Greetings, and welcome to the Tecnoglass fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cray of ICR. Thank you. Please go ahead.
Thank you for joining us for Tecnoglass's fourth quarter and full year 2022 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's 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's business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass's 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's 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 4.
Thank you, Brad, and thank you everyone for participating on today's call. 2022 was a phenomenal year for Tecnoglass. We are extremely pleased with our performance and the talented group of people at this company. We achieved eight straight quarters of a strong double-digit organic revenue growth. We hit record results in each quarter as we continue to outperform our end markets, even during this uncertain time for the industry. This outperformance was driven by several factors. The focused execution of our dedicated team members, capitalizing on rebounding commercial activity, and solid demand for our innovative single-family residential products, of which our sales almost doubled for the full year. This impressive performance has been supported by traction with new and existing customers, given our commitment to exceptional service, as well as our focus on deepening our presence in attractive markets, especially the Southeast USA.
Our continued success is also supported by our vertically integrated business model. This has allowed us to minimize the impacts of supply chain constraints and inflationary pressures to our business. We can deliver products with lead times that we believe are well below industry average. This is evident in our record gross margin performance for the full year, which increased 800 basis points to 48.8%. We produced record full-year Adjusted EBITDA of $266 million at a margin of 37.1%. Our industry-leading margins are partly attributed to our continuous focus on implementing accretive automation and capacity investments, which have allowed us to realize immense operational efficiencies in our business. We continue to get a strong operating leverage on our growth with positive revenue mix and pricing dynamics.
Furthermore, our strong margin performance and prudent working capital management allowed us to achieve another year of record cash flow generation. The exceptional cash flow profile we have built up over the past several years has provided us with a lot of financial flexibility to invest in our business. We have voluntarily paid down debt and further improved our net leverage ratio to a very conservative 0.2x net debt to Adjusted EBITDA at year-end. Our cash generation capabilities and a strong balance sheet have also allowed us to create value for our shareholders through our increased dividend and additional investments in automation and capacity at our plants. This has significantly enhanced our ability to meet the high levels of demand for our products, as indicated by our growing backlog. In summary, we are thrilled with the direction of our business.
We entered 2023 as a much stronger company, supported by our record backlog and improved cash flow position. We have further extended our leadership position in the architectural glass industry. As we look forward, we will continue to leverage Tecnoglass' vertical integrated platform and strategic geographical positioning, and prudent growth investments to maintain our industry-leading margins, gain additional market share, and create additional value for all our stakeholders. I will now turn the call over to Chris to provide additional details on our record backlog.
Thank you, José Manuel. Moving to our backlog on Slide 6. Our business prospect remains strong heading into 2023. This is reinforced by our growing backlog, which rose approximately 24% year-over-year to a record $725 million in the fourth quarter, despite a 44% increase in invoicing year-over-year. We were also pleased to see positive overall quoting and billing activity through the fourth quarter, which has remained healthy into the first quarter of this year. As a quick reminder, approximately 2/3 of our backlog is composed of medium and high-rise residential buildings, while 1/3 is related to a wide variety of commercial projects. Our single-family residential growth trajectory is not fully captured in our backlog given the shorter term spot duration of our projects.
Our resilient performance above market growth and record backlog continue to be driven by our reputation for exceptional service, innovative products offering, and reliable lead times that allow us to deliver higher quality products to our customers in a timely manner and at an attractive value. Our track record of exceeding expectations on high-profile projects and maintaining consistent lead times has opened up an increasing number of opportunities across the U.S. While elevated interest rates remain a headwind to overall construction market activity, we are in a good spot because we are gaining share in our markets, and our markets are growing faster than U.S. average. Secular and demographic trends continue to favor the Southeast and South Central U.S., where we have our largest presence. This is fueling our backlog growth. We are focused on penetrating attractive and economically sound geographies.
This has allowed us to capitalize on sturdy high-rise demand and win market share in a single family residential, which mostly consists of relatively resilient repair and remodel projects that don't carry a high correlation with interest and mortgage rates. Overall, we are encouraged by our significant accomplishments during 2022 and continued momentum across our end markets so far in 2023. As we look ahead, we aim to deepen our presence and gain further share in the attractive Southeast U.S. single-family residential end market, but also to expand geographically by continuing to open showrooms and signing new dealers across the country. The expansion of our revolutionary Multimax product line, which targets production home builders, is also gaining steam.
Our latest automation and capacity enhancement initiatives are on track to increase our installed production capacity to an output equivalent to approximately $950 million of annual sales by the end of the second quarter of 2023. We are already seeing the benefit of that. We ended the year with production capacity equivalent to $800 million of annual sales. We are already progressively increasing such capacity during this quarter on our way to that $950 million capacity target. These investments will allow us to not only serve our customers better, but will also position us well to meet higher demand from both existing and new customers. We remain highly optimistic in the future of Tecnoglass, given our proven track record to reinvest in our business and leverage our innovative product portfolio to win new customers and enter new geographies.
I will now turn the call over to Santiago to discuss our operations, financial results, and solid outlook for 2023.
Thank you, Christian. Turning to Slide number 7. We are very pleased with our record fourth quarter and full year 2022 results, which reflect above market performance attributable to the resiliency of our vertically integrated business model and previously implemented high return automation and capacity expansions. Our focused efforts to further penetrate the single family residential market drove Q4 and full year 2022 single family residential revenues up by 59% and 73% respectively. This accounted for approximately 43% of total revenues in 2022, compared to only 3% in 2017. Our continued expansion and success in single family relates to the quality of our products, consistently low lead times, and competitive pricing.
It is also important to reiterate that approximately two-thirds of our single family residential revenues are tied to repair and remodel demand, which has remained relatively resilient in our markets and for our products, despite higher interest rates, pressure in national construction activity more broadly. Tailwinds related to tax and insurance incentives are also helping fuel the continued demand in our main markets. We're also seeing growth from traction with new product offerings, including our Multimax product line and an innovative brand new high-end glass garage door that we have just introduced. Looking ahead, we continue to expect additional upside to our single family revenues. We are growing our dealer base and expanding geographically within the Southeast and South Central U.S.
We are also introducing more products and opening new showrooms in attractive geographies where we believe we have the opportunity to gain market share, including New York City and Charleston, South Carolina, which are already operational, and others in Texas, Arizona, and California planned for the rest of the year. On Slide 8, I would like to reiterate several key competitive advantages unique to Tecnoglass that are supporting our success in the still high supply and dynamic cost environment. More specifically, the differentiating factors benefiting our business are, one, 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 joint venture with Saint-Gobain. Number three, a 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 at around 5%-6% of revenues. Number five, 15% energy savings from green energy, including solar power and cogeneration of power through on-site natural gas. Turning to the drivers of revenue on Slide number 10. Total revenues increased 60.2% year-over-year to a record $211.1 million for the Q4 and 44.2% year-over-year to a record $716.6 million for the full year 2022. Attributable to a strong rebound in commercial activity, growing demand for our single family residential products, and market share gains. Importantly, I would like to highlight that our commercial construction revenues grew sequentially in each quarter of 2022 and continues to experience momentum into 2023.
Looking at the drivers of Adjusted EBITDA on Slide 11. Adjusted EBITDA for the Q4 2022 more than doubled to a quarterly record of $87.2 million, representing an Adjusted EBITDA margin of 41.3%. Adjusted EBITDA for the full year increased 76.8% year-over-year to a record $265.7 million, representing a margin of 37.1%. We produced another record fourth quarter and full year gross profit on both a dollar and margin basis. Our gross profit for the quarter nearly doubled year-over-year to $110.2 million, representing a gross margin of 52.2% compared to a gross margin of 42.9% in the prior year quarter.
The 930 basis point improvement in margin mainly reflected operating leverage on higher sales, favorable pricing dynamics, greater operating efficiencies related to automation, and a favorable FX trend given the recent depreciation of the Colombian peso. This strong fourth quarter performance contributed to a year of record full year gross profit, including 800 basis points of margin expansion to a new record full year gross margin of 48.8%. Higher nominal SG&A for the quarter and year mainly reflected higher shipping expenses as a result of a higher sales volume, higher shipping rates, and a higher mix of sales going to the more fragmented single family residential channel due to the scattered nature of job sites. As a percentage of total revenues, SG&A for the fourth quarter improved 220 basis points to 15.8%.
For the full year, SG&A as a percentage of total revenues was 17.2% and flat compared to the prior year, which was impacted by non-recurring professional fees at the beginning of the year and a settlement agreement charge during the third quarter. Looking at our improved balance sheet and leverage on Slide number 12. Our exceptional track record of cash flow generation continued into 2022, during which we generated operating cash flow of $141.9 million. This impressive cash generation has provided us with flexibility to drive additional shareholder value through the significant growth investments we've made in our operations. At year-end, our leverage ratio once again improved to a new record low of 0.2x net debt to LTM Adjusted EBITDA, down from 0.8x at the end of 2021.
As of December 31st, we had a cash balance of $103.7 million and availability under our committed revolving credit facilities of $170 million, resulting in total liquidity of approximately $270 million. Turning to our structurally improved margins and cash generation on Slide number 13. The step-up in our growth margin is directly related to the structural and sustainable operational improvements we've made in our business through our high return automation initiatives, as well as a higher portion of revenues in single-family residential, which is more accretive to margins given the higher mix of manufacturing revenues versus lower margin installation work. We continue to experience the benefits of operating leverage from our higher revenues on fixed and semi-fixed costs, which has more than offset higher depreciation, labor, and other indirect manufacturing costs.
We expect our gross margins to normalize in the high 40s range for the full year 2023, based on our current expected mix of commercial versus residential revenues. The substantial improvement in our cash flow generation capabilities is a direct result of our tight working capital management, reduced interest expense from our recent efforts to strengthen our balance sheet, and a more favorable mix of revenues from the single-family residential end market, which includes upfront payments and shorter sales cycle with no retainage. We have also significantly reduced our days sales outstanding, driven by our improved collection efforts and the benefits from our higher mix of single-family residential revenues, as I just discussed.
Our impressive cash generation has provided us with financial flexibility to drive additional value for our shareholders through the 15% increase to our dividend in November and the funding of our investments to increase production capacity by over 35% by the end of the second quarter of 2023 compared to the end of 2021. Overall, we are very pleased with all of our efforts to enhance our cash generation capabilities, which in turn has provided us with multiple levers to create additional value in our company. Based on our structurally improved operations and ongoing value-enhancing initiatives, we expect strong cash flow for the full year 2023, which we expect to be backloaded based on the timing of tax payments for our Colombian subsidiaries.
Before we turn to our outlook, I would like to take a moment to discuss the evolution of our revenue and Adjusted EBITDA on Slide number 15. In becoming a public company in 2013, our top and bottom line results have grown tremendously, particularly in the past three years as we have realized the benefits of prior accretive growth investments in addition to momentum in our single family residential business. Our focused penetration into this market through an expanded sales force and track record of successfully delivering on high-profile projects and maintaining superb lead times helped drive our significant growth over the past few years. Our innovative product portfolio, strong industry relationships, and structural competitive advantages have also allowed us to capitalize on solid commercial activity, which is reflected in our expanding backlog of multifamily and commercial projects.
As we look to 2023, we are confident in achieving another year of exceptional growth. Moving to our outlook on Slide number 16. Based on the positive momentum in our business throughout 2022 and a solid start in the Q1 of 2023, we are confident in our ability to achieve another year of record growth in the revenue and Adjusted EBITDA for the full year 2023. We are introducing our outlook for full year 2023 revenue to be in the range of $790 million-$830 million. This outlook represents organic growth of 13% at the midpoint.
Based on this sales outlook, our anticipated mix of revenues, and our expectations for costs and expenses, we expect full year Adjusted EBITDA to be in the range of $300 million-$320 million, representing a 17% growth at the midpoint of the range.
We expect gross margins to be in the high 40s range for 2023. Mainly attributable to operating leverage on higher sales, structural advantages from our vertically integrated operations, partially offset by an increase in the mix of installation versus product revenue for the year. In summary, 2022 was another transformative year for Tecnoglass. We continue to outperform within our industry and offset headwinds from macro pressures through our highly efficient cost structure, targeted investments, and strategic geographic positioning in attractive U.S. markets. As we move to 2023, we believe we are well-positioned as an industry leader in architectural glass. With a high cash flow generating profile and multiple avenues to drive additional value in our business. We will be happy to answer your questions. Operator, please open the line for questions.
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to register a question at this time. Our first question today is coming from Brent Thielman of D.A. Davidson. Please go ahead.
Hi, this is John Ramirez for Brent. How are you?
Hey, how are you?
Hello.
Good. Just regarding your backlog, can you discuss the sequencing of the burn and backlog over the next few years? How much do you expect to deliver in 2023 versus the outer years?
The expectation is for the backlog to continue growing. When you're talking about backlog burn, we don't expect the backlog to decrease despite what we're projecting for revenues. That's based on what we're seeing still on the commercial front, mainly because as you know, the backlog doesn't capture much of the single family residential segment.
We're signing more than.
Yeah, right now with what we're seeing in the pipeline, we're actually signing more into the backlog than what we're invoicing.
Okay. Can you remind us of the status of your repurchase program? What's the remaining, you know, regarding that $50 million availability?
It's open-ended.
I'm not seeing anything.
I mean, it's open-ended. It didn't have a specific time in place. We're evaluating all avenues to return cash to shareholders on an ongoing basis. It remains to be open and the board will analyze it as we go. Clearly, as we are able to produce more cash flow, you know, different avenues to return cash to shareholders become more and more available. We'll analyze it as we go.
Okay. I'll hop back into the queue. Thank you.
Thank you.
Once again, that is star one to register a question at this time. The next question is coming from Sam Darkatsh of Raymond James. Please go ahead.
Good morning, everyone. How are you?
Good morning, Sam.
Good.
A couple questions, if I might. You mentioned the strong invoicing continuing in the 1st quarter here. Based on the fact that, I guess you're temporarily still out of capacity, any reason to think why the 1st quarter sales gross margin and EBITDA wouldn't look very similar to Q4?
No. I mean, typically Q1 is very similar to Q4 from a seasonal perspective. As far as install capacity is building up gradually. You know, from where we were at the end of 22, we have put in place incremental capacity as of today.
Now you have to take into consideration that we are closed for winter vacations until the 11th of January. February is a short month, only has 28 days, and we have Carnaval in Barranquilla, so we were closed three days. It will be similar to... I mean, we believe that we can do a very decent quarter, and that's what we are expecting.
Then related to that, you did come in better than you expected as of the initial part of December. Was that due to less maintenance shutdown than you were anticipating? Or what was the variance caused by Santiago?
Two factors there, Sam, mainly. One, FX helped when we re-guided in December 1st. Since then, there was a slight evaluation of the peso, so that basically was not baked into that projection at that point in time. Secondly, we did work a handful of extra days given the year-end demand. Yeah, your intuition is right. We actually ended up having less of a shutdown as originally expected.
Gotcha. My final question before I hop back into the queue here. Can you help with what your specific-assumption is for single family residential sales or sales growth in fiscal 2023. What is your market expectation that informs that goal?
Yeah. Essentially it's kind of slightly higher than Q4 if you kind of do the math, That gets you to, you know, between 10%-15% depending on where you are in the range. That comes from different avenues, right? I mean, we're much more exposed to repair and remodeling, we continue to be, you know, confident that we can continue to outperform there. Then you have the geographical expansion that is taking place. That's what we baked into these assumptions.
Thank you. Thank you all.
Sure. Thank you.
Thank you. The next question is coming from Tim Wojs of Baird. Please go ahead.
Hey, guys. Nice, nice job.
Hey, Tim.
I've got a couple bigger picture ones and then a specific one. I guess bigger picture. You talked about just your lead times and service really driving expanded relationships. Is there any way to kind of, I guess, expand upon that, maybe what the backlog composition looks like, you know, from maybe new customers you've added over the last two to three years versus legacy customers? Just trying to get a flavor for, like, how much, you know, how much of the growth is being driven by, you know, new relationships versus legacy ones.
Hi, this is José. We've been growing in both ways with existing customers because their customers are more than happy with the product change. We are being increasing new customers in new geographies, going north to the east, going west, and we believe we can keep increasing the volume that way. I mean, we see it. We see that the residential side is growing and also the commercial side is growing unbelievably in South Florida. I mean, from Tampa down, the commercial side is skyrocketing.
Okay. Okay. Yeah, I'll follow up with you guys a little bit on that. Maybe just, from a capacity standpoint, I mean, I know that, this is maybe a little bit more theoretical, but, I mean, you're still bringing on, you know, kind of the automation investments to expand capacity in 2023. If your business pace kind of continues at this rate, when would you expect to potentially have to add capacity again? I mean, would this be kind of an annual type thing? You know, I guess, what type of lead times do you have on the equipment right now?
Well, José doesn't let me talk too much about the capacity, but we do have enough capacity built up now to go, to continue to grow 30, 40% a year. We keep adding new capacity and new businesses. We'll be coming up shortly with some good announcements on new products that we're gonna build. This is all being taken into consideration all the time. We keep buying land next to our factory, and we see a lot of future ahead of us, and we don't sleep.
Okay. Then I guess maybe just the last one. Just any sort of, like, early learnings or feedback from the showrooms in New York and South Carolina? I know they haven't been open that much, but anything you've kinda, you'd call out there. Then just, you know, the margins on those products, maybe the ones outside of Florida, I guess I would initially thought they'd be lower, but, you know, just more transportation and that type of stuff. I've also heard that the ASPs per unit could be higher on those products, so maybe the margins are actually better. I guess, what are the margins of, you know, I guess the prospective margins of the residential business outside of Florida?
The margin is much better outside of Florida. Florida, we have very strong competitions and many competitors. Outside of Florida in the high-end residential, there is only a few, especially in aluminum. I mean, we have a lot of cladding, we have a lot of wood, we have a lot of vinyl, but in the aluminum there is only maybe three or four, and they are all high-end, and, they're all from outside of those markets. I mean, they are mostly California, Minnesota, and the cost of transportation is also high. The margin is better. The cost of transportation is minimum. Nevertheless, we are the newcomer and our prices, we always start with a lower price in order to get a grip of the market. We expect
We're still getting lots of orders. I mean, we are getting new lines of products to be made soon. You'll hear from us
We're in the region in the next few months. That way, I think That's why I'm buying the land, because I'm not sure how far we can get, but in case we get very far, I wanna have enough land in hand, so we don't have to go and buy at the last minute. That's why we're buying the land. We're gonna spend some money on the land, like $6 million, but it's gonna be able to put another million sq ft facility. It's gonna be good.
Sounds really exciting. Maybe just last one for me. You guys mentioned the showrooms you have in New York City and Charleston, and then opening up in a few more geographies in 2023. Can you maybe speak to, you know, how much, if any, incremental revenue from the showrooms is embedded in the guidance?
Actually, none so far, because it's a residential, mostly or 100%, and we cannot put any in the backlog, or we cannot project exactly how it's gonna play out.
To Jose's point, anything that comes from that is going to be upside to this guidance.
Understood. Thanks very much for taking the questions.
Thank you.
You're welcome.
Thank you. Once again, that is star one if you would like to register a question at this time. The next question is coming from Alex Rygiel of B. Riley. Please go ahead.
Morning, gentlemen. Very, very good quarter. Can you talk a little bit about garage doors and some other new products, and first off, what the traction is with garage doors, and secondly, what other types of new products are you looking at?
Like Christian mentioned, we are designing new products for the new markets that are gonna come out soon. The garage door is been a hit in Florida. Well, not only in Florida, in everywhere that is impact. It's an impact rating garage door. It's very well-designed, and I mean, everybody loves it. We're selling a lot of that product. We expect to design another garage door, non-impact, soon also for the new markets that we are entering that are non-impact. We're always designing new stuff for the new markets and for the existing market. That is an ongoing process.
Excellent. Santiago, as it relates to, you know, the margin headwind, looking out into 2023 as it relates to a mix shift, how should we think about any other kind of margin headwinds associated with bringing on new capacity and so on?
No. We're actually baking in gross margins to go up slightly higher, about 100 basis points from what it ended up averaging in 2022, and that basically is coming from operating leverage. Essentially, whatever could come from mix as commercial continues to ramp up is going to be more than offset from the revenue growth that we're projecting for the year. No, I mean, if you kind of flow into what we projected and back into it, we're actually having implicit margins going a bit higher. We're not seeing headwinds on margins next year.
Very helpful. Thank you.
Thanks, Alex.
Thank you. At this time, I'd like to turn the floor back over to José Manuel for closing comments.
Thanks, everyone, for participating on today's call. We are very excited about, the projection for our company. We work really hard to make sure, our shareholders, get the best returns, our employees and our investors. Thank you and see you soon with better news.
Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.