Greetings, and welcome to the Tecnoglass third quarter 2021 earnings conference call. At this time, all participants are in 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 zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cray, Investor Relations. Thank you, sir. You may begin.
Thank you for joining us for Tecnoglass' third quarter 2021 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, Christian T. 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 way 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 José Manuel, beginning on slide number four.
Thank you, Brad, and thank you everyone for participating on today's call. I could not be more proud of our exceptional third quarter performance, making our fourth consecutive quarter of year-over-year revenue growth and another period of record results across many of our key metrics. We achieved yet another quarter of record revenue, with 29% growth in the U.S., which represented nearly 95% of our total revenues. This outsized growth was led by our single-family residential sales that were up 213% during the quarter. Sales to this end market continues to surpass our expectations and largely reflect a strong demand from our best-in-class products across our deepening presence in the Southeast U.S. region. We also strengthened our commercial foothold in attractive markets throughout the country with a growing backlog of commercial projects to invoice through 2022.
Building on our impressive sales performance, we were able to grow adjusted EBITDA by 36% to a new record of $39 million for the third quarter. Adjusted EBITDA margin also came in at record levels and improved by 220 basis points year-over-year to 29.7%. This performance was due to the stronger sales I mentioned previously, along with disciplined cost controls and the benefits of previously implemented high return investments, producing a gross margin of 39.6%, which is also a record for the third quarter. Furthermore, continued momentum in our single-family residential business, which has a shorter cash cycle, combined with careful working capital management, collectively helped to generate our seventh straight quarter of robust cash flow at a quarterly record of nearly $33 million.
This allowed us to pay down debt while investing further in automation capabilities and capacity enhancements to address the expected growth ahead. As a result of our vertically integrated platform and strategic geographic positioning, we continue to enjoy a healthy competitive advantage that has mostly insulated Tecnoglass thus far from widespread supply chain disruptions and most input cost pressures affecting our industry. Our structural advantages produce additional share gains as new and existing customers value our shorter lead times, continuity of product availability, and best-in-class quality. Based on our success so far this year and the opportunities we see, we are pleased to increase our full-year revenue and adjusted EBITDA growth outlook, which Santiago will discuss later in the call. In conclusion, we expect to continue executing our highly profitable growth strategy and generating cash flow to deliver additional value for our shareholders.
With the strength of our balance sheet and financial flexibility, we are extremely confident in our ability to achieve our growth objectives while maintaining our industry-leading margins. We have a highly efficient, vertically integrated, and low-cost operation with an expansive portfolio of innovative, top-of-the-line products that should allow us to continue winning in our markets. I will now turn the call over to Chris to provide additional details on our record backlog.
Thank you, José Manuel. The strength of our result reflects our ability to execute our growth strategy as a U.S.-centric company while providing exceptional service to our customers. We were thrilled to build on top of our first half 2021 momentum. On the third quarter, we gained share, delivered new product offerings, and expanded our dealer network. During the quarter, we were pleased to begin invoicing products under our new Multimax product line, which targets production home builders as well as legacy and new dealers. This is an opportunity that we believe represents significant upside to our long-term growth potential. Beyond new products, we are seeing a sharp acceleration of growth in our Prestige and Elite single-family residential product lines. We continue to expect strong growth in single-family through expected share gain, helped by a continued positive overall housing environment in the U.S.
In addition, we have a number of commitments for commercial and multi-family projects, which help to grow our backlog to a new record level of $575.8 million at quarter end. As it relates to commercial indicators, we have been pleased to see increases in the ABI Index, which moved further into expansion territory for the eighth consecutive month in September. The September ABI Index increased to 56.6 compared to 55.6 in August, remaining in expansion territory and consistent with levels not seen since the early 2019. At $575.8 million, our third quarter backlog level represents more than 1.2x our trailing twelve-month revenue, providing us with solid visibility on commercial demand through 2022.
The U.S. continues to represent an increasing share of projects, accounting for over 86% of our third quarter backlog. Approximately 2/3 of our backlog is comprised of medium and high-rise residential projects as well as single- family residential already in production, while 1/3 is related to a wide array of commercial projects. As a reminder, our single- family residential growth trajectory is not fully captured in our backlog. This is due to the shorter term spot duration of those projects. Looking ahead, our strong cash flow generation capabilities arising from our vertically integrated advantages have allowed us to invest significantly in growth CapEx. During the third quarter, we spent $10 million in growth CapEx to automate a third glass processing line, enhance our soft coating facility, and expand our aluminum production capacity to address incremental demand.
We believe growth investments such as this will help us address the expected growth we foresee through 2022. With the previously discussed installed capacity and incremental efficiencies anticipated to become operational by the fourth quarter of 2021 or early in the first quarter of 2022, we expect to have the necessary installed capacity to significantly expand our invoicing capabilities well beyond current levels. I will now turn the call over to Santiago on slide six to discuss the strong demand for our single- family products, vertically integrated strategy and financial results, and our improved outlook for the year.
Thank you, Christian. Our third quarter results represent yet another quarter of consistent execution following years of investments in technology enhancements at our facilities, as well as our strategic positioning in the U.S. single- family residential market. In the third quarter, we were thrilled to expand upon our exceptional first half 2021 performance. We saw our momentum continue primarily through share gains and new business wins in our single- family business. This momentum resulted in our total revenue increasing to new record levels. Notably, our single- family revenues increased 213% year-over-year, representing 48% of our third quarter U.S. revenues and 35% of our U.S. sales on an LTM basis, reflecting new business wins and market share gains. Our sales continue to benefit from our vertically integrated business model and strategically located operations.
The accelerating demand for our products is attributable to our ability to supply superior quality products with shorter lead times at an attractive value. As Chris mentioned, while our single-family sales in the third quarter were primarily comprised of our Prestige and Elite product lines, we were thrilled to begin invoicing orders for our Multimax product line targeting production home builders. Regardless of our future volatility in the housing market or forward-looking indicators such as housing starts, we expect this product line to offer pure upside to our already strong residential sales as we continue to focus on expanding our single-family presence through dealership expansion and geographic diversification. Looking at slide seven. We would like to draw your attention to the factors driving our success and above-market growth in 2021, helping us to differentiate Tecnoglass as the architectural glass provider of choice in the U.S.
As we have discussed in previous quarters, our strategically located, vertically integrated, and low-cost operations provide us with sustainable competitive advantages compared to our peers. Our structural advantages and significant investments in our operations continue to facilitate our ability to quote more projects, expand customer relationships, and deliver products with much shorter lead times than the current industry average. Our vertical integration and joint venture with Saint-Gobain allows us significant control over our purchasing and transportation costs with no material pressures from raw material costs or material availability. Also, we have not experienced any significant wage cost increases or labor constraints. Additionally, energy costs continue to be stable given our ability to source energy from our solar panel generation and natural gas cogeneration.
Collectively, this has enhanced our ability to deliver attractively priced products in a timely manner, and in turn, unlock opportunities to build new relationships, entrench ourselves with existing customers, and drive market share gains. On slide eight, we display the areas where we believe we have already made significant achievements across the ESG spectrum. We were pleased to further highlight our commitment to environmental, social, and governance responsibilities through our 2020 sustainability report published a few weeks ago. Throughout our years as a public company, we have worked to serve all of our stakeholders, from implementing green technology, such as our $15 million investment in solar technology for our facilities, to our efforts to develop Tecnoglass as an employer of choice in Colombia by way of our investments in our employee and corporate culture.
On slide nine, we have provided a high-level view of the goals we will seek to achieve on a go-forward basis as outlined in our report. We have designed and continuously implement strategies aimed to encourage the efficient use of materials and resources, as well as the development of environmentally friendly technologies. We also look to responsibly manage the value chain and the life cycle of the products we sell. We do all of this to offer our partners innovative and best-in-class products that are environmentally friendly and energy efficient. Tecnoglass remains dedicated to corporate social responsibility, and our 2020 report marks another important milestone in our ESG journey. Let's now discuss our third quarter financials, starting with revenue drivers on slide 11. Total revenues increased 26% year-over-year to a record $130.4 million for the third quarter.
In the U.S., which represents 94% of our total revenues, we saw growth of approximately 29% to a record $123.2 million, compared to $95.7 million in the prior year quarter. This strength was primarily driven by strong growth in our single-family housing activity and market share gains that I discussed previously. This more than offset the air pocket in commercial activity as projects in our backlog that have resumed progress to the latter stage of construction when architectural glass is typically installed. Based on conversations with customers, we believe commercial is on track to recover as we move early into 2022.
Looking at the drivers of adjusted EBITDA on slide 12. Adjusted EBITDA in the third quarter of 2021 increased 36.1% to a record $38.7 million, compared to $28.5 million in the prior year quarter. Adjusted EBITDA margin was 29.7%, a third quarter record and a strong 220 basis points improvement compared to the prior year period. We were pleased to produce record third quarter gross profit on both a dollar and margin basis. Our gross profit increased 28.7% to $51.6 million, representing a gross margin of 39.6%. This compared to gross profit of $40.1 million in the prior year quarter, representing a gross margin of 38.8%.
Our 80 basis points improvement in margin was mainly attributable to greater operating efficiencies and a higher mix of revenue from manufacturing versus installation activity, given our increased mix of single-family residential products where we do not carry out installation. Higher nominal operating expenses for the quarter mainly reflected higher variable expenses related to marine and ground transportation and commissions. As a percentage of revenue, operating expenses were lower by 280 basis points compared to the prior year period due to higher revenues and better operating leverage on personnel, professional fees, and other fixed expenses. Now looking at our balance sheet and leverage profile on slide number 13. To reiterate a point made in previous quarters, the recapitalization of our debt structure last October and our outstanding track record of cash flow generation has significantly enhanced our financial flexibility.
In the third quarter, we were proud to record operating cash flow of $33 million at an 84% conversion from adjusted EBITDA. Over the past 12 months, we have generated operating cash flow of $114 million, representing 85% of adjusted EBITDA. Our higher margin, shorter cash cycle single-family revenues, combined with exceptional working capital management and low interest expense, are all helping to drive additional shareholder value. The transformation in our ability to generate significant cash left us well positioned to deploy capital opportunistically during the quarter. To that end, we spent $10 million in growth CapEx in the quarter in order to address expected demand. This move aligns with our strategy to invest in further operational efficiencies and allows us to prepare for the additional growth we expect in the quarters ahead.
We expect these investments to be operational late in the fourth quarter of 2021 or early first quarter of 2022. In addition to investments in our operations, we used excess capital to voluntarily prepay $30 million of debt under our syndicated term loan facility during the quarter. We were pleased to achieve our lowest leverage ratio in the company's history, which decreased to 0.9x net debt to adjusted EBITDA at quarter end. Furthermore, our joint venture with Saint-Gobain to construct our previously announced second state-of-the-art float glass plant in Barranquilla remains on track to break ground in the first half of 2022. As we discussed in the past, our capital contributions toward that project have already been completed, so we don't expect any additional CapEx as it relates to the project. Moving to our outlook on slide 15.
Based on our strong third quarter performance and continued momentum in 2021, as well as our solid demand outlook through year-end, we are increasing our full year 2021 outlook. We now expect full year 2021 revenues of $485 million-$495 million, representing growth of 31% at the midpoint. We continue to expect the U.S. to represent the significant majority of our growth. Based on this sales outlook and anticipated mix of revenues, we're raising our full year adjusted EBITDA outlook to a range of $140 million-$145 million, representing 46% growth at the midpoint of the range, as well as margin expansion. Our growth margins should continue to benefit from our high return CapEx investments in automation initiatives, as well as our proven ability to efficiently manage costs.
As a reminder, we do not carry out installation for our single-family residential sales. However, we do carry out installation for many of the commercial projects in our backlog. Based on our strong year-to-date mix of single-family revenues and our faster growth in that end market. We still anticipate a larger mix of higher margin product versus installation revenue for full year 2021 compared to the prior year. That said, given the anticipated sequential increase in the mix of our commercial revenues that include installation, we expect our margins to normalize to a high 30s% level in the fourth quarter of 2021. We expect CapEx in 2021 to be approximately $35 million, with a large portion of these expenses going towards further automation and growth investments to efficiently manage increasing demand for our products.
Maintenance CapEx continues to represent less than 2% of our sales. In summary, we are extremely pleased with our exceptional performance to date in 2021 and are happy to see strong returns from our business enhancements initiatives over the past few years. Our balance sheet is stronger than ever, and our very conservative leverage profile position us well to generate ongoing value creation for our shareholders. Looking ahead, we will continue to leverage our unique, very clean integrated platform to target new customer relationships and further penetrate the U.S. single-family residential market through our innovative products and superior lead times. We believe these key differentiators, along with our prudent growth investments, will continue to provide greater returns for our shareholders as we move into 2022. With that, we will be happy to answer your questions. Operator, please open the line for questions.
Thank you. We will now be conducting a question- and- answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from a line of Timothy Wojs with Baird. Please proceed with your question.
Hey, everybody. Good morning. Nice job.
Good morning.
Maybe just to start on residential obviously, you know, clearly a lot of momentum behind that business line. I guess at this point, what's your visibility for residential into next year? I guess you just did, you know, basically $60 million in sales this quarter. Do you think that's a proper kind of baseline, you know, to use moving forward? I mean, can we effectively annualize that?
Yes. I believe that is a bottom line as a matter of fact. We believe we're gonna keep increasing our residential line, that the $60 million per quarter is in line with what we believe is the bottom line for that line of business.
Okay. When you think about the opportunity, maybe just even in Florida, could you give us some perspective how big the Florida market is on residential and kind of where, you know, your share is today?
Oh, I believe our share is perhaps 20%. I don't believe it's too much. I mean, the competition, there are many competitors and, a couple of them are even today larger than us. I believe there is a lot of upside that we could gain.
Okay, that's good. Then maybe on the margin side, just on raw materials, I know you've had some favorable hedges on aluminum. How do you think of that kind of normalizing and maybe any impact there on gross margins into next year? I guess, you know, will you effectively be able to offset that with pricing and I guess same thing with glass.
Yeah. Basically on the glass side through our joint venture, we get stable pricing. On the aluminum front is where you will have to kind of be mindful there. With aluminum prices coming down, we don't foresee any impact on margins going forward. As we said, we see high 30s for the rest of the year and into 2022. I don't expect that changing.
Okay. Okay, great. We'll hop back in queue. Nice job, guys.
Thanks.
Our next question comes from a line of Joshua Wilson with Raymond James. Please proceed with your question.
Yes, good morning, and thanks for taking my questions and congrats on the quarter.
Thanks. [crosstalk] Good morning, Josh.
Thanks.
Could you give us a sense of what the Multimax contribution was to single- family in the quarter?
Basically, right now we're doing about $2 million per month on that. It's ramping up nicely. Still a lot of the contribution was from the legacy products.
Furthermore to that, as I mentioned in the last call, we don't like to start doing too much of something because it's a new line for us, and we like to make our mistakes small. We now have a pretty good grip on how the line works, what the customers want, how they like to receive, and I believe that line is gonna keep increasing for next year.
Got it. You had some nice growth in the backlog. Was that pretty uniform throughout the U.S., or did you see pockets of strength and weakness regionally?
Well, on the commercial side outside of Florida, we saw a slowdown for a year and a half. I mean, we weren't able to close as many jobs as we wanted to because cities like New York, Boston, Chicago, they lagged behind everything else. A bit behind Florida, for example, or behind Texas. Now, in the last month, after we closed the quarter, we have seen, I mean, a lot of closing jobs and it's everything is speeding up, and we believe in this quarter, we're gonna have record closings in those areas. We see it coming up. We are very enthusiastic now about it.
Good. Last one for me, can you give us a sense of what the 2022 CapEx might look like?
Yeah. It's gonna be a step down. Obviously, we invested significantly in growth to be able to have the operational capacity to grow for the next couple of years. My guess is that we'll be around kind of $10 million-$15 million type CapEx next year.
Got it. Thanks so much.
Thanks, Josh.
Our next question comes from the line of Julio Romero with Sidoti. Please proceed with your question.
Hey, good morning. Thanks for taking my questions.
Morning, Julio.
Hey, what are you guys hearing from customers in Florida in regards to your service proposition and, you know, talk about how your lead times are trending compared to some of your competition in that area?
Our lead times have been steady. I mean, we don't have that much constraint on materials and also our capacity. We foresaw that we're gonna have a lot of demand on the product, so we expanded before the upturn, and we have the capacity to keep shipping at 6-8 weeks. We're doing really good. I mean, they're very happy. We do very good service, and our windows don't need that much service. That is one of the advantages that we have.
Okay, got it. I guess for my follow-up, you know, your balance sheet's looking very good. You're under 1x leverage. You invested in some growth and you paid down some debt in the quarter. If you could just talk about, you know, how you think about your target leverage and maybe priorities for cash.
This is Christian T. Daes. We invested heavily the last couple of years on increasing the capacity and on being a more efficient doing the products, and it's paying off. That's why with the increased capacity that we're installing today, we're gonna be able to continue to grow double digits. As a matter of fact, we're gonna try to be at least 20% bigger next year, better next year. With the investment that we have made, we have all the capacity. Obviously, we're generating good cash and so the leverage is very stable and coming down. Here's Santiago Giraldo.
We're below 1x, Julio. I think our target when we started the year was 2x. Obviously we're very comfortable where we're at and have a lot of financial flexibility to undertake that, like, the growth that we're seeing. I think for the foreseeable future, we'll continue investing in CapEx, in growth, and if we need to repay further debt, that'll be another way to use cash. You know, at this point, we're definitely well below our original target.
Okay. Very nice quarter and best of luck in Q4.
Thank you.
Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.
Hey, thank you. Congrats as well. Great quarter.
Thanks. How are you, Brent?
Yeah, thank you. I guess I wanted to ask a little bit about 2022 or see what I can get from you guys. You know, I assume that you're gonna see a higher mix of installation as you convert some of this backlog, but your residential strength is unbelievable. I guess I'm trying to think about the impact to margins. Has the residential business gotten to a base that's large enough to offset that, you know, mix impact you might see next year from installation?
That's correct. That's how we're seeing it. I think both factors will offset each other. Even if we have more installation, we think that we can maintain gross margins.
Furthermore, on that subject, I wanna clarify that we only do installation in Florida. We refrain from doing any installation in Texas or outside that we were doing before. Since we're selling a lot now outside of Florida without installation. Even if the installation ramps up in Florida with the increased selling outside of Florida without installation and the residential picking up and the commercial projects for mid-size are, I mean, running unbelievably high, I believe the margins are gonna stay the same or even better perhaps.
Okay. Yeah, I guess I wanted to ask as well. I mean, I seem to be navigating, you know, higher logistics environment very well. I guess with the increase in onshore freight rates impacted your ability at all to penetrate more of these sort of inland markets, not the Southeast, but maybe Midwest and elsewhere, or is that been negligible?
Yeah, freight has been coming up lately. We have seen an increase like 30% or 40% in the rates. A container takes between $40,000-$80,000 of materials inside, so the freight is still a small amount like less than 5% or 5% of cost of product, the transportation. We have passed the cost over to customers. Unfortunately, we have to do it. We are trying to open new ways of shipping to Miami through Cartagena, which is a much bigger port than Barranquilla, to see if we can lower the cost of shipping.
Okay. I guess maybe one more on Multimax. I'd just be interested in any sort of milestones and successes you've had recently with new builders and any targets or objectives you guys can share for that business for the rest of this year or even 2022 if you're willing.
Well, all the builders that we have been selling to, we have like six accounts. They're all happy with the product. The product performs much better than the competition. It's better looking, more modern style. It has a much better glass. It doesn't break as much or very negligibly in our case. They are repeating and keep ordering and giving us new phases that they're doing. I mean, I see that business increasing. Like I said before, we don't like to go into a business and go like crazy and then not know how it works and make big mistakes and lose clients. We started, we're doing good. They're happy. We fixed a few things that they didn't like, the way in which we shipped, the lead times and the packing.
Now they're all happy, and we are more happy than they are.
Okay. Maybe one more for me. Just, it doesn't seem like you need to do M&A, but is it something you're looking at? What would that look like if you were?
To us, mergers and acquisitions would make sense on buying a company that we don't have the know-how. For now, we have looked at many things, and nothing is attractive enough for the moment to even mention it or to do anything in mergers and acquisitions. We believe we can develop the market and grow organically. It costs a lot less. Look at our balance sheet. I mean, it speaks by itself.
Absolutely. Well, thank you for taking the questions.
Thanks, Brent.
Our next question comes from the line of Alex Rygiel with B. Riley. Please proceed with your question.
Thank you, and also a great quarter here. Coming back to the Multimax product and your other residential products, how many states are you now selling that product into? How should we think about geographic growth in 2022 for that U.S. residential business?
Well, actually, we're now selling 99% in Florida. We have sold, like I said the last time, we are doing some tryouts in South Carolina, North Carolina, and Texas. They have been really successful. People are happy. We are learning, and we plan to step it up, especially from January on. This coming quarter, I mean, the quarter that we're in, we're gonna keep doing a little business, learning the trade, how they like to be packed, how they like to receive, get all the feedback and finalize the development of a couple of products that we were missing in those areas. For next year, we expect those states to start buying and increase the purchasing month by month.
Then turn it over to the U.S. commercial business, which was down in the third quarter. You obviously have very positive comments with regards to the backlog of that business and the reopening of that business. How should we think about modeling the U.S. commercial business in 2022? I suspect it's a little bit more sort of back-end loaded in 2022, but your comments would be helpful.
Well, in 2020, we expected a downturn for 2022 in the commercial outside of Florida because Florida is booming. We were expecting that, but now that there are a lot of closings, we believe we're gonna be par with this year, and it looks par or a little better, and 2023 is gonna look a lot better than 2022 or 2021.
Very helpful. Thank you very much.
You're welcome, Alex.
Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to Mr. José Manuel Daes for further comment.
Well, thanks everyone for participating on today's call. We hope to keep doing our job and having a lot of good news for our shareholders. Thank you so much.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.