year-over-year to a record $97.8 million, representing a margin of 26.1%.
Fourth quarter gross profit increased 25.8% to $36.9 million, representing a 36.1% gross margin. This compared to gross profit of $29.3 million in the prior year quarter, representing a gross margin of 28.9.
The prior-year quarter had an unusual high mix of installation revenue. The impressive 710 basis points improvement in margins was primarily due to a higher mix of revenue from manufacturing versus installation activity, as well as better raw material costs and operating efficiencies from our higher return automation enhancements.
This strong fourth quarter performance capped off a year of record full year gross profit, including a 560 basis point margin expansion to a new record full year gross margin of 37.1%.
Higher operating expenses for the quarter mainly reflected higher variable expenses related to shipping, as well as COVID-19 related expenses. For the full year 2020, operating expenses improved by $3.9 million year-over-year on reduced variable expenses as a result of our efforts to enhance our lean administrative structure and tight cost controls, along with favorable exchange rates. As a percentage of revenue, operating expenses were higher compared to 2019, primarily due to lower revenues and COVID-19 related expenses for most of the year.
Overall, our highly efficient manufacturing capacity continues to generate strong returns and profitability. We remain confident in our ability to sustain our industry leading margins and we believe we can source additional pathways to improve efficiencies and reduce our cost base in 2021.
Looking at our improved balance sheet and leverage profile on slide number 10. During 2020, we generated record operating cash flow, which improved by $45.8 million year-over-year to $71.4 million, helped by higher profitability and strong working capital management. These represented over 70% of our 2020 adjusted EBITDA, an encouraging accomplishments. With our higher return investments nearly completed by the second quarter of the year, 2020 CapEx of $18.3 million was associated with the completion of these initiatives and with maintenance related CapEx.
Taking into account CapEx, we achieved a record full year free cash flow of $53.1 million. As a result of our exceptional cash flows, we were able to improve our liquidity position significantly to end the year with a cash balance of approximately $70 million and a conservative leverage profile of 1.6 times net debt to adjusted EBITDA, down from 2.3 times in 2019. This balance sheet strength supports our ability to execute on future growth initiatives along with our direct returns to shareholders through our dividend payout.
In addition, last quarter, we announced a new $300 million senior secured credit facility. This facility consists of $250 million term loan and a $50 million committed revolving credit facility with an extended maturity date by three years to 2025.
The new facility comprises an initial interest rate of LIBOR plus a spread of 3%, which will decrease to a level of 250 beginning in April of 2021, based on our conservative net leverage at year end. This will represent an over 400 basis point reduction from our weighted average interest rate of 7.4% previously.
As expected, after the step down in redemption price in late January, we paid down our existing $210 million of senior notes, which had an interest of 8.2%. This will significantly reduce our amortization schedule and cash interest expense.
We estimate aggregate savings will be approximately $11 million annually. The recapitalization of our debt structure will significantly enhance our financial flexibility to execute on our growth objectives as we move forward.
To that point, recent conversations with Saint Gobain have been very encouraging as far as the advancement of the new construction of the new float glass plant. The current existing operation is at capacity and demand for the new capacity looks strong. We will provide more color as we move along into the year.
Moving to our outlook on slide number 12. Based on our positive momentum to close out 2020 and a solid start in the first quarter of 2021 based on strong orders and invoicing year-to-date, we look forward to achieving solid growth for the full year.
We are pleased to provide a full year 2021 revenue outlook of $400 million to $415 million, representing growth of 8% at the midpoint. We expect higher year-over-year growth in the first half of the 2021 based on anticipated timing of invoicing in 2021 compared to 2020, as well as having a full schedule of operation without any COVID-19-related constraints as we had in March and April of 2020. In addition, we expect to have a higher mix of product versus installation revenue.
Furthermore, we continue to expect the U.S. to represent the significant majority of our growth led by single-family residential with stronger demand in the U.S. expected to offset the slower recovery in our Latin American markets.
Based on these sales outlook and anticipated mix of revenues, we expect full year adjusted EBITDA to be in the range of $100 million to $110 million, representing almost 7.5% growth at the midpoint of the range.
Gross margins will continue to benefit from our previously completed high return CapEx investments in automation initiatives. However, to reiterate an important point we mentioned last quarter, as our markets and raw material cost stabilize over the next several quarters, we expect gross margin to trend back towards our previously communicated mid-30s range.
We expect CapEx in 2021 to approximate $10 million to $15 million primarily related to maintenance projects and some incremental automation in new processes within the factory which should be completed by the end of the year.
With the strength of our balance sheet and financial flexibility to execute on new opportunities, we are confident in our ability to achieve our growth objectives, while maintaining our industry leading margins.
As we move into 2021, we remain focused on maintaining our strong track record of cash flow generation, while expanding our addressable market in single-family housing and continuing to execute on our attractive backlog of multifamily and commercial projects in the U.S.
With that, we will be happy to answer your questions. Operator, please open the line for questions.
Thank you. [Operator Instructions] Our first question comes from the line of Tim Wojs with Robert W. Baird. Please proceed with your question.
Hey. Good morning, guys. Nice close to the year and good to hear things are off to a good start in 2021.
Good morning, Tim.
Hey. Maybe just a big picture question and I am not sure how you could -- how to answer this. But is there any way to kind of frame new orders and kind of backlog? How much of it is coming from newer customers versus really leveraging existing or older customers? And really what I am trying to get at is, are you seeing accelerating traction in the U.S. with newer contracted customers, not just in residential but also in the non-res business?
Yes. This is José. Let me tell you this. We are penetrating a lot in the Northeast. I mean, our backlog in the Northeast is the highest we ever seen. In Florida, it’s been softer in the high-rise, higher in the mid-rise. And residential is not even there because residential we have a turnaround of six weeks or less, so our backlog for residential is very, very minimal in the backlog.
Okay. Okay. That’s helpful. And then, I guess, on the residential side, are you seeing an opportunity in the Southeast from a production standpoint? And really what I am asking is we have seen a lot of window companies in the U.S. that are having kind of labor challenges and their lead times are extending. I mean, are you seeing the benefits from that or are you expecting that to kind of be a nice tailwind in 2021 for resi?
Yes. Yes. We are. I mean, we are hoping to increase by 40% to 50% residential this year. It’s unbelievable the demand that we have, because everybody has a huge lead times and our lead times are shortening. I mean, we have the best of both worlds. High demand and we have local strains of labor, very cheap labor and we are improving our production capacity.
My brother has done marvelous job in automating and improving the productivity and we are even shortening our lead times. We have lead times from six weeks to 10 weeks depending on the project. Now we have all the lead times at six weeks and we are delivering in five or less.
Okay. Okay. That’s fantastic. And then, I guess, the last one I have, just on free cash flow, you had a really strong year in ‘20. I guess as we look at ‘21, what are kind of the pluses and minuses from a free cash flow perspective? And then, I guess, maybe more broadly, you have taken the leverage down, you have extended the maturities. You have made a lot of CapEx investments already in the business. So what are kind of the key, I guess, cash flow or capital priorities over the next couple of years from your perspectives?
All right, Tim. So, basically the first priority would be to reinvest in working capital. Based on our guidance, we are projecting growth as opposed to doubling contraction last year. So we are obviously going to reinvest in the business that way.
Our CapEx as you heard from the call is going to be reduced this year from what you saw in the last couple of years with a lot of the automation being completed. However, we are seeing some opportunities to further automate a portion of other processes within the factory. So cash flow is going to be benefited from having a lower CapEx this year as well.
From a capital allocation perspective, I think, it makes sense to continue paying down debt, reinvesting in the business and seeing what opportunities come about. But we are definitely expected to build on what we produce as far as cash flow in the last couple of years.
There is also going to be some tailwinds to that. Obviously, having the $11 million less in interest expenses is going to help quite a bit and also expecting higher profitability based on higher margins is going to drive incremental cash flow. So I think it’s -- we are well situated to reinvest in the business, pay down leverage and see what opportunities come about.
Okay. Okay. Great. Well, good luck on 2021 and great job on 2020, guys.
Thanks, Tim.
Thank you.
Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.
Great. Thank you. Congratulations as well on a great year. I want to talk around on single -- the single-family business. I want to get a sense how impactful Multimax has been within that more than 50% single-family growth you reported this quarter versus the legacy products you have offered in that business.
So, we are just starting to sell the Multimax. Multimax is especially for the low end of the market where we were not even there in the business. And we started to see a lot of demand for that product, especially in tract homes where we were not.
And we hope that by June is going to pick up a lot, because those are businesses that you sell the windows and they don’t order them for three months or four months or maybe even longer, not like the usual remodel and replacement in new construction that they order immediately. So we are very, very, very excited and very positive about our residential line.
Okay. So not very impactful at all this quarter. It sounds like it’s going to ramp up here a lot in ‘21.
Yeah. Well, whole residential line is picking up a lot of steam. But what I mean is the Multimax is going to really hit the numbers after June. The order lines, for example, the first two months have been great in the residential so far and [Technical Difficulty]
And we just lost the speaker’s line. One moment. Santiago, if maybe you can take over right now. One moment.
Yes. I am here, Brent. But just to finish that was -- what José was saying, Multimax did not add a whole lot during Q4. I mean, that was just getting started. So what you saw as a pickup was from Elite and Prestige. So it was the legacy business. Hello?
[Operator Instructions] Our next question comes from the line of Mike Shlisky with Colliers Securities. Please proceed with your question.
Hey. Good morning. Can you hear me okay? Is just Santiago or…
Yeah. I can hear you perfectly, Mike. Yeah. How are you?
I am great. How are you?
I am doing well. Thanks.
Good. I guess, I wanted to ask, you have always talked in the past about how the company has some great advantages in shipping, shipping cost, shipping container availability. We have been hearing some headlines about how in some parts of the world that’s been a little bit tougher to find some containers recently and some book capacity. Is that’s an issue for you guys at all and is that something that could happen going forward or do you feel pretty good about the Colombia-U.S. alliance right now?
No. We are actually -- one of the great advantages of being fully vertically integrated is that we are not kind of reliant on an extended supply chain from many other places, right? I mean we source most of what we need internally. We are not relying on anybody to significantly contribute to our supply chain.
So from that perspective that has not been the case. And furthermore, as you know, we have quite a bit of a trade imbalance with most containers coming in from value-added imported goods from the U.S. come back pretty much empty, right? So there’s still a lot of supply of container shipping back into the U.S. So, no, short answer to your question is, no. We have not been impacted by shortage of transportation.
Can I ask a question that’s kind of similar on the cost of aluminum from some of your extrusions. Any changes to the raw materials there we should be looking at then in next couple of quarters.
Well, this is Christian, we are -- we fix the price for the whole year of 2021. So we have no aluminum increases for 2021 and we already bought everything that we need for 2021. So we are fine.
As a matter of fact, we were able to get magnificent prizes not only for the LME, but also there is a premium that you have to pay and we pay at the lowest premium possible. Now, they have gone up to double the premium price that we pay. So we are set up in glass and in aluminum. They -- like my brother said, the lines are steaming, producing windows and February was the best February in the history of the company.
Outstanding. If I just squeeze one more in here about and ask this question last quarter about COVID conditions within your facilities. Can you update us on whether cases are trending upwards or downwards in the Barranquilla area in your facilities themselves?
Well, today, we only have five or six active cases of COVID out 5,700 employees. We are doing really good. I mean, everything is contained. We haven’t had any hospitalizations in the last five months or six months. The numbers are dramatically down in Barranquilla where we are. So it’s looking good.
And in Colombia, in Barranquilla specifically, obviously, we have what is called the herd immunization. Already 72% of the people have antibodies. We are doing really great on that end.
Wow. That’s great to hear, guys. Thanks again and stay well.
Thanks, Mike. Talk soon.
There are no further questions in the queue. I’d like to hand the call back to José Manuel Daes for closing remarks.
Thank you, everyone, for participating on today’s call. We are going to keep having great news. Our company is aligned for better things and we are back in the queue. 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.