Greetings, and welcome to Tecnoglass Inc. second quarter 2021 earnings co nference call. At this time, all participants are on a listen-only mode. A 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. I would now like to turn the conference over to your host, Brad Cray, investor relations. Thank you. You may begin.
Thank you for joining us for Tecnoglass's second 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, 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 Securities and Exchange Commission. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass'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 four.
Thank you, Brad, and thanks, everyone, for participating on today's call. I am thrilled to announce our most profitable quarter on record. Building on our exceptional performance, which again drove record results in nearly all financial metrics. We closed out the first half of 2021 with record levels of revenues, gross profit, adjusted EBITDA, cash flow, and backlog, reflecting another quarter of consistent execution and operational excellence. Looking at our top line, second quarter total revenues increased 49% to $121.7 million, led by a strong U.S. revenue growth of 39% year-over-year. This success was largely driven by our continued rapid expansion into single-family residential and overall market share gains in the U.S. To that point, we were extremely pleased to grow single-family revenues 159% year-over-year, which represented 37% of our U.S. sales during the quarter.
We continue to develop new relationships and deliver high-quality products with better lead times than our competitors. We continue to look at current macroeconomic tailwinds and positive secular trends as catalysts to the development of long-term relationships and as a way to further expand our market share. This is clearly showing up in our financial performance and in what we expect for the foreseeable future. The strength of our low-cost, efficient, and vertically integrated operations was evident in the quarter and continued to provide a sustainable foundation to efficiently control our supply chain and deliver short lead times for our customers. This allowed us to not only maintain our industry-leading margins, but also generate a record second-quarter gross profit margin of 40%.
This was driven largely by the positive reception to our higher-margin single-family residential products and better efficiencies in our business that have resulted from our prudent, high-return investments in our operations. This margin performance helped us achieve our fifth straight quarter of substantial cash flow generation, reflecting increased profitability and enhanced working capital management. Given our strong cash flow performance year to date, we plan to invest additional capital in our manufacturing facility to further automate and enhance our production lines, which Santiago will discuss later in the call. We are proud of our entire team's execution and ability to continue serving customers with best-in-class products while delivering short lead times at an attractive value. All in all, we are very pleased with our positive momentum as we move into the second half of this year.
Our reputation in the architectural glass market has never been stronger, and we are confident in the strength of our business. Moving forward, we will continue to build on our proven track record of execution to capture a strong single-family residential and commercial demand in the U.S., while approaching capital allocation with a growth-oriented mindset. Our strong balance sheet, very low leverage profile, and ample capital resources squarely position us to deliver on our upwardly revised outlook for full year 2021. The future remains extremely bright for Tecnoglass, and we look forward to another year of record financial results. I will now turn the call over to Chris to provide additional details on our robust demand.
Thank you, José Manuel. Moving to our backlog on slide five. Our ability to timely deliver best-in-class products led to our outsized revenue growth and market share gains in the U.S. during the second quarter. In addition to the strength of our single-family residential business that Santiago will discuss shortly, we also continue to have a growing pipeline of attractive commercial and multi-family projects in our backlog. As a reminder, our single-family residential growth trajectory is not fully capturing our backlog, giving shorter-term spot duration of projects. Approximately 2/3 of our backlog is comprised of medium and high-rise residential projects, as well as a single-family residential already in production. While 1/3 is related to a wide variety of commercial projects where quoting and bidding activity has recovered nicely as the year has progressed. Our second quarter backlog grew 1.7% year-over-year to a record level of $559 million.
This backlog level represented more than 1.25x our last 12 months revenue, which is very encouraging and reinforces the strength of our strategy, innovative products, and customer relationships. The U.S. market continued to represent in excess of 90% of our backlog as compared to 88% of our backlog in the prior year quarter. We are benefiting from an active residential and commercial construction environment in the U.S., and our experienced sales teams recently added several large-scale project wins to our portfolio in several states where we have a strong footprint and where population migration continues to take place. Additionally, we have been pleased to see increases in the ABI index, which moved further into expansion territory for the fifth consecutive month in June. The June ABI index increased to 57.1 compared to 55.6 in March, maintaining levels not seen since early 2019.
Overall, we have continued to diversify our revenue base while providing short lead times and exceptional customer service, which reinforces Tecnoglass as an architectural glass provider of choice. I will now turn the call over to Santiago on slide number six to discuss the strong demand for our single-family products, vertically integrated strategy, financial results, and our improved outlook for the year.
Thank you, Christian. During the quarter, we were able to drive substantial operating leverage while expanding our mix of single-family residential sales in the U.S., resulting in another quarter of record revenues, margins, and cash flow. Our single-family residential revenues increased by 159% year-over-year, and nearly double compared to the second quarter of 2019. Our growth is a direct reflection of our operational stability resulting from both our vertically integrated model and strategically located operation. Our impressive results also continue to be supported by the robust construction environment in the U.S. markets, as record low mortgage rates and strong economic and housing fundamentals provide a strong foundation for architectural glass demand. Single-family residential sales accounted for 37% of our U.S. revenues in the second quarter.
On an LTM basis, single family now represents 27% of U.S. revenues, up significantly from just 3% of revenues when we entered the single-family market in 2017. Our single-family sales in the second quarter were primarily comprised of our Prestige and Elite product lines. However, as we mentioned last quarter, we are also targeting production home builders through our Multimax product line, which we expect to contribute more meaningfully to our single-family sales in the future. We continue to focus on expanding our single-family presence through dealership expansion and geographic diversification, with a primary focus on the high-growth Southeast U.S. region, the Gulf Coast, and Texas. Our accomplishments in single-family residential are a testament to the market-leading architectural glass platform we have created, and we could not be more pleased with our progress since we entered this business four years ago.
Into the third quarter, our performance in the single-family market in the U.S. continued to surpass our expectations. We maintain our conviction that strength in residential demand will drive the majority of our growth into the foreseeable future. On slide seven, given our exceptional performance during these extraordinary times, I'd like to reiterate several factors that are allowing us to win in our marketplace. Our strategically located, vertically integrated, and low-cost operations provide us with sustainable competitive advantages that truly differentiate us amongst peers, and especially during the tight supply environment that others in our industry are experiencing. Several factors critical to our growth strategy that we have mentioned previously include prior high return investments in plant automation, capacity upgrades, and energy, hedging our aluminum costs, and locally sourcing our float glass supply through our joint venture with Saint-Gobain.
Maintaining efficient access to talented employees with low turnover and minimal wage inflation. Finally, keeping transportation costs at less than 5% of total revenues due to the U.S. and Colombia trading balance and the amount of available containers going from Colombia into the U.S. Our vertically integrated platform stretches across the entire architectural glass and window value chain, providing us with substantially shorter lead times than the industry average, opening new avenues for further expansion and share gains. Because we have significant control over most of our inputs, we continue to experience no material pressures from raw material inflation or material availability impacting our industry. We are also not experiencing material wage inflation or labor constraints.
The key takeaway is that we are producing outstanding results because we are able to supply superior quality products with short lead times at an attractive value, which is undoubtedly advancing our reputation for excellence and getting us in front of a growing roster of prospective customers. Our existing install capacity is currently running at about 80% nameplate utilization, and we have no operational constraints to meet demand for the foreseeable future. Let's now move to our second quarter financials, starting with the drivers of revenue on slide number nine. Total revenues increased 49% year-over-year to a record $121.7 million for the second quarter. In the U.S., which represents 90% of our total revenues, we saw growth of approximately 39% to $109.9 million, compared to $79.1 million in the prior year quarter.
This strength was primarily driven by strong growth in single-family residential activity, a continued recovery in commercial construction activity, and market share gains. We're also pleased to see strong revenue growth in our Latin America markets as the cadence of construction continues to normalize. Looking at the drivers of adjusted EBITDA on slide number 10. Adjusted EBITDA in the second quarter of 2021 increased 52.7% to a record $35.6 million, compared to $23.3 million in the prior year quarter. Adjusted EBITDA margin was 29.3%, a second quarter record, and a solid 80 basis point improvement compared to prior year period. We were pleased to produce record second quarter gross profit on both a dollar and margin basis. Our gross profit increased 52.9% to $48.6 million, representing a gross margin of 40%. This compared to gross profit of $31.8 million in the prior year quarter, representing a gross margin of 38.8%.
Our 120 basis point improvement in margin was mainly due 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 percent of revenue, operating expenses were lower by 360 basis points compared to the prior year period due to the higher revenues and better operating leverage on personnel, professional fees, and other fixed expenses. Now, looking at our improved balance sheet and leverage profile on slide 11. As we've highlighted in recent quarters, the recapitalization of our debt structure in October of 2020, combined with our impressive record of cash flow generation, has significantly enhanced our financial flexibility.
During the second quarter, these factors allowed us to achieve our lowest leverage ratio since 2015, at 1.1x . In the second quarter alone, we converted 89% of our adjusted EBITDA to record operating cash flow of $32 million, representing higher operating cash flow in the second quarter of 2021 than we generated in all of full year 2019. We are thrilled with this performance. Our higher margin, shorter cash cycle single-family residential revenues, combined with strong working capital management and lower interest expense, are all helping to drive additional shareholder value. The step change in our ability to generate cash leaves us well-positioned to deploy capital in areas we believe make sense for our strategy.
While we have capacity to meet demand for the foreseeable future, we are focused on long-term growth and believe that in addition to returning a portion of capital to shareholders through our dividend, the most prudent use of capital for our business at this time is to invest further in creating efficiencies in our operations. To this point, we are investing an additional $10 million-$15 million in capital expenditures within the next six to nine months to build out a new aluminum line and implement a new automated glass line within our manufacturing facility in Barranquilla. We expect these lines to be operational in the fourth quarter of 2021. Therefore, we now expect CapEx in 2021 to be approximately $30 million for the year.
Furthermore, the construction of our previously announced second state-of-the-art float glass plant in Barranquilla, through our joint venture with Saint-Gobain, remains on track to break ground in the first half of 2022. As previously discussed, our capital contributions toward that project have already been completed. We do not expect any additional CapEx as it relates to that project. Moving to our outlook on slide 13. Based on our continued positive momentum in the first half of 2021, and solid demand into July and the beginning of August, we are increasing our full year 2021 outlook. We now expect full year 2021 revenue of $450 million-$465 million, representing growth of 22% at the midpoint.
We continue to expect higher year-over-year growth in the first half of 2021 based on anticipated timing of invoicing in 2021 compared to 2020, as well as having a full schedule of operations without any COVID-19 related constraints as we had in the first and second quarters of 2020. Looking at the remainder of the year, given the solid recovery in commercial activity and the increasing mix of those projects in our backlog, we do expect the second half of 2021 to include more installation activity. However, based on our strong mix of single-family residential revenues in the first half of 2021 and our ongoing penetration into the U.S. single-family residential market, we reiterate our expectations for a higher mix of product versus installation revenue in full year 2021. We also 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 are raising our full-year adjusted EBITDA outlook to a range of $125 million-$135 million, representing 33% growth at the midpoint of the range, as well as margin expansion. Our gross margins should continue to benefit from our ability to efficiently manage costs, as well as our high return CapEx investments in automation initiatives. 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. That said, as I just discussed, given the expected increase in the mix of our commercial revenues with installation during the second half of the year, we expect our margins to trend closer to the high 30s percentage range in the third and fourth quarter of 2021.
Separately, as I mentioned earlier in the call, we now anticipate CapEx in 2021 to be approximately $30 million, with a large portion of these expenses going towards automation and growth to efficiently manage robust demand for our products. Maintenance CapEx continues to represent less than 2% of our sales. In conclusion, we are very pleased with our results to date in 2021. Our strong balance sheet and very conservative leverage profile further reinforce our flexibility to invest in additional value creation. We continue to target new customer relationships, penetrate the U.S. single-family residential market, and leverage our vertically integrated operations to deliver innovative products with superior lead times at an attractive value. This, along with our consistent track of record execution, has propelled Tecnoglass to the forefront of our industry. With that, we will be happy to answer your questions. Operator, please open the line for questions.
Thank you at this time will be conducting a question and answer session. If you like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate you line is in the question queue. You may press star two if you like to remove your question from the queue. For participant who use speaker equipment it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Alex Rygiel with B. Riley. Please proceed with your question.
Thank you. Very strong quarter, gentlemen. Congratulations on that. The residential business clearly was a very strong standout in the quarter. Can you expand a little bit more upon sort of your view of that market? Clearly, the home builders are experiencing a very strong build period right now. Historically, you haven't had much exposure to the home builders. How much of that revenue in 2Q was associated with home builders, and how should we think about sort of the revenue potential from home builders developing over the coming years?
Hello, this is José Daes. Very little of the new revenue is from home builders, actually, because we're just entering that market, and we like to enter slowly, so if we make mistakes, we make them very little, and then we keep growing and growing. There is a lot of potential to keep growing in that sector, and we believe we're going to keep doing it. So far, they have been very happy with us. Our mistakes have been very few. Since it was a new market, we didn't want to overcommit and then regret it. We believe there is, like you said, the demand is unbelievable. They all want to buy from us. We were very careful at the beginning, and we're going to make new commitments for next year.
Turning over to the commercial side of the business, it sounds like the sector is rebounding slowly from post-COVID-19. Can you expand upon that a little bit and maybe touch upon some of the geographic markets in the U.S. where commercial is experiencing notable kind of strength or weakness?
Well, every state in the U.S. that we are in, which are maybe around fifteen, they are really strong in commercial. The problem is that commercial takes a longer time from the date that you close the business until the actual date that you deliver the windows. We have closed a lot of jobs, new jobs, and we're in the process of negotiating hundreds of millions of dollars across the board. Much more than we have ever seen. The thing is that if we close a business today, between the time that we do the shop drawings, the architect approves them, the owner approves them, and we start production, sometimes takes six to eight months.
We believe the market is going to keep increasing slowly but surely. 2022 is gonna be really strong, and 2023 is gonna be even stronger even more because of the lead times and what I just told you.
Congratulations on a nice quarter, gentlemen.
Thank you.
Our next question comes from Josh Chan with Baird. Please proceed with your question.
Hi, good morning. Congrats on the very strong results in the quarter.
Hey, good morning, Josh. Thanks.
Good morning. I guess my first question is, on the residential side, could you talk about where your lead times are right now versus some of your competitors, maybe? It's impressive that you're saying you don't have a lot of constraints. I guess I'm wondering if you're seeing any bottlenecks in the whole sales process, and maybe even including after the windows arrive on the U.S. Are you seeing any logistical bottlenecks or inflation or things like that? Thank you.
Well, you asked like three, four questions in one question, let me go one by one. Number one, we have the shortest lead times in the business. We experienced like a week to two weeks delay on our normal lead times in the months of June and July because of the price increase that we placed at the end of May. We had double or 2.5 times the usual orders in the months of May and June. Now we're back to normal. We're doing really good. Of course, there are bottlenecks. When you normally ship x amount of windows and then you ship 2x, even taking delivery for our dealers was a challenge. Warehousing was a challenge, transportation, everything is back to normal. We increased our capacities. We doubled our warehousing and delivery capacity, and we're doing really good.
We're very happy. We have our supply of materials doing really good, and we are experiencing some little delays on some of our material supplies, but we are at the best point from all the competition. Everybody's having trouble with getting enough supply, but I believe that we are in the best position overall.
That's great to hear. All right. Yeah, that's definitely encouraging. Moving over to the commercial side, could you talk about where some of the conversations are in terms of quoting activities, particularly projects that are being planned, but before they even get to the backlog, how are those early demand indicators looking?
We are closing every month, every week, every day. We are very close to closing a lot of jobs. How long it will be, we don't know. We're closing every month. We're seeing record closings every month, every week. We are shipping. You see our sales are increasing, and still our backlog keeps growing. We believe by the end of the year, the backlog is going to grow 5%-10%. The Northeast is picking up. New York is picking up. Boston is picking up. The West Coast, California is picking up, Texas. Every state that we're in is picking up, and we're really happy. Especially our strongest market, which is the Southeast, the U.S., which is actually Florida. It's unbelievable. What is happening in Dade, Broward, and Palm Beach County is unprecedented.
That's great. Thanks for the color there. I guess my last question is, in the press release, you talked about a returns-oriented mindset to the capital allocation. Could you just elaborate on what that means to you? Thank you.
Yes, obviously, we're returning some capital through our dividend, but what we're seeing right now is a huge potential to grow, right, as José was mentioning. We are investing in CapEx to further expand operations and be ready for what we're seeing coming. Also, we are looking at potentially prepaying some of our debt. As you see, we have over $100 million in cash as of June, which is a substantial amount of capital. We are evaluating what makes sense right now. Finally, I think at this point in time, M&A may become more relevant. We're being very cautious about value and multiples and whatnot. We're going to do what's right for shareholders and what adds the most value. Right now, that is reinvested in our operations and in growing our capacity to address the growth that we're seeing.
That's great. Thanks for your time, and congrats again on a very strong quarter.
Thanks, Josh.
Our next question is from Zane Karimi with D.A. Davidson. Please proceed with your question.
Hey, good morning, and congrats on the results, everybody.
Good morning.
Good morning.
First off here, I know the gross margins once again were really strong, and I know a mix has been a big part of that. What would cause the mix to change in the 2nd half versus what you saw in the 1st half? It also appears you are managing through raw materials and supply chain constraints really effectively given the environment. Anything of concern in that area on the horizon, though?
On the first question, the mix could change based on the cadence of the commercial projects, right? As we move into the year and some of the installation projects start picking up, the mix will change. Also, as we said earlier, the residential component of the business continues to grow, and that would likely offset that increase in installation work. That's why we're guiding to high 30s as gross margin goes. On the second question, by being fully vertically integrated, we're controlling most of the supply chain, as you know. We're not as concerned about inflation as some of our peers are, being fully integrated with Saint-Gobain on the glass side and having most of our aluminum covered. So far so good. As Jose mentioned, there's obviously some other components that we're seeing inflation on. Not as material as the peers.
Okay, thank you. To follow up on the commercial side of things, what's implied in the guidance related to the commercial business? Do you still see that as more of a benefit to 2022? Are you seeing more projects filling in that second half?
The commercial side is picking up, especially on the second half, because now we're starting to ship new projects. On 2022, it's going to skyrocket for sure.
There is an advantage on shipping commercial over residential, because normally, a window for a house costs half of what it costs a window for a building, because it takes half the aluminum, half the thickness of the glass. Right now we're doing 40% more units than we were doing eight months ago, and you only see that we increased sales probably 20%, 25%. In the third quarter or fourth quarter, we're going to see more commercial, which the windows cost more money, and we should see an increase actually in sales and in invoicing.
Thank you for that. Last one, if I can. Can you update us on your initiatives to move the residential business into some of the other geographies outside of Florida? I know you kind of talked about either those Gulf Coast or Texas, if you will. Where are you seeing the most traction in some of these markets?
We are moving north of Florida, which has a different code and different requirements as far as the shading coefficient and thermal requirements. We're moving into Georgia, South Carolina, North Carolina, Texas, Louisiana. We're doing it, like I mentioned before in another question, we like to make the mistakes small and then learn about the business and learn about the requirements of each market. After we learn, then move really strongly. We are doing that. We have been selling in those places, very small jobs, a few houses, to learn the trade. I believe by January to June, we're going to move full speed into those markets once we finish developing all the products that they need in order to make our customers happy.
Thank you. Have a great rest.
Thank you.
Our next question is from Josh Wilson with Raymond James. Please proceed with your question.
Good morning, and congratulations on a great quarter.
Thanks, Josh. Good morning.
Thank you.
Question on the guidance. Can you spell out a little more for us what you're assuming for Colombia and for single family?
Yes. Basically continued growth on single family. We're expecting that pace to continue moving up as we move into the year. For Colombia, we're expecting Colombia and LatAm kind of flattish to what you saw on Q2. Essentially, most of the growth, as we said on the call, is going to come from the U.S. residential. Really, even into July and August, we're already seeing those trends materialize.
Got it. Then, especially on the commercial side, there have been others express issues with delays, either in job site labor or maybe in other materials unrelated to their own business. Have you seen any projects start to push out because of that?
No, we haven't seen that. All our projects are moving alongside, and we are delivering, we're installing, and we're doing really good.
Very good. I'll turn it over.
We've reached the end of the question and answer session. At this time, I'd like to turn the call back over to José Manuel Daes for closing comments.
Thanks, everyone, for participating on today's call. We'll keep striving to do great work for our shareholders, and we're very happy with the results. We strive always to do better and better. Thank you.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for yo ur participation.