Tecnoglass Inc. (NYSE:TGLS) Q4 2023 Earnings Call Transcript

Tecnoglass Inc. (NYSE:TGLS) Q4 2023 Earnings Call Transcript March 1, 2024

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Operator: Greetings. Welcome to the Tecnoglass, Inc. Fourth Quarter 2023 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] Please note, this conference is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Thank you. You may begin.

Brad Cray: Thank you for joining us for Tecnoglass’ fourth quarter and full year 2023 conference call. A copy of the slide presentation to accompany this call may be obtained in the Investors section of the Tecnoglass website. Our speakers for today’s call are Chief Executive Officer, Jose 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’ filings with the SEC. 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 Jose Manuel, beginning on Slide number 4.

Jose Manuel Daes: Thank you, Brad, and thank you, everyone for participating on today’s call. We are proud to report another outstanding year, marked by strong operational accomplishments and record financial performance across many of our key financial metrics, the relentless dedication of excellence across our businesses. Our innovation domestically integrated business model are all reflected in our solid full year results. During 2023, we produced record total revenues of $833 million, achieving a record adjusted EBITDA of $304 million and produced record gross profit of $391 million. We are pleased to accomplish these results, while maintaining a resilient industry-leading margin profile. We more than doubled our addressable market with our strategic entrance into the High End Vinyl end market.

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Q&A Session

We relocated our global headquarters to Miami, Florida, aligning with over 95% of our revenues sold from key U.S. markets. Our prudent management of working capital allowed us to generate impressive operating cash flow of $139 million for the year. At the same time, we have preserved a strong balance sheet, which provides ample flexibility for future growth and additional returns for shareholders. And finally, we completed our strategic investment to expand operational capacity by 40% to roughly $1.2 billion of revenue, including installing. We have been experiencing healthy multi-family commercial demand, so both high demand from our innovative products and increased commercial activity in our key geographies. This drove an increase in backlog to a record of $870.1 million at the year end.

We continue to gain market share in key geographies, despite a challenging macroeconomic environment. We have also taken a disciplined approach to managing costs. We are leveraging our vertical integrated structure, entire (ph) automation investments to drive operational efficiency. This focus is evident in our full year gross margin of approximately 47%. We achieved this despite the previously discussed foreign exchange headwinds in the back half of the year. Furthermore, our solid capital position has given us flexibility to invest in a structural enhancement, increase our dividend, repurchase share, and improve leverage. We are pleased to improve our net debt to adjusted EBITDA to a record low of 0.1 times as of December 31 of 2023. In summary, 2023 was another exceptional year for Tecnoglass.

We are pleased with the value we have created from our returns oriented investments, which have positioned Tecnoglass as a leading architectural glass and window player. Through our vertically integrated platform and continued geographic positioning and proven growth investments, we have established an accessorial track record of cash flow generation. This is helping us create additional value for our shareholders, as we look to 2024 and beyond. We are very confident in the strategic actions we have taken during 2023 and remain excited about the prospects of driving above-market growth through the attractive vinyl window market, strengthening customer relationships and geographic diversification. Based on our strong market growth and continued strength in pipeline activity, we are projecting another year of double-digit revenue growth.

This highlights our ability to continue taking market share even in the face of challenging macro headwinds for our industry. I will now turn the call over to Chris to provide additional operating highlights.

Chris Daes: Thank you, Jose Manuel. Moving to Slide number 5. Our fourth quarter results were in line with our expectations and reflect the resilience of our business model as we navigate a turbulent macroeconomic environment. Our results during the quarter demonstrated our ability to leverage our unique competitive advantages to preserve margin strength and generate solid cash flow. Backlog grew each quarter through the year and as of year-end, stood at a record of $870.1 million, reflecting a strong pipeline of multi-family and commercial projects. This represented roughly 1.7 times our LTM, multi-family and commercial revenue. Equally as important, the pipeline activity remains robust, and we continue to see incremental signings year-to-date.

Overall, despite the highest interest rate environment, we are levering favorable demographic trends in our markets. We are seeing solid levels of multi-family and commercial quoting and bidding, and we have a strong base of activity that gives us confidence in our ability to achieve another strong year in 2024. We will continue to focus our efforts on adding new customers, entering new markets and providing best-in-class service. While we are growing our backlog, we are being mindful to focus on projects that will allow us to sustain our industry-leading margins. We have an innovative R&D pipeline of high-performance products that should allowed us to continue growing faster than our end markets. Our pipeline includes products developed for both the new geographies we are penetrating as well as products to support our expansion into the vinyl market.

The expansion and automation investments made in recent years put us in a position to effectively execute our growth strategy with ample operational capacity and less CapEx requirements. In addition to the strong visibility afforded by our growing backlog, we are excited about the long-term growth potential of our single-family residential business. Early feedback from the sampling of our vinyl products are encouraging, giving us confidence that vinyl will provide meaningful contributions to revenue over time. Moving to Slide number 6. We expect this momentum and a strong bidding activity we are seeing will help us keep a strong book-to-bill ratio, which stood at 1.2 times as of the quarter four 2023. This adds to our track record of maintaining a book-to-bill ratio above 1.1 times over the past 12 consecutive quarters.

Historically, roughly two-thirds of our reported backlog are invoiced over the following 12 months. We believe that this provides a strong visibility on invoicing, despite the fact that certain external factors can cause temporary delays in delivery. Looking at the favorable demographic trends we see in our key regions on Slide number 7. Our key markets remained strong demographically, as sovereign states continue to experience above average population growth relative to the rest of the country. Single-family housing starts remain resilient in the South due to this robust population growth. In Florida, our largest market, single-family housing permits have shown a notable increase in the past few years, and activity in our main metropolitan areas are showing growth even against tough prior year comparisons.

All of these trends point to resilient activity in the key markets where we conduct the majority of our business. I will now turn the call over to Santiago to discuss our financial results and outlook for 2024.