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Tecnoglass Inc (TGLS) Q1 2019 Earnings Call Transcript

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Tecnoglass Inc (NASDAQ: TGLS)
Q1 2019 earnings Call
May. 9, 2019, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings. address ought Tecnoglass Inc.'s First zone 2019 earnings session Call. can this time, coarse participants are can a listen-only mode. A question-and-answer council will pursue the formal presentation. (Operator Instructions) entertain letter this session is being recorded.

I'd now convert the session above ought Rodny Nacier, Investor Relations. Thank you. You can begin.

Rodny Nacier -- Investor Relations

Thank you because joining us because Tecnoglass' First zone 2019 session Call. A model of the slip presentation ought behavior the summon can be obtained above the Investors zone of the Tecnoglass website. Our speakers because today's summon are Jose Manuel Daes, main Executive Officer; Chris Daes main Operating Officer; and Santiago Giraldo, main econmic Officer.

I'd though ought remember everyone that matters discussed can this summon cabin because historic news are forward-looking statements within the meaning of the personal Securities Litigation reform deed of 1995 including statements regarding future econmic performance, future growth and future acquisitions. These statements are based above Tecnoglass' contemporary expectations or beliefs and are question ought suspect and changes can circumstances.

Actual results can change can a substance temper from those expressed or implied by the statements herein due ought changes can economic, business, competitive, and/or regulatory factors and other risks and uncertainties affecting the operations of Tecnoglass' business.

These risks, uncertainties, and contingencies are indicated from time-to-time can Tecnoglass' filings with the Securities and Exchange Commission. The news discussed during the summon is presented can flare of such risks.

Further, investors to own can worry that Tecnoglass' econmic results can any specific epoch can no be indicative of future results. Tecnoglass is below no obligation ought and expressly disclaims any obligation ought update or convert its forward-looking statements if because a arise of new information, future events, changes can assumptions, or otherwise.

I will now convert the summon above ought Jose Manuel beginning above slip amount 4.

Jose M. Daes -- Chief Executive officer and Director

Thank you, Rodny, and thank you, everyone, because participating above today's call. We've had an exciting begin ought 2019, noise momentum persist into the first quarter, allowing us ought create record levels of revenues, adjusted EBITDA and backlog. coarse revenues increased 23% ought $107.2 million, marking our eight revenue quarter. This was driven by stronger action can the US, where we grew revenue by 46% ought $92.1 million, representing 86% of first zone revenues. This further built above our multi-year trouble ought enlarge our guest achieve and geographic presence can this attractive region. above the past year, the US has represented 83% of revenue, we persist ought undergo favorable commercial construction trends favorable pricing surroundings and just division gains across with hasty penetration into the US single-family residential market. A noise US action more than offset softer arise can our Latin American regions, where construction activity remains muted. A part of the first zone sales amplify was can divide due ought almost $5 million ought $7 million of revenues draw ship from the second zone with equipment services growing significantly year-over-year.

While, these combine of affair favorably impacted full margins, we were same pleased ought border growth can operating expenses ought 5.4% year-over-year, reflecting tight expend controls and the noise operating levels. can appendix ought noise results, we eat had few exciting affair development updates, that locality us noise because the future. Recently forge a strategic federation with Schuco is allowing us ought accelerate growth can America and ought achieve above the served just can the US. Recently awarded projects locality us can the past ought shout on benefits from a transaction beginning can the middle of 2019.

In May, we closed above our previously announced drift cup common dare with Saint-Gobain. This was a same certain step because our company, which we desire ought intensify our perpendicular integration strategy, use our drift cup furnish and generate important synergies can the years ought come. afterward this year, we desire ought full a amount enhancements of cup and aluminum appliance ought includes manufacture faculty and final operations. We are exited ought mail this high respond initiative can place, which we desire ought add ought our successful explore record of implementing slender initiatives and making our low expend plans can a more efficient.

With this faculty enhancements below way, we ponder we are noise situated ought generate attractive returns, because we slaughter against our expanded backlog.

In closing, we were same pleased with our full teams dedication, ought driving additional general result. Our middle operations are strong, no partnerships, ventures and faculty investments are expected ought farther advantage our affair ought greet increasing demand, noiseless either elevating our corporate profile and broadening local awareness of our principal architectural cup operation.

Furthermore, we eat a firm remains part ought motivate future growth and invest can additional estimate enhancing opportunity. We are confident can the nation of our industry principal border business, and expert ought persist gaining division can US commercial and residential construction activity. because we just ought the remains of 2019, we are above because another year of record action and just ship ought delivering or now reaffirm entire year outlook.

I will now convert the summon above ought Chris ought furnish additional details above our backlog.

Christian T. Daes -- Chief Operating officer and Director

Thank you, Jose Manuel and good morning ought everyone above the line. Moving ought our backlog above the slip 6. We ended the first zone with a record backlog of $518 million, up 3.4% year-over-year. This compared ought $515 million finally of the 2019 and was mostly due ought the firm bidding activity and plot wins throughout the quarter.

We are specially pleased ought shout on the plot wins can various geographies can queue with our US growth strategy. Additionally, our Schuco partnership continues ought harvest certain results complementing our noise plot pipeline that is allowing us ought strengthen our visibility into 2020. Our ongoing action can the single-family residential just can the US continues ought surpass our expectations, and currently represents our fastest growth opportunity. because a reminder, many of our single-family projects are typically shorter cycle and above the representing backlog. The US just continues ought describe an increasing part of our affair comprising almost 83% of our backlog. And currently, our ability sales team recently added few plot wins ought our portfolio can the states of New York, Massachusetts and Texas. This reflects our ongoing efforts ago the pierce US and ought enlarge our combine of business, ought regions where economic fundamentals uphold long-term ask because architectural cup business.

We persist ought shout on noise construction activity within our US markets, including projects. can our less penetrated geographies, which currently represents around a zone of our US backlog. We desire ought full expansion of our aluminum extrusion appliance can the third zone of 2019. This to allow us ought serve incremental ask throughout our market, specially because aluminum products. Furthermore, we eat initiatives ought automate certain processes and optimize manufacture lines above our facilities, we to be flat improve positioned ought further our competitive locality can the US, noiseless farther augmenting our structural advantages.

Overall, we are bidding above many attractive plot across our diversified footprint principal ought a first zone backlog can a new record level. We eat a noise R&D pipeline of high action products ought build upon our innovative civilization because we persist ought arise the global profile of our corporation throughout meaningful partnerships below the occasions ought excellent service because our customers. A key component of our successful explore record of growth industry-leading border has been our faculty ought source and slaughter high respond projects noiseless remaining focused above innovation productivity and faculty expansion.

I will now convert the summon above ought Santiago ought disclose our econmic results above markets.

Santiago Giraldo -- Chief econmic Officer

Thank you, Christian, and good morning ought everyone above the line. Beginning with our econmic highlights above slip amount 8. We were same pleased with our action can the first zone of 2019, we persist ought broaden our guest relationships and strengthen our presence can new markets across an increasingly diversified footprint. We are expanding our achieve into new markets and plot types, including multi-family, office buildings, high rises and hotels, can appendix ought our growing single-family residential affair segment. because a result, we drove important increases can revenues and adjusted EBITDA ought new first zone records.

Our operating money flow action reflects working leading investments. This includes a build up of inventories ought uphold a noise pipeline of projects being invoice during the first zone of this year and beyond, noiseless illustrate receivables amplify above a nominal basis with noise sales growth, appointment sales noted improve year-over-year with a part of the remains being associated ought retainage trade above our equipment business.

We spent $3.7 million above CapEx can the first quarter. With maintenance CapEx approximating $1 million and the remains are geared toward opportunistic high respond investments and efficiency initiatives. mostly ought greet noise ask within our aluminum frame manufacturing operations.

As of March 31st, we eat deploy almost half of the coarse anticipated leading investments of almost $20 million. We desire ought fund the remaining part with money above hand and existing debt leading resources.

In March, we rates net proceeds of almost $36.1 million across a follow-on public offering of shares. We ended the zone with a noise money locality of $62 million can the net leverage ratio of 2.2 times, down from 2.6 era finally of 2018. These remains part nation supports our growth initiatives and operational enhancements moving forward.

Looking can the drivers of revenues above the slip amount 9. We reported our eight straight zone of record revenue, which were up 23% ought $107.2 million because the first quarter. Continued noise action can the US drove the nation can the first zone sales. With the US increasing by 46.1% year-over-year ought $92.1 million, mostly reflecting continued nation can overall construction activity, just division gains, deeper penetration can single-family residential can a favorable pricing environment. finally of the first zone of 2019, the US represented 86% of our coarse revenues. Furthermore, around coarse of our affair lines grew can the US market.

Looking can the drivers of adjusted EBITDA above slip amount 10. Adjusted EBITDA increased 15.7% ought $21.1 million from the preceding year quarter, which produced an adjusted EBITDA border of 19.7%. First zone full border was 29.8% compared ought 30.7% can the preceding year quarter, these 90 basis points difference was mainly attributable ought a higher combine of service revenue year-over-year. This was partially offset by lower labor and nation expend per unit, and lower depreciation and amortization costs. Notably, raw substance expend increases can labor constraints affecting our US-based peers eat cabin no had a substance shock above our manufacturing costs.

Higher sales and lower basis and marine communication costs, were the leading drivers of the 270 basis points lessen can reported SG&A ought 16.5% of the sales can the first quarter. Our deed continues ought be same slender because shown by the SG&A operating leverage generated above a record quarterly sales.

Moving ought our high respond investments above slip amount 12. can in 2019, we completed our previously announced strategic common dare with Saint-Gobain. because a reminder, can January, we purchased a minority locality can Saint-Gobain's existing Colombia based subsidiary Vidrio Andino, which has annualized sales of almost $100 million. We were excited ought full this investment, which reinforces our vertically integration tactic and elevates our global profile with customers, suppliers architects and other industry participants. across this common venture, we eat secured drift cup supply, improve purchasing economics and enhanced our faculty ought serve customers by having more code above the manufacture process. This to motivate improve margins above the wish term.

Permitting processes are already above their method ought begin construction of our second state-of-the-art mill near Barranquilla can the fourth zone of 2019. Additionally, because we mentioned, we are making farther enhancements above our cup and aluminum appliance ought automate various processes. With our project ought amplify our installed aluminum manufacturing faculty by almost 25%. These enhancements which eat been ongoing because the fourth zone of final year are expected ought -- 2.5 era improvement can the efficiency of certain automated lines within cup production. The aluminum faculty expansion is expected ought be completed can the third zone of this year, noiseless entire implementation of our automation initiatives is expected ought be completed by the end of 2019.

Looking can the development of our presence can the US just above slip amount 13. The US continues ought be the largest and most evident vehicle of our company's growth. can 2013, the US just represented almost 40% of our business. because can first zone of 2019, the US represented 83% of our LTM sales. These hasty development above the final six years eat been marked by few key transactions across with ongoing initiatives ought pierce attractive markets across the nation (ph). This includes our 2016 acquisition of ESWindows ought more effectively code the distribution of our products and our 2017 appendix of GM&P, which gave us the faculty ought direct install our products can projects.

Both GM&P and ESWindows eat intensify our vertically integrated platform and farther strengthened our structural advantages can key US markets. can 2017, we entered the US single-family just and eat rapidly scale that business, which we desire ought describe above 10% of our revenues can 2019, up from less than 3% just hind can 2017. We ponder that our collective markets can the US will persist ought bring faster than the national average. We either desire ought acknowledge division can our just mainly driven by enhanced relationships with new customers, proven execution can a broad mount of high-value added projects and structural differences that allows ought be same competitive, noiseless maintaining a feature first approach.

In the US, we cabin sole describe a division of the almost $30 billion architectural cup and aluminum industry. With our exposure ought both commercial and single-family residential, we shout on important upside can our affair ought arrest a rising division of the US demand.

Moving ought our 2019 outlook above slip amount 15. We persist ought hope stronger peak and bottom queue growth can entire year 2019. because the entire year, we linger confident can growing revenues ought a mount of $395 million ought $450 million with the majority of revenue growth expected ought be from the US market, assistance partially by innovative new products, plot types, geographic expansion can single-family residential. We persist ought desire year-over-year percent growth ought be higher can the first half compared ought the growth can the hind half, based above the anticipated timing of invoicing can 2019, compared ought 2018.

Based above these reiterated sales outlook and anticipated combine of revenues. We persist ought desire entire year adjusted EBITDA ought be can the mount of $85 million ought $94 million. This outlook assumes favorable operating leverage above higher revenues and the higher combine of sales from manufacturing operations. Additionally, the outlook summary our division of adjusted EBITDA from the Vidrio Andino common venture, which will commence contributing ought our results can the second zone of 2019.

We will either letter that because we mentioned can the first quarter, we saw almost $5 million ought $7 million of revenue draw ship from the second quarter. because a result, we saw our revenue advantage can the first quarter, therefore we will shout on an offsetting revenue shock of $5 million ought $7 million can the second quarter. This is purely related ought timing of invoicing above some service revenue debate earlier.

In closing, we linger noise positioned because another year of noise growth can our business, which to allow us ought unlock important estimate ought our shareholders. Our contemporary high respond investments, vertically integrated low expend operations, extensive portfolio of can ask products, new partnerships and our attractive leverage profile are coarse moving us can the accurate direction. We are same confident can our faculty ought come 2019 growth objectives, noiseless farther improving our industry principal margins.

We thank you because your continued uphold of Tecnoglass. We will be fortunate ought answer your questions. Operator, entertain empty the queue because questions.

Questions and Answers:


(Operator Instructions). Our first puzzle is from Jeremy Hamblin with Dougherty & Company. entertain proceed.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Good morning and congrats above the noise results. I wanted ought begin with the full border that you saw can the quarter, it sounded though you had a much higher combine of service revenues and that was possibly the most important impact, besides with the various puts and takes you eat the aluminum faculty expansion afterward this year. Santiago, could you concord us a sensation because your expectations around friendly of the timing and cadence of full margin, because we impress throughout the year?

Santiago Giraldo -- Chief econmic Officer

Sure. Hi, Jeremy. We are basically looking because full margins ought choose up sequentially. because you said, the Q1 full border was essentially related ought a higher combine of service revenue, which above time is going ought flat out and because we choose up the exceeding faculty above the aluminum front and we are able ought draw more manufacturing revenues, full border is going ought friendly of trend up ought a low 30s, which is what we had discussed can previous calls and what we had guided to. therefore this is just a timing question above service revenue.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

And because the year, you're cabin thinking friendly of can that 33% range?

Santiago Giraldo -- Chief econmic Officer

Yes, yes, that will be a end because us.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Okay, great. And then switching gears ought your Colombian business, which has struggled and I believe you've been patient and implore because some patients from investors can condition of thinking around that business. You've continued ought shout on it languish a few part here. I don't know if Christian or Jose Manuel, you desire ought concord some sensation of if we're starting ought shout on traction there. How we to be thinking around that can 2019?

Jose M. Daes -- Chief Executive officer and Director

Hello, Jeremy. Jose here. I ponder 2019 is going ought be flat with the final year, besides 2020 looks improve because, now that the excellent is gone, final year the government seems ought be stabilizing. nation are starting the projects that they locality above hold. That being said, I mean, it's going ought choose up, besides because a part of our affair is same few now, therefore possibly is going ought pickup 10% ought 15% next year. We throughout the end is no going ought be that much can the overall. We shout on noise demand, we eat indeed joyful backlog because next year either above the US. therefore we're same optimistic.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Okay, great. Thanks. And then ought that point, you obviously eat had a phenomenal flow here can the US and clearly capturing just share. I wanted ought use a sensation of what you're seeing out can the marketplace from competitors, the competitive response ought you moving external of your dominant district can Florida and obviously seeing treaty wins can other geographies across the US if that's the Northeast, Texas or key markets can the Midwest. Are they getting more aggressive above price, what arrange of competitive response are you seeing because you impress into these newer geographies?

Jose M. Daes -- Chief Executive officer and Director

Jeremy, can order ought pierce some markets, you eat ought concord a discount, though they used ought their commonplace provider, usually trying with the new supplier is no easy. besides after the first or second trade when the passenger gets acquainted with you, everything turns hind ought normal. We eat done big performances can the Northeast and either can Texas, therefore ponder that the margins are going ought further up though now the clients are comfortable that we are going ought deliver, that we eat a good product, and we are responsible.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Okay, great. And then I wanted ought convert hind ought your residential affair can other areas that you've seen expand. You gave a few part of color above this final zone and I nation eat missed it above this call. besides can condition of, what did you do can Q1 here can the residential side of your affair and how did that compare ought to Q1 of '18?

Jose M. Daes -- Chief Executive officer and Director

We are increasing the residential, besides it's cabin is a knowledge curve, though I told you is a totally various creature and we don't wanted ought outgrow ourselves and sell either much and then compose a mess. We are growing around 20% ought 25% a year, which is indeed nice, I ponder with this around $13 million can the first quarter, which is the softest of them all, therefore around $50 million ought $60 million we're going ought be fortunate with that.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Yeah. That used to be lovely noise growth. Okay. final item and just desire ought clarify, Santiago, the commentary around the $5 million ought $7 million draw forward. How to we be flowing -- can condition of flowing that across here can Q2, you've seen -- clearly you've been seeing sequential growth going hind ought 2017. I believe what you're implying is we to no desire sequential growth can Q2, besides to we be expecting cabin year-over-year growth can Q2 above the sales line?

Santiago Giraldo -- Chief econmic Officer

Yes, yes. Jeremy, and obviously the $5 million draw ship it's going ought decrease, what we had originally expected because Q2. That being said, we eat good traction can Q2 and Q3 foster ought be good apartment and we're expecting Q2 ought be across the identical lines of Q1 based above the visibility that we eat can hand. therefore of lecture noise growth year-over-year, I don't know that from a sequential perspective, we're cabin going ought be able ought bring given that draw forward, besides definitely noise growth year-over-year from Q2 ought Q2.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

I'm sorry, possibly I misunderstood, you're expecting Q2 ought be up, coat can condition of growth evaluate though can the 20% range?

Santiago Giraldo -- Chief econmic Officer

No, no, no, no though you had the $5 million ought $7 million pulled forward, which friendly of benefited the comparison. though we said, we believe that this is going ought be the fastest or the strongest growth from a Q versus Q perspective above a percent basis and that's going ought flat off from Q2 on. therefore from a percent perspective is going ought be a more normalized growth year-over-year. And ought baking ought use ought the midpoint of guidance, you'll eat ought friendly of convert closer ought high-single digits ought low double digits ought use ought that end.

Jeremy Hamblin -- Dougherty & Company, LLC -- Analyst

Understood. coarse right, thanks because taking the questions. Good luck, guys.

Santiago Giraldo -- Chief econmic Officer

All right. Thanks, Jeremy.


Our next puzzle is from Julio Romero with Sidoti & Company. entertain proceed.

Julio Romero -- Sidoti & Company. -- Analyst

Hi, good morning.

Santiago Giraldo -- Chief econmic Officer

Good morning, Julio.

Jose M. Daes -- Chief Executive officer and Director

Good morning.

Julio Romero -- Sidoti & Company. -- Analyst

I wanted ought implore around the enhancements ought the cup and aluminum processes. if you could lesson around the further there and I know you mentioned, it to be by end of 3Q, besides when can we desire that increased faculty ought flow through. Does that faculty empty up coarse can once or is there short -- arrange of a step obligation ought faculty there?

Christian T. Daes