Tecnoglass - Earnings Call - Q2 2025

Executive Summary

• Record Q2 results: revenue $255.546M (+16.3% YoY), adjusted EPS $1.03, and adjusted EBITDA $79.779M; gross margin expanded 400 bps to 44.7% on pricing, mix, and operating leverage.
• Clear beat vs consensus on revenue and adjusted EPS: $255.5M vs $246.6M and $1.03 vs $0.958, helped by strong residential demand, pricing actions, and continued share gains; guidance raised at the low end for FY25 revenues and narrowed for EBITDA.
• Residential remained a core engine (SFR revenue $109.6M, +14.5% YoY; SFR orders +29% QoQ), while multi-family/commercial grew 17.8% YoY; backlog reached a record $1.2B (+17.2% YoY).
• Tariff headwinds were mitigated by supply chain shifts and price increases (5–7% in residential); SG&A rose on ~$5.9M aluminum tariffs in April and higher transport and personnel, but margins still expanded.
• Stock-reaction catalysts: reinforced FY25 outlook (revenue $980M–$1.02B; adj. EBITDA $310M–$325M), record backlog visibility into 2026, California showroom ramp for “Legacy” aluminum, and feasibility study for a fully automated Florida plant.

What Went Well and What Went Wrong

• What Went Well

  • Record revenue and margin expansion: $255.546M revenue (+16.3% YoY) and 44.7% gross margin (+400 bps YoY) on pricing, mix, and operating leverage.
  • Strong order momentum and backlog: SFR orders +29% sequentially; record backlog $1.2B (+17.2% YoY) with visibility into 2026; book-to-bill ~1.2x and “virtually no project cancellations”.
  • Pricing/tariff mitigation: Residential price increases (5–7%) and supply-chain shifts to U.S.-sourced aluminum are offsetting tariff impacts; management expects less tariff impact going forward.
  • Management quote: “Our ability to consistently generate robust growth and share gains while significantly expanding margins demonstrates the power of our vertically integrated platform.” — CEO José Manuel Daes.

• What Went Wrong

  • SG&A deleverage: SG&A rose to $53.1M (20.8% of revenue) vs 17.5% LY on ~$5.9M aluminum tariffs in April, higher transport, and salary increases.
  • Some residential order pull-forward: Company estimates $5–$7M of residential orders were pulled forward from Q3 into Q2 ahead of tariff-related pricing adjustments, implying some Q3 revenue timing effects.
  • JV contribution down YoY: Adjusted EBITDA included $0.5M contribution from the Saint-Gobain JV vs $1.4M LY.

Transcript

Speaker 6

Morning and welcome to the Tecnoglass Inc. Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Please go ahead.

Speaker 5

Thank you for joining us for Tecnoglass Inc.'s Second Quarter 2025 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass Inc. 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 Inc.'s current expectations or beliefs and are subject to uncertainty and changes in circumstances.

Actual results may vary 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 Inc.'s business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass Inc.'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 Inc.'s financial results in any particular period may not be indicative of future results. Tecnoglass Inc. 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.

Speaker 3

Thank you, Brad, and thank you everyone for participating on today's call. We are excited to report another exceptional quarter that demonstrates the strength and resilience of our business. Our second quarter total revenues reached a record of $255.5 million, up 16.3% year over year. This strong growth was driven almost entirely by robust double-digit organic growth in both our single-family residential and multifamily commercial businesses. These outstanding results showcase our ability to consistently outperform market trends while expanding margins and gaining market share. Our vertically integrated platform continues to deliver exceptional value and flexibility, giving us confidence in our ability to respond effectively to evolving market conditions. At the same time, we are maintaining our industry-leading margins and commitment to operational excellence. In our single-family residential business, we grew revenues 14.5% year over year to a second-quarter record of $109.6 million.

This performance reflects continued success in our geographic expansion strategy, market share gains, and meaningful contributions from our vinyl window products line. We were also pleased to see a consequential growth of 29% single-family residential orders compared to the first quarter of 2025, making the second-highest quarter of orders in the history of the company. Our multifamily and commercial businesses delivered solid growth of 17.8% year over year to $145.9 million, demonstrating our ability to capitalize on the healthy demand for luxury mid-to-high-rise projects in Florida. The momentum we are seeing in project activity reinforces our confidence as we continue to execute on our growing backlog, now at an all-time high of $1.2 billion. In the face of ongoing macroeconomic uncertainty and a higher cost environment, we were pleased to expand our margins substantially during the quarter.

We achieved a gross margin of 44.7%, representing a 400 basis point improvement year over year. Our margin performance reflects the benefits of increasing our production to achieve our record revenue quarter, as well as favorable product mix and pricing and cost control actions. Supported by our vertically integrated model, all these actions substantially minimize our exposure to market volatility and are expected to position us well as we move forward. In conclusion, our record second quarter results demonstrate the power of our vertically integrated business model and our ability to execute in a dynamic environment. With our strong balance sheet, substantial cash position, and a growing backlog, we believe we will deliver additional shareholder value. We remain focused on being a reliable partner to our customers and making necessary adjustments to maintain supply chain stability.

Overall, we are confident in our trajectory and our ability to continue growing faster than the market in 2025 and beyond. I will now turn the call over to Christian.

Speaker 2

Thank you, José Manuel. Moving to slide number five, our robust second-quarter performance across both our single-family residential and multifamily commercial businesses reflects our consistency in delivering best-in-class products and services to our customers. Our single-family residential business achieved exceptional results, with revenues reaching a second-quarter record of $109.6 million, representing strong growth of 14.5% year over year. Order levels remained healthy, with the second quarter marking the second-highest residential order quarter in Tecnoglass Inc.'s history, building a strong momentum into the second half and beyond. This outstanding performance was driven by continued market share gains through geographic expansion and meaningful contributions from other geographies beyond our traditional markets. On the multifamily and commercial side, we delivered revenue growth of 17.8% year over year, reflecting continued strength in key markets and solid light commercial activity.

We ended the quarter with a record backlog of $1.2 billion, representing approximately 2.2 times our LTM multifamily and commercial revenues, marking our 33rd consecutive quarter of year-over-year backlog expansion. This backlog provides exceptional visibility into our project pipeline, extending well into 2026 and beyond. The successful completion of our Continental Glass Systems asset acquisition in April further strengthens our capabilities in high-end architectural glass and glazing solutions. This action also diversifies our production footprint into the U.S. market, providing additional growth avenues as we execute our strategic vision. Moving to slide number six, our backlog has shown consistent sequential growth since 2021, highlighting strong bidding activity and a solid project pipeline across our markets. Our book-to-bill ratio remained healthy at 1.2 times as of the second quarter, continuing our track record of maintaining a ratio above 1.1 times for 18 consecutive quarters.

Historically, roughly two-thirds of our reported backlog converts to revenue over the following 12 months. As previously discussed, our backlog composition has been shifting towards high-end, large-sized projects, which are less interest rate sensitive and are executed over a multi-year time horizon. The strength of our backlog is supported by several key factors. First, we experience virtually no project cancellation as we typically install windows in buildings that are already well advanced into the construction process. Second, our backlog is primarily composed of projects that have shown resilience to interest rate changes and economic fluctuations. Third, the continued geographic diversification of our project portfolio helps to reduce regional market concentration risks. While external factors may occasionally impact delivery timing, our consistently robust book-to-bill ratio reinforces our confidence in delivering sustained revenue growth for years to come.

I will now turn the call over to Santiago to discuss our financial results and improved outlook for 2025.

Speaker 7

Thank you, Christian. Turning to single-family residential on slide number seven. Our single-family residential business continues to perform exceptionally well and represents a key driver of our overall growth strategy. Single-family residential revenues reached a record $109.6 million in the second quarter, representing robust growth of 14.5% year over year and our second-highest quarter on record. This outstanding performance reflects several key factors. This includes our continued geographic expansion with contributions from new markets, our expanded product portfolio including vinyl growth, and to a lesser extent, customers accelerating orders ahead of anticipated tariff-related pricing adjustments. In light of $5 to $7 million of residential revenue pull forward from Q3 into Q2, we were pleased to see 29% sequential growth in customer orders during the quarter, which puts us squarely on track to execute against our full-year objectives.

Looking ahead, we remain optimistic about the organic growth opportunities in our single-family residential business, which are supported by several key drivers. First, our expanding dealer network continues to benefit from our industry-leading five to six-week lead times and our innovative, high-performance product offerings. Second, we continue to see strong demographic trends, such as population migration patterns across our key markets, supporting our growth outlook. Third, our ongoing geographic expansion is gaining momentum. To that point, we were pleased to commence actions in April to open a new showroom in California, which is expected to help promote our newly developed legacy aluminum product line. We're already seeing encouraging order momentum in advance of the showroom's expected opening in the fourth quarter, supported by our established sales presence and strong product availability in the region. Turning to the drivers of revenue on slide number nine.

Total revenues for the second quarter increased 16.3% year over year to a record $255.5 million, with double-digit growth across both our single-family residential and multifamily and commercial businesses, reflecting strong demand for our best-in-class product offerings, geographic expansion, and early contributions from our Continental Glass Systems acquisition. Looking at the profit drivers on slide number ten. Adjusted EBITDA for the second quarter of 2025 was $79.8 million, representing an adjusted EBITDA margin of 31.2%, increased on both metrics compared to $64.1 million, or a 29.2% margin in the prior year quarter. Second quarter gross profit increased to $114.3 million, representing a 44.7% gross margin, compared to gross profit of $89.6 million, representing a 40.8% gross margin in the prior year quarter.

The 400 basis point improvement in gross margin was primarily driven by increased volumes on record revenues generating operating leverage, as well as stable raw material costs, favorable mix, and weaker peso. In April, we hedged a large portion of our 2025 Colombian peso exposure at premium rates at roughly 9% better than last year. This effectively offsets local currency inflationary pressures. SG&A expenses were $53.1 million, or 20.8% of total revenues, compared to $38.4 million, or 17.5% of total revenues in the prior year quarter. The increase was primarily attributable to incremental selling expenses associated with tariffs, including approximately $5.9 million in aluminum tariffs paid in April, non-recurring expenses associated with the Continental Glass Systems acquisition, and higher transportation and commission expenses associated with our revenue growth, as well as increased personnel expenses related to annual salary adjustments implemented at the beginning of the year.

As a reminder, during the quarter, we took decisive measures to mitigate the impact of tariffs through our pricing and sourcing actions. We are beginning to see the benefits of our strategic supply chain diversification following our shift to U.S. source aluminum and an updated pricing model with margins starting to strengthen toward the end of June, once higher price orders started getting invoiced. Looking forward, we do not expect to be as heavily impacted by tariffs as we have adjusted our supply chain and have taken pricing actions in order to compensate for the incremental expense. The recurring tariffs on standalone products continue to be effectively passed through to clients, and our proactive approach to supply chain optimization and pricing adjustments has positioned us to maintain our competitive position and margin profile. Now, examining our strong cash flow and balance sheet on slide number 11.

We generated operating cash flow of $17.9 million in the second quarter, supported by our efficient working capital management and the favorable cash dynamics of our single-family residential business, which features upfront payments and shorter conversion cycles. We achieved this positive cash generation despite the annual timing of income tax payments, which total approximately $36 million during the quarter. Capital expenditures of $32.5 million in the quarter included scheduled payments on previous investments, along with $15.1 million of the Continental Glass Systems asset acquisition classified as capital expenditure. We continue to expect capital expenditures to drop significantly in the back half of 2025, driving even stronger free cash flow through the year-end. Our balance sheet remains robust, with total liquidity of approximately $310 million at quarter end, including a strong cash position of $137.9 million and $170 million of availability under our revolving credit facilities.

With total debt of $109.2 million, our strong liquidity position and solid cash flow generation position us well to achieve our growth objectives and further invest in strategic growth initiatives. On slide number 12, our ability to deliver exceptional returns continues to distinguish us within the industry. Over the past three years, our strategic investments and operational excellence initiatives have consistently generated superior value for our shareholders. This sustained outperformance demonstrates the resilience of our business model, our commitment to operational discipline, and our prudent approach to capital deployment. Now, moving to our outlook on slide 14. We are proud of our robust performance through the first half of 2025. The continued strength we are seeing across our business and our visibility into demand trends for the second half of the year support an increase to the low end of our full-year revenue guidance.

We now expect revenues to be in the range of $980 million to $1.02 billion, reflecting growth of approximately 12% at the midpoint. Additionally, we are narrowing our adjusted EBITDA outlook to a range of $310 to $325 million. This updated outlook maintains our assumption that our pricing initiatives and other cost mitigation efforts will more than compensate for our projected $25 million full-year impact from elevated input costs and tariffs on select products. In our single-family residential business, we estimate the significant majority of the $5 to $7 million of accelerated customer orders during the second quarter were pulled from the third quarter.

We have provided a detailed set of assumptions in the presentation to support both the high-end and the low-end of our revenue and adjusted EBITDA guidance, encompassing our expectations for our vinyl business ramp-up, residential market performance, pricing adjustments, tariff impacts, margin dynamics, and foreign exchange rates. These comprehensive assumptions reflect various scenarios ranging from the more favorable interest rate environment and healthy residential business growth at the high end to a more conservative volume projection and other potential headwinds at the low end of our guidance range. We continue to expect a full year of strong cash flow generation. That said, we're updating our projection for capital expenditures to be in the range of $65 to $75 million to reflect the tail end of previous investments, maintenance capex, further investments in efficiency initiatives, and expenditures related to our Continental Glass Systems asset acquisition.

Working capital should continue to be a source of cash as we expand our single-family residential revenues, though this will be partially offset by longer cash conversion cycles in our commercial and multifamily business. In conclusion, our second quarter 2025 results demonstrate the strength of our business model and our ability to execute consistently across market cycles. We're seeing strong customer reception and growing demand for our innovative vinyl solutions, which complement our traditional aluminum and glass offerings and contribute meaningfully to our overall growth trajectory. We're navigating the shifting construction dynamics with flexibility, supported by a more resilient supply chain built through past disruptions. Our strategic initiatives, proactive management of external challenges, strong balance sheet, and growing backlog all position us very well for continued success.

Additionally, the completion of the Continental Glass Systems asset acquisition further cements our market presence in key geographies and provides additional growth avenues as we continue to execute on our strategic vision. We remain committed to delivering industry-leading returns while maintaining the financial flexibility to capitalize on further growth opportunities in 2025 and beyond. With that, we will be happy to answer your questions. Operator, please open the line for questions.

Speaker 6

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Julio Alberto Romero with Sidoti & Company. Please go ahead.

Speaker 4

Great. Thanks, good morning, José Manuel, Christian, Santiago.

Speaker 7

Good morning.

Speaker 3

Morning.

Speaker 4

I wanted to start out on the revenue line. I appreciate you calling out the pull forward of $5 to $7 million in the second quarter. How much of that pull forward, in your view, was after the Section 232 increase in June? More broadly, how has that announcement translated to any change in customer behavior?

Speaker 7

It was before we announced. We announced price increases to take place towards the beginning to middle of May. It was done then. What you saw was a little bit of that effect towards the end of June, but largely everything that was pulled forward will actually become invoiced July, August, and September. We expect most of that to impact Q3, not Q4.

Speaker 4

Got it. Okay, that's helpful. It sounds like you've made progress with narrowing down locations for the plans to build out a manufacturing facility in the U.S. Just any early takeaways you can call out from having Continental Glass Systems under your belt that you're applying to the feasibility study for the fully automated plant?

Speaker 7

We are in the stages of doing the math and the engineering, and the location and everything is coming out looking really good. We don't want to, you know, say too much at this time, but the level of automation that we're going to have is going to make us be very close to the levels of EBITDA that we're looking at today from Colombia producing in the U.S. We have a good feeling about the plant in the U.S. We're well into the design, but still a little early to make an announcement or a decision, but it is coming soon.

Speaker 4

Great. Good context. I'll pass it on. Thanks.

Speaker 6

The next question is from Timothy Ronald Wojs with Robert W. Baird & Co. Incorporated. Please go ahead.

Speaker 1

Hey, everybody. Good morning. Nice job.

Speaker 7

Good morning.

Speaker 4

Hey, just to clarify, Santiago, the $5 to $7 million to pull forward, that's an order number, right? That didn't get pulled really into the second quarter revenue, did it?

Speaker 7

Some of it did, Tim, because if these orders started getting done ahead of that price increases at the beginning of May, and you place those orders towards the end of April, beginning of May, you get some of that into Q2, towards the end of Q2. That's the calculation that we did.

Speaker 1

Okay. There's a part of the $5 to $7 in Q2, and then the rest is in Q3, basically?

Speaker 7

No, no, no. The $5 to $7 is Q2. The rest is all Q2.

Speaker 1

That is Q2. Okay, gotcha.

Speaker 7

Yes.

Speaker 1

Gotcha. Gotcha. Gotcha. Gotcha. Gotcha.

Speaker 7

Yes.

Speaker 1

Okay. Gotcha. Gotcha.

Speaker 7

Yes.

Speaker 1

Okay. Gotcha. Gotcha.

Speaker 7

Gotcha.

Speaker 1

Okay. Gotcha. Gotcha.

Speaker 7

Yes.

Speaker 1

Okay. Gotcha.

Speaker 7

Gotcha.

Speaker 1

Okay. Gotcha.

Speaker 7

Gotcha.

Speaker 1

Okay. Gotcha.

Speaker 7

Gotcha.

Speaker 1

On the margins, just the midpoint of the guidance, just doing some math, I think it suggests that the margins are down a little bit in the second half of the year.

Speaker 7

Yes.

Speaker 1

I'm just trying to think through the margins might be down a little bit in the second half of the year. I'm just trying to think through the puts and takes there, how you're thinking about the margin cadence in the second half, especially since I think you grew EBITDA or, you know, EBITDA margin this quarter despite having those aluminum tariff costs. Just the puts and takes there would be helpful.

Speaker 7

From a gross margin perspective, we're modeling at the midpoint of guidance in line with year-to-date. Not a whole lot of difference there.

Speaker 1

Okay.

Speaker 7

You always have to remember that we like to be conservative on the projections because we never want to miss, but we want to succeed. The one other put and take here, Tim, is that we're expecting commercial construction to ramp up quite a bit the rest of the year. Obviously, as you know, that comes with more installations. If anything, a potential headwind on margins would be from that. You also have the full impact of the price increases that were done in May that are going to start fully hitting in Q3. On a conservative basis, we're modeling gross margins at the same level as what you have seen year-to-date.

Speaker 1

Okay. That's helpful. Just on pricing, I guess, you know, we're kind of a few months delayed now from the tariffs. Where are your pricing increases landing relative to the competition? Is there layering things in? Are you in line or are you below, above? Is that pricing all in residential or have you been able to pass through some pricing in commercial? Sorry, there's a bunch of questions there, but just.

Speaker 7

Yeah, no, no, no. It's in line. We had announced prior to this call something around 5% to 7% strictly on the residential side because you also have on the commercial side contracts that have already been in place. Any new commercial jobs that are being signed are signed with the new pricing. You might actually get the benefit of short-dated kind of light commercial projects that get invoiced this year, but most of the impact will be on the single-family residential side orders that came in after May. In line with what we've seen from others, I would say on the low end as far as that benchmark goes, we've heard of kind of high single digits to low double digits even price increases across the board.

Speaker 1

Okay. Okay. Sounds good. Thanks a lot, guys.

Speaker 7

Thanks.

Speaker 6

The next question is from Rohit Seth with B. Riley Securities. Please go ahead.

Speaker 0

Hey, thanks for taking that question. Just building on the order questions, maybe you can give us a sense of what you've seen so far in July.

Speaker 7

Very good month. I mean, it's been kind of very robust across the board. You saw what we said about orders in Q2, 29% up sequentially from Q1. July was a very strong month. I would say it was the highest revenue month that we've had to date in the company's history. As far as order goes, it continues, you know, to be strong, which gives us kind of good visibility for the rest of Q3.

Speaker 0

All right. Thank you. On the new product lines, the vinyl window products, maybe you just give the status update. You guys were talking last quarter about getting some of those new specs kind of certified. Just any update on that front?

Speaker 3

Yes, we're working on that. We have new lines that are selling already in Utah, Nevada, California, and Arizona. The complete line is going to be ready by the end of the year. We expect that next year, with the vinyl complete, the new legacy line complete, and some other new products that we're testing, we expect to ramp it up next year for sure.

Speaker 0

Last quarter, you mentioned a catapulting of sales, and you still feel the same?

Speaker 3

Yes. Yes, yes. The reaction of the market towards our products is well received. They love it. We've been doing rounds in all those Western states, and it's really exciting. We are more than hilarious about it.

Speaker 0

All right. Fantastic. Maybe if I could squeeze the last one, you've had a great run here with the replacing windows in Florida. Maybe you just give us a sense of what's happening in the marketplace.

Speaker 3

No, the market is really strong in every segment, even though the months of July and August are the worst because all the fathers go on vacation with their sons, and it's the summer months. What I hear from everybody, all the GCs, all the developers, is that things are coming back now, and people are getting used to the mortgages and those levels. Residential is going to start picking up again. I mean, we are very excited about the Florida market and even more excited about the new markets that we're entering because the reception is unbelievable.

Speaker 0

All right. Fantastic. I'll pass it along. Thank you.

Speaker 6

Again, if you have a question, please press star then one. The next question comes from Jean Franco Veliz with D.A. Davidson & Co. Please go ahead.

Speaker 4

Hi, good morning. I think that's my question.

Speaker 7

Good morning.

Speaker 4

Thank you. I want to start wondering, what sort of opportunities are there outside of your current footprint within Florida?

Speaker 3

We are just entering the market in vinyl. By the end of the year, vinyl is going to be ready. From Tampa up, there is a huge market for those windows. Everybody, all the dealers that we have, they buy aluminum and they buy vinyl, and they want to buy the vinyl from us, but we don't have the complete line, which we're going to have by the end of the year. That's one. Number two, we, for example, are selling now in Jacksonville in the Panhandle that we were not in before.

Speaker 7

As a follow-up to that, from year-end to June, we've increased our dealers by about 15% to 20%, and a lot of those come from other geographies outside of Florida. To the point of José, now having the product to sell in other states and having dealers in place is paving the way, and the seed has been planted for us to start growing those markets significantly. They're already contributing, by the way. There's already evidence of that happening.

Speaker 4

Does that apply as well for the commercial side of the business?

Speaker 3

Yes, yes, it does. We are doing a lot of commercial works now in Tampa, Jacksonville, Georgia, and Atlanta. Now we're going to open in Nashville, which is a hot market. We're going to open in Austin, Texas, Dallas, and Houston. The country is big. There are many states that we were not present. Now we're going to be nationwide.

Speaker 4

Perfect. I appreciate it. I'll hop back.

Speaker 7

Thanks.

Speaker 4

Thank you.

Speaker 6

This concludes our question and answer session. I would like to turn the conference back over to José Manuel Daes for any closing remarks.

Speaker 3

Thank you, everyone, for participating today. We are very excited about the future of the company. We have planted the seeds, as Santiago said, and we expect much better news. Thank you.

Speaker 6

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.