Tecnoglass - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered a quarterly record: revenue $239.6M (+23.1% y/y), diluted EPS $1.00, gross margin 44.5%, and adjusted EBITDA $79.2M (33.1% margin).
• Backlog reached an all-time high $1.1B (book-to-bill 1.3x), with management emphasizing visibility well into 2026 and strong single-family momentum entering Q1 2025.
• 2025 outlook introduced: revenue $940M–$1.02B (≈10% growth mid-point), adjusted EBITDA $300M–$340M; assumptions include COP at/above 4,200 for higher-end margins, vinyl revenue $15M–$40M, and capex $65M–$70M.
• Key catalysts: tariff headline risk (proposed 25% U.S. aluminum import tariff) with mitigation via U.S.-sourced aluminum and potential pricing actions; dividend raised 36% to $0.15 (annualized $0.60), net cash at year-end supporting buybacks ($76.5M capacity remaining).

What Went Well and What Went Wrong

What Went Well

• Record Q4 revenue and margin expansion driven by both single-family and commercial demand; adjusted EBITDA +27.9% y/y with margin 33.1%.
  Quote: “Total revenues for the fourth quarter … increased 23.1% to a quarterly record of $239.6 million … adjusted EBITDA … $79.2 million … 33.1%”.
• Backlog strength and visibility: all-time high $1.1B; 31st consecutive quarter of y/y backlog growth; book-to-bill 1.3x; ~2/3 backlog typically converts within 12 months.
  Quote: “Our backlog reached an all-time high of $1.1 billion … book-to-bill … 1.3x … approximately 2/3 … converting to revenue within the next 12 months”.
• Strategic momentum: vinyl ramp beginning (Q4 single-family $93.5M), showroom expansion (CA/AZ), strong bidding/quoting; record operating cash flow $170.5M for 2024 and $61.1M in Q4.

What Went Wrong

• SG&A rose to $39.4M in Q4 on transport/commissions and salary adjustments; 2024 SG&A 17.2% of revenue vs 15.7% prior year.
• Macro/FX headwinds: unfavorable FX earlier in 2024 pressured margins; COP wage increase of 9% expected to weigh on margins, partly offset by leverage/efficiency.
• Tariff risk: proposed 25% U.S. aluminum tariff could affect ~$25M of annual aluminum component costs; mitigation planned via U.S. sourcing and pricing actions, but creates uncertainty.

Transcript

Operator (participant)

Good morning, and welcome to the Tecnoglass Fourth Quarter 2024 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.

Brad Cray (Head of Investor Relations)

Thank you for joining us for Tecnoglass's Fourth Quarter and Full Year 2024 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 CEO José Manuel Daes, COO Chris Daes, and CFO Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth, and future acquisitions. These statements are based on Tecnoglass's current expectations or beliefs and are subject to uncertainty and changes in circumstances.

Actual results may differ in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive, and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass's business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass's filings with the SEC. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass's financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions, or otherwise. I will now turn the call over to José Manuel, beginning on slide number four.

José Manuel Daes (CEO)

Thank you, Brad, and thank you, everyone, for participating on today's call. We are proud to report exceptional results for 2024, marked by outstanding achievements across our business. Our record revenues of $890 million and strong profitability demonstrate our consistent track record of gaining market share while maintaining operational excellence through our vertically integrated business model. This year's impressive performance reflects broad-based strength across our business. Our single-family residential revenues reached an all-time high of $372 million, driven by successful market share gains, continued strength within our main markets, and the initial ramp-up of our geographic expansion. In our multifamily and commercial businesses, we achieved solid growth to a record of $518 million, driven by a strong execution of our expanding backlog. Our strategic investment in automation and manufacturing capacity have proven instrumental to our success.

These enhancements deliver significant returns through improved operational efficiencies, enabling us to meet growing demand while maintaining our commitment to innovation and quality. Despite facing currency headwinds and increased personnel expenses early in the year, we were pleased to maintain industry-leading margins, which improved sequentially through the year as currency effects rates normalized. Our ability to maintain strong profitability is due in large part to our structural competitive advantages, particularly our significant advantages in labor and other administrative costs and expenses, and fully vertically integrated models. The former has proven especially valuable given the persistent construction labor shortages and wage inflation pressure in the broader construction industry within the U.S. Our exceptional margin profile, coupled with generating record operating cash flow of $170.5 million, underscores the resilience of our business model. Our strong operational performance has strengthened our financial position and elevated our return profile.

We achieved a net cash position by year-end while returning significant capital to shareholders through our increased cash dividend. The repayment of $65 million in debt during 2024 has further enhanced our financial flexibility as we prepare for the increased levels of demand that we anticipate over the coming years. Looking ahead, we remain confident in Tecnoglass's trajectory. Our record 2024 performance, including an all-time high backlog at year-end and strategic initiatives, particularly as it relates to our geographical expansion and our expansion into vinyl windows, collectively provide clear visibility into 2026 and beyond. Our operational foundation, market leadership, and focus on innovation give us multiple avenues to unlock additional shareholder value. I will now turn the call over to Chris to provide additional operating highlights.

Christian Daes (COO)

Thank you, José Manuel. Moving to slide number five, our significant business momentum throughout 2024 culminated in record results for both the fourth quarter and the full year. This performance demonstrates the resilience of our business model and consistent ability to outperform the broader market. The strength in our single-family residential business was especially noteworthy, with revenues growing 11% year-over-year to a record $372 million. We continue making progress, expanding our geographic footprint with the new showroom lease signings in process for the California and Arizona markets. Encouragingly, we are already seeing orders pick up in these regions, given our established sales force presence and product availability. Our solid growth also reflects a ramp-up of vinyl windows deliveries in the second half of the year.

Our exceptional performance in single-family residential and the large opportunity with the ongoing geographical expansion and further diversification into vinyl products reinforces our confidence in further market penetration and growth potential for 2025. Our multifamily and commercial business delivered another outstanding year, with revenues growing mid-single digits to $518 million. Our backlog reached an all-time high of $1.1 billion at quarter-end, representing exceptional growth of 28% year-over-year. This marks our 31st consecutive quarter of year-over-year backlog expansion, reflecting both a strengthening market leadership and growing demand for innovative products. The quality of our backlog remains strong, with particularly robust activity in high-end residential, luxury lodging, and Class A office space projects. We are also seeing encouraging signs of project activity resuming in certain geographies that have remained largely dormant since COVID-19.

Combined with strong momentum in quoting and bidding activity across our markets, we are exceptionally well-positioned for continued growth in 2025 in this end market. This high level of visibility reinforces our confidence in continued market share gains and sustainable growth. Moving to slide number six, our backlog has shown consistent sequential growth each quarter since 2021, demonstrating sustained business momentum and a strong project pipeline. This momentum has helped maintain our book-to-bill ratio of 1.3 times as of quarter four 2024. We have maintained a book-to-bill ratio above 1.1 times for 16 consecutive quarters, with approximately two-thirds of our backlog typically converting to revenue within the next 12 months. This provides strong visibility on future revenues and supports our growth trajectory for 2025 and beyond. The quality of our backlog is underpinned by our late-stage installation profile and focus on interest-rate resilient projects.

Our project cancellation rate remains near zero since we typically install windows in buildings that are typically already in the construction process. Additionally, our backlog is concentrated in projects that have historically demonstrated resilience to interest-rate changes. While delivery timing may fluctuate due to external factors, our consistently strong book-to-bill ratio reinforces our confidence in future revenue conversion. I will now turn the call over to Santiago to discuss our financial results and outlook for 2025.

Santiago Giraldo (CFO)

Thank you, Christian. Turning to single-family residential on slide number seven, during the fourth quarter, we generated single-family residential revenues of $93.5 million, compared to $77.1 million in the prior year quarter. Despite challenging macro conditions, we achieved record full year 2024 single-family residential revenues of $372.1 million. The year-over-year increase in both periods primarily reflected continued market share gains through geographic expansion and broadened product offerings. We continue seeing significant market share potential driven by our expanding dealer network with very efficient five to six-week lead times, strategic geographic expansion with new showrooms in key markets, and our entry into the vinyl window market, which has more than doubled our addressable market. We saw deliveries of vinyl products pick up toward the end of last year and expect that momentum to continue into 2025 as we leverage our existing network and sign new clients to meet growing demand.

Looking at demographic trends in our main markets on slide number eight, we are operating in states that are projected to capture the majority of U.S. construction spending growth through 2029. Florida and Texas, two of our core markets, are expected to account for nearly 30% of all construction starts over this period, representing approximately $84 billion in combined growth opportunities. This aligns with broadened population migration patterns towards the Southeast, where states are projecting above-average population growth rates exceeding 6.5%. Furthermore, federal infrastructure spending through the Infrastructure Investment and Jobs Act is providing an additional tailwind with substantial funding still to be deployed across our key markets. These demographic and federal spending trends provide strong structural support for our continued expansion and reinforce our strategic focus on these high-growth regions.

That being said, our ongoing geographical expansion should allow us to also capture market share in many other geographies where we currently don't have a significant presence. Turning to the drivers of revenue on slide number ten, total revenues for the fourth quarter increased 23.1% year-over-year to a quarterly record of $239.6 million, while full-year revenues increased 6.8% to a record $890.2 million. Growth in both periods came from our single-family residential and multifamily commercial business, driven by strong activity in our main markets, geographic expansion, and our broadened product offering. Looking at the profit drivers on slide number 11, Adjusted EBITDA for the fourth quarter 2024 increased 27.9% year-over-year to $79.2 million, representing an Adjusted EBITDA margin of 33.1%. Full-year Adjusted EBITDA reached $275.8 million, representing a margin of 31%.

Fourth-quarter gross profit was $106.5 million, representing a 44.5% gross margin, compared to gross profit of $83 million, representing a 42.6% gross margin in the prior year quarter. The margin improvement reflected benefits from stronger pricing, stable raw material costs, operating leverage, and more favorable foreign exchange rates. Full-year gross profit totaled $380 million, representing a 42.7% gross margin, aligning with our target range of low to mid 40% despite early-year foreign exchange headwinds that have since stabilized. SG&A for the fourth quarter was $39.4 million, or 16.4% of revenue, compared to $32.4 million, or 16.7% of revenue in the prior year quarter. Full-year SG&A as a percentage of revenues was 17.2%, compared to 15.7% in the prior year quarter.

The increase in both periods primarily reflected higher transportation and commission expenses from revenue growth, increased personnel expenses from annual salary adjustments, and certain non-recurrent expenses related to our strategic review. Turning to our view of U.S. aluminum tariff dynamics on slide number 12, we are actively monitoring the industry-wide developments associated with the proposed 25% U.S. tariffs on imports of aluminum and aluminum components of manufactured goods to be potentially implemented in March 2025. While the implementation of such tariffs remains uncertain, we have already taken steps to attempt to minimize any impact on our business of such tariffs by securing alternative sources of aluminum from U.S. suppliers, which would be excluded from potential tariffs. We believe these alternative sources will be able to meet all of our production needs. Notably, domestic aluminum production has declined by approximately 10% since 2017, despite previous tariff measures.

This factor, coupled with growth in aluminum-intensive industries, has created an incremental need for industry-wide imports. As demonstrated last year, we would again work with our clients to manage pricing in a manner that both help us mitigate the incremental cost while also moderating the broader inflationary impact on customer projects, given how the U.S. market is not self-sufficient in aluminum production. As a result of these dynamics, we would expect a more favorable pricing environment driven by broader inflationary pressures and a continued tight labor market that constrains industry capacity. Beyond pricing dynamics, we're strategically expanding our presence in the vinyl window market, further diversifying our product portfolio. Our significant labor cost advantage, combined with ongoing operational efficiency initiatives and our fully vertically integrated platform, positions us well to maintain attractive margins while offering competitive pricing. These factors collectively reinforce our confidence in our outlook.

Now, examining our strong cash flow and balance sheet on slide number 13, we generated record operating cash flow of $170.5 million for the full year 2024, driven by effective working capital management and a higher mix of single-family residential revenues, which feature upfront payments and shorter sales cycles without retainage. Capital expenditures of $79.6 million included scheduled payments on previous investments, investments in efficiency, and a payment for Miami headquarters and flagship showroom to drive incremental business activity. Our strong cash generation enhances our ability to create and return value to shareholders. During the year, we generated $91 million in free cash flow, which allowed us to return $19.7 million through cash dividends and positioned us well to opportunistically execute on our recently increased share repurchase program, where we still have approximately $76.5 million available under the most current authorization.

Given our strong cash generation, we ended the year in a net cash position after repaying $65 million of debt throughout the year. As of December 31st, we maintain a cash balance of $135 million and availability under committed revolving credit facilities of $170 million, providing total liquidity of approximately $305 million. We remain very pleased with our growing cash generation capabilities, which provide multiple levers to drive additional value. On slide number 14, we highlight our ability to generate returns significantly above the broader industry on a trailing three-year basis. This outperformance reflects successful strategic investments and operational initiatives. Compared to our peer group, our industry-leading margins and strong cash flows have delivered superior shareholder value creation. Now, moving to our outlook on slide number 16.

Based on our momentum through year-end and our strong performance during 2024, we're introducing full year 2025 outlook for revenues to be in the range of $940 million-$1.02 billion, representing entirely organic growth of approximately 10% at the midpoint of the range. Additionally, we're introducing our adjusted EBITDA target to a range of $300 million-$340 million. Our high-end outlook assumes continued downward trends in interest rates, benefiting mortgage rates, high single-digit growth in our legacy residential revenues, and vinyl revenues reaching approximately $40 million. We're also expecting improved activity in short-term commercial projects and gross margins in the mid- to high-40s% range, supported by favorable foreign exchange rates with the Colombian peso at or above 4,200. The low end of our range contemplates potential headwinds from broader implementation of aluminum tariffs impacting construction spending, higher interest rates, and a stronger Colombian peso.

Under this scenario, we assume flat to low single-digit growth in legacy residential revenues, vinyl revenues of approximately $15 million, and gross margin at the low 40% range. While we anticipate some margin pressures from increased installation revenues tied to high-end condo activity in Florida and a mandated 9% salary increase in Colombia, we expect these impacts to be largely offset by continued operating leverage, efficiency gains, and more favorable pricing environment, as I discussed earlier. On the SG&A front, we anticipate leveraging our fixed costs to help mitigate the impact of wage increases. We expect another strong year of free cash flow generation. Capital expenditures are projected to be in the range of $65million-$70 million, which includes the tail end of previous investments, maintenance CapEx, and further investments in efficiency initiatives, as well as our new Miami flagship showroom and executive offices.

Working capital should continue to be a source of cash as we further penetrate residential markets. Through this, we'll be particularly offset by longer cash conversion cycles in our growing installation business. In conclusion, our fourth quarter and full year 2024 performance showcase Tecnoglass's market leadership and operational excellence. Our record revenues, industry-leading margins, and strong backlog reflect the success of our strategic initiatives. We enter 2025 with strong momentum in our vinyl window business, with Q1 orders trending above Q4 2024 invoicing levels. This, combined with our geographic expansion progress and continued strength in core markets, supports our confidence in delivering another year of profitable growth. With that, we will be happy to answer your questions. Operator, please open the line for questions.

Operator (participant)

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 today is from Julio Romero with Sidoti. Please go ahead.

Good morning. This is Justin on for, Julio. Thank you for taking questions.

Santiago Giraldo (CFO)

Morning.

So on vinyl, can you talk about the cadence expected of vinyl revenues? You're projecting $15 million-$40 million for the year. Secondly, what monthly run rate are you expected to exit 2025 with?

José Manuel Daes (CEO)

Yes. We expect vinyl to keep growing. We have been opening new salesmen in many new states like Louisiana, Alabama, Georgia, and it has had a very nice reception. We don't know the figures exactly, but we hope it's going to be double what we did last year.

Great. Thanks for the caller there.

And then on capacity, can you talk about the potential for capacity expansion in 2025? And is there any capacity expansion embedded in your CapEx guidance?

Yes. We are running like a 65%-70% capacity today, and we are making some investments, especially to become more efficient when it comes to the aluminum side of the business. We're buying a lot of automation for the factory so we can produce more with a lot less. And we are certainly betting that we are going to grow and that we will have enough capacity to keep delivering within the four- to five-week window frame that we have today. Weeks, four to five weeks.

Great. That's all for me. Thank you.

Operator (participant)

The next question is from Brent Thielman with D.A. Davidson. Please go ahead.

Brent Thielman (Managing Director and Senior Research Analyst)

Hey, thanks. Good morning. Yeah.

I mean, you saw some nice single-family growth here in the fourth quarter. I don't get the sense that that's downshifted here in the first quarter. Maybe to the extent you could talk about that. I'm just wondering if it's still outpacing what seems like a still sort of a sheepish new construction market so far.

José Manuel Daes (CEO)

Yes. The beginning of 2025 in single-family has been extraordinary. We see a lot of growth compared to December and compared to January 2024.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. Great. And then you had some comments in here about sort of short-term, maybe smaller commercial projects embedded into the guidance range here. Understand those are a little more difficult to project, but just wanted to get a sense historically what sort of portion of your business that would be, just trying to understand the swing factor here, just considering the huge backlog you have going into the year.

José Manuel Daes (CEO)

Can you tell me exactly what information you need? Because the question is so broad.

Santiago Giraldo (CFO)

I can elaborate here, Brent. I can help you out. Essentially, the lighter commercial monthly revenues has averaged between $10 million-$12 million per month, more or less. So if you take the full amount of commercial construction that we did last year, it equates to about $510 million. So if you do the run rate, you're talking about $125 million-$150 million on light commercial. So essentially, call it 20%-25% of the total. Okay. But no sense to date that the pace of that activity has really changed, Santiago? No. Based on orders for January and February, it's pretty much in line. January is an odd month because it's half a month, but February has been in line with that. So far, so good.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. Yeah.

I guess my last question, since I seem to get the question a lot about just all the strength in Florida and the Southeast, and you've clearly leveraged that, but are you seeing any more of a shift in new orders for the commercial multifamily business, maybe outside of that region, or do you envision that in the near future, or you still see a market that's pretty ripe with sort of new build opportunity here?

José Manuel Daes (CEO)

We've seen a strong demand in many states, including, for example, New Jersey, New York, Washington, even California and Texas. We're very enthusiastic about the performance of our company, the acceptance, and so many new jobs going out now with the new president. I believe the momentum is going forward very well.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. Very good. Thank you.

Operator (participant)

Again, if you have a question, please press star, then one.

Brad Cray (Head of Investor Relations)

The next question is from Tim Wojs with Baird. Please go ahead.

Tim Wojs (Senior Research Analyst)

Hey, everybody. Good morning. Nice job. Good morning. Maybe just on the pricing question, I have a couple of questions on that. So I guess, have you guys raised price within your portfolio for anything in 2025?

José Manuel Daes (CEO)

No, we haven't. Not yet. We're waiting to see how the tariffs play out, but not yet. Nothing.

Tim Wojs (Senior Research Analyst)

Okay. And how much of your business would be impacted by the 25% tariffs? Is it the kind of $50 million or so of stuff that you do that's aluminum extrusions, or does it include curtain walls and things?

José Manuel Daes (CEO)

No, well, it will include only the aluminum side of it. Santiago, you can further reply to that.

Santiago Giraldo (CFO)

Yes, Tim.

So if you do rough math, raw materials is roughly 30% of revenues, and out of that, aluminum is about 40% of raw materials. So if you back into the math, you're talking about a potential impact of about $25 million per year, call it. That would be what we would have to kind of counter with price adjustments or just purely looking for alternative sources of aluminum. But everything held equal, that's the amount that you're talking about, based only on the exports of the aluminum components of the window.

Tim Wojs (Senior Research Analyst)

Okay. Gotcha. So it doesn't include the window or the curtain wall. If it's a curtain wall itself, it doesn't. It's not included in that, right? Just the aluminum component. Just the aluminum component. Okay. Yep. Okay. And then theoretically, a lot of your peers are importing these aluminum extrusions as well, right?

So I mean, on a relative basis, yes, you have some direct impact, but on a relative basis, you're probably less impacted than your peers. Is that a fair statement?

Santiago Giraldo (CFO)

Yes. That is correct. And as a matter of fact, I mean, you can see some other companies that have already announced price adjustments. And essentially, all of our competitors, as you saw last year when that temporary tariff was put in place, what we saw was that our peers were adjusting pricing across the board. So this is an even playing field.

Tim Wojs (Senior Research Analyst)

Okay.

José Manuel Daes (CEO)

We like to play it safe, so we're waiting to see how this all evolves, and then we'll make a decision. But so far, historically, in the last 30 years that we have been doing business in the U.S., especially, all these measures at the end, they end up benefiting us.

So we're waiting to see how it all plays out, and we'll compensate either with the U.S. aluminum or with pricing or a combination of both.

Tim Wojs (Senior Research Analyst)

Okay. Okay. That's good. And then one of your competitors in Florida got bought out earlier this year or earlier last year. I mean, has there been any kind of change in their behavior? And I guess there is some kind of discussion about them getting out of certain parts of the market in Florida. Have you heard that, and has that been any sort of benefit to your business?

José Manuel Daes (CEO)

We have heard the same rumor that you just stated, but we haven't seen that. Nevertheless, we are doing really well. We see our company, like I said before, getting a lot of orders, much more than the same months of last year. So we're very happy.

We believe that the acceptance of our product is great. So we're very enthusiastic.

Tim Wojs (Senior Research Analyst)

Okay. Sounds good. Thanks for the call, and good luck on this year.

Santiago Giraldo (CFO)

Thanks, Tim.

Operator (participant)

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

José Manuel Daes (CEO)

Thanks, everyone, for participating on today's call. Please have in mind that our company will outperform the market. We'll try to do it all the time. Thank you.

Operator (participant)

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