Q4 2023 Tecnoglass Inc Earnings Call

Greetings and welcome to the technical Glass, Inc. Fourth quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

Operator: Greetings. Welcome to the Tecnoglass Inc. 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: The 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. Please note this conference is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Thank you. You may begin.

<unk> and answer session will follow the formal presentation if anyone.

It should require operator assistance during the conference. Please press Star zero on your telephone keypad. Please note. This conference is being recorded I would now like to turn the conference over to Brad Cray Investor Relations. Thank you you may begin.

Thank you for joining us for taking a wash as fourth quarter and full year 2023 conference call.

Brad Cray: Thank you for joining us for Tecnoglass's fourth quarter and full year 2023 conference call. A copy of the slide presentation to accompany this call may be obtained in the investors section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer Jose Manuel Daes, Chief Operating Officer Chris Daes, and Chief Financial Officer Santiago Giraldo.

Copy of the slide presentation to accompany this call may be obtained in the investors section of the website.

Our speakers for today's call are Chief Executive Officer, Jose Manuel <unk>, Chief Operating Officer, Chris <unk>, and Chief Financial Officer, Santiago, if at all that 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.

Brad Cray: I'd like to remind everyone that the 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 regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass's filings with the SEC. The information discussed during the call is presented in light of such risks. Furthermore, 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.

Mac with 1995, including statements regarding future financial performance future growth and future acquisitions. These statements are based on taking the glasses 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.

The statements herein due to changes in economic business competitive into a regulatory factors and other risks and uncertainties affecting the operation of technical Ashes business.

These risks uncertainties and contingencies are indicated from time to time and technical lashes filings with the S. E C.

The information discussed during the call is presented in light of such risks.

Further investors should keep in mind that took them to wash its financial results in any particular period may not be indicative of future results, taking glass 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 and assumptions or other.

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Jos Manuel Daes: I will now turn the call over to Jose Manuel, beginning on slide number four. Thank you, Brad, and thank you, everyone, for participating in today's call. We are proud to report another outstanding year marked by strong operational accomplishments and record financial performance across many of our key financial metrics. The relentless dedication of excellence across our businesses. Our innovation and Physically Integrated Business Model are all reflected in our solid four-year result. During 2023, we produced record total revenues of $833 million, achieved record adjusted dividend of $304 million, and produced record gross profits of $391 million. We are pleased to accomplish these results while maintaining a resilient industry-leading margin profile. We more than double our advisable market with our strategic entrance into the high-end, final-end market. We relocated our global headquarters to Miami, Florida, aligning with over 95% of our revenues sourced from key U.S. markets.

I will now turn the call over to Jose Manuel beginning on slide number four.

Thank you Brad.

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Jos Manuel Daes: Our proven management of working capital allowed us to generate an impressive operating cash flow of $139 million for the year. At the same time, we have to maintain a strong relationship, which provides ample flexibility for future growth and additional returns for shareholders. And finally, we completed our strategic investment to expand operational capacity by 40% to roughly $1.2 billion in revenue, including East LA. We have been experiencing healthy multi-family commercial demand. High demand for our innovative product and increased commercial activity in our key geography drove an increasing backlog to a record of $870.1 million at year end.

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Jos Manuel Daes: We continue to gain market share in key geographies despite the challenging macroeconomic environment. We have also taken a disciplined approach to managing costs. We are leveraging our vertically integrated structure and tire automation investments to drive operational efficiency. This focus is evident in our whole-year gross margin of approximately 47%. We achieved this despite the previously discussed falling exchange headwinds in the back half of the year.

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Jos Manuel Daes: Furthermore, our strong capital position has given us flexibility to invest in the structure of the economy, increase our dividends, report our shares, and improve leverage. We are pleased to improve our net debt to adjust the living debt to a record low of 0.1 times as of December 31st, 2023. In summary... 2023 was another exceptional year for Tecnoglass. We are pleased with the value we have created. Tomar Rintos, Oriental Investments, which has positioned Tecnoglass as a leading architectural glass and window player.

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Jos Manuel Daes: Through a vertically integrated platform, a continuing geographic positioning, and building growth investments, we have established an exceptional track record of cash flow generation, which is helping us create additional value for our shareholders. As we look to 2024 and beyond, we are very confident in the strategic actions we have taken during 2023 and remain excited about the prospects of driving above market growth through the attractive vinyl window market. The Transatlantic Constable Relationship and Geographic Diversification

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Christian T. Daes: Based on our strong backlog growth and continued strength in pipeline activity, we are projecting another year of double-digit revenue growth. This highlights our ability to continue gaining market share even in the face of challenging macro and headwinds for our industry. I will now turn the call over to Chris to provide the additional operating highlights. Thank you, Jose Manuel.

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I will now towards the call over to Greg to provide a little bit.

Hi.

Thank you Jose Manuel moving to slide number five our first quarter results were in line with our expectations and reflect the resilience of our business model as we navigate a turbulent macroeconomic environment.

Christian T. Daes: Moving to slide number five, our fourth quarter results were in line with our expectations and reflect the resilience of our business model as we navigate a turbulent macroeconomic environment. Our results during the quarter demonstrated our ability to leverage our unique competitive advantages to preserve margin strength and generate solid cash flow; backlog grew each quarter through the year and as of year-end stood at a record of $870.1 million, reflecting a strong pipeline of multifamily and commercial projects. This represented roughly 1.7 times our LTM, multifamily, and commercial revenue. Equally as important, pipeline activity remains robust, and we continue to see incremental signings year to date.

Our results during the quarter demonstrates our ability to leverage our unique competitive advantages to preserve margin strength and generate solid cash flow.

Backlog grew each quarter through the year.

As of year end stood at a record of $870.1 million, reflecting their strong pipeline of multifamily and commercial projects.

These represent roughly 1.7 times R. L D M multifamily and commercial revenue.

Equally as important the pipeline activity remains robust and we continue to see incremental signings year to date.

Christian T. Daes: Overall, despite the highest interest rate environment, we are levering favorable demographic trends in our market. We are seeing solid levels of multifamily and commercial quoting and bidding, and we have a strong base of activity that gives us confidence in our ability to achieve another strong year in 2024. We will continue to focus our efforts on adding new costs, entering new markets, and providing best-in-class service. While we are growing our backlog, we are being mindful to focus on projects that will allow us to sustain our industry-leading margins. We have an innovative R&D pipeline of high-performance products that should allow us to continue growing faster than our end market. Our pipeline includes products developed for both the new geographies we are penetrating as well as products to support our expansion into the vinyl market.

Overall, despite the highest interest rate environment, we are levering favorable demographic trends in our markets. We are seeing solid levels of multi family and commercial quoting and bidding.

And we have a strong base of activity that gives us confidence in our really did to achieve another strong year in 'twenty 'twenty four.

We will continue to focus our efforts on adding new customers entering new markets I'm, providing best in class service well.

While we are growing our backlog, we are being mindful to focus on projects that will allow us to sustain our industry leading margins.

We have an innovative R&D pipeline of high performance products.

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Our pipeline includes products developed for both a new yoga.

We are penetrating those warehouse products to support our expansion into the vinyl market.

Christian T. Daes: The expansion and automation investments made in recent years put us in a position to effectively execute our growth strategy with ample operational capacity and fewer CAPEX requirements. In addition to the strong visibility afforded by our growing backlog, we are excited about the long-term growth potential of our single-family residential business. Early feedback from the sampling of our binary probes is encouraging, giving us confidence that vinyl will provide meaningful contributions to revenue over time. Moving to slide number six.

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Effectively execute our growth strategy.

I'm doing operational capacity and less capex requirements.

In addition to the strong visibility afforded by our growing backlog. We are excited about the long term growth potential of our single family residential business.

Early feedback from the sampling of our biennial pros are encouraging giving us confidence that vinyl we provide meaningful contributions to revenue over time.

Moving to slide number six.

Christian T. Daes: We expect this momentum and the strong bidding activity we are seeing will help us keep a strong book-to-bill ratio, which stood at 1.2 times as of Q4 2023. This adds to our track record of maintaining a book-to-bill ratio above 1.1 times over the past 12 consecutive quarters. Historically, roughly two-thirds of our reported backlog is in Wojs over the following 12 months. We believe that this provides strong visibility on invoicing despite the fact that certain external factors can cause temporary delays in delivery. Looking at the favorable democratic trends we see in our key regions on slide number seven, our key markets remain strong demographically as southern states continue to experience above average population growth relative to the rest of the continent. Single-family housing styles remain resilient in the South due to this robust population growth.

We expect this momentum and a strong bidding activity. We are seeing will help us keep a strong book to bill ratio, which stood at 1.2 times as of the quarter for 'twenty or 'twenty three.

These ads to our track record of maintaining a book to bill ratio above 1.1 times over the past 12 consecutive quarters.

Historically, roughly two thirds of our reported backlog I'm voice over the following 12 months. We believe that this provides a strong b C really don't invoice, even despite the fact that certain external factors can cause temporary delays in delivery.

Looking at the favorable demographic trends, we see in our key regions on slide number seven.

Our key markets remain strong demographically, our southern states continue to experience above average population growth relative to the rest of the country.

Single family housing starts remained resilient in the south due to these robust population grows in Florida, our largest market single family housing permits have shown a notable increase in the past few years on a D V D in our main metropolitan areas.

Santiago Giraldo: In Florida, our largest market, single-family housing permits have shown a notable increase in the past few years, and activity in our main metropolitan areas is showing growth even against tough prior year comparisons. All of these trends point to resilient activity in the key markets where we conduct the majority of our business. I will now turn the call over to Santiago to discuss our financial results and outlook for 2024. Thank you, Christian.

Are showing growth even against tough prior year comparisons.

All of these trends point to resilient activity in the key markets, where we conduct the majority of our business I will now turn the call over to Santiago to discuss our financial results and outlook for 'twenty 'twenty four.

Thank you Christian turning to single family residential on slide number eight.

Santiago Giraldo: Turning to single-family residential on slide number eight, during the fourth quarter, we generated single-family residential revenues of $77.1 million, compared to $85.1 million in the prior year quarter. The year-over-year change was primarily due to slower sequential and year-over-year activity resulting from much higher interest rates and mortgage rates.

During the fourth quarter, we generated single family residential revenues of $77 1 million.

$285 1 million in the prior year quarter the year over year change was primarily due to slower sequential and year over year activity, resulting from much higher interest rates and mortgage rates.

Santiago Giraldo: Despite a challenging macroeconomic environment and a year of declines in housing starts, we were pleased to produce record full-year 2023 single-family residential revenues of $335.4 million. We continue to see market share upside in single-family residential revenues through a variety of factors. This includes our widening dealer base enabled by short lead times, new product introductions, geographic expansion throughout Florida, additional showrooms in other markets, and a recent entrance into the vinyl market. This provides significant runway for revenue growth and product diversification on a long-term basis. To that point, on slide number 9, I would like to highlight a few key points from our recent strategic entry into Vinyl Window. Our strategic entry into vinyl windows has significantly expanded our addressable market. We were pleased to begin shipments of our innovative vinyl products in December.

Despite a challenging macroeconomic environment.

A year of declines in housing starts we were pleased to produce record full year 2023 single family residential revenues of $335 4 million.

We continue to see market share upside in single family residential revenues through a variety of factors.

It includes our widening dealer base enabled by short lead times, new product introductions geographic expansion throughout Florida that.

Additional showrooms in other markets.

Our recent entrance into the vinyl market.

This provides significant runway for revenue growth and product diversification on a long term basis.

To that point on slide number nine I would like to highlight a few key points from our recent strategic entry into vinyl windows.

Our strategic entry into vinyl Windows has significantly expanded our addressable market.

We were pleased to begin shipments of our innovative vinyl products. In December we are currently working with additional clients and prospects to perform a significant amount of testing and sampling in order to ramp up deliveries throughout 2024.

Santiago Giraldo: We are currently working with additional clients and prospects to perform a significant amount of testing and sampling in order to ramp up deliveries throughout 2020. In addition to our showroom expansions, we are excited about what the foreseeable future holds for Tecnoglass in the vinyl market. We expect these high-end, value-added vinyl products to contribute more meaningfully to results, particularly in single-family residential, after the second quarter of 2024 and beyond. Importantly, we've already completed a significant portion of the anticipated CAPEX to enable our facilities and operational infrastructure to accommodate this transformational initiative. We expect this strategic entrance into the vinyl segment will more than double our addressable market with an opportunity to add an incremental $300 million in annual revenues in the coming year.

In addition to our showroom expansions we are excited for what the future holds for technical glass in the vinyl market.

We expect these high end value added vinyl products to contribute more meaningfully to results, particularly in single family residential after the second quarter of 2024 and beyond.

Importantly, we've already completed a significant portion of the anticipated capex to enable our facilities and operational infrastructure to accommodate these transformational initiatives.

We expect these strategic entrance into the vinyls segment will more than double our addressable market with an opportunity to add an incremental 300 million in annual revenues in the coming years.

Our entry into the vinyl window market you suspect it to provide a range of benefits to take no glass and our customers.

Santiago Giraldo: Our entry into the vinyl window market is expected to provide a range of benefits to Tecnoglass and our customers. Notably, we see attractive synergies given that many of our existing dealer customers already sell both aluminum and vinyl windows, and we are able to leverage our manufacturing expertise and vertically integrated operations to make this a relatively seamless addition. We already have two new vinyl distributors signed in Sarasota and Tampa and approximately 30 to 40 legacy dealers in Central and Northern Florida that have been quoting projects and testing the product.

Notably, we see attractive synergies given many of our existing dealer customers already sell both aluminum and vinyl windows and we are able to leverage our manufacturing expertise and very clean integrated operations to make this a relatively seamless addition.

We already have two new vinyl distributor, signing Sarasota, and Tampa and approximately 30 to 40 legacy dealers in central and Northern Florida, the Harbin quoting projects and testing the products.

Santiago Giraldo: This early traction gives us confidence in future demand for our vinyl products, and we are excited for the immense opportunity we see in this end market given the size of the addressable market throughout the U.S. Turning to the drivers of revenue on slide number 11. Total revenues for the fourth quarter decreased 7.8% year-over-year to $194.6 million due to lower single-family residential revenues, with the multi-family and commercial business performing in line with internal expectations.

This early traction gives us confidence in future demand for our vinyl products and we are excited for the immense opportunity. We see in these end market given the size of the addressable market throughout the U S.

Turning to the drivers of revenue on slide number 11.

Total revenues for the fourth quarter decreased 7.8% year over year to 194.6 million due to lower single family residential revenues with the multifamily and commercial business performing in line with internal expectations.

Santiago Giraldo: Total revenues for the full year increased 16.3% year-over-year to a record $833.3 million, mainly attributable to a strong rebound in multifamily and commercial activity, resilient demand for single-family residential products, and market share gains compared to prior years. See slides numbers 12 and 13. Adjusted EBITDA for the fourth quarter of 2023 was $62 million, representing an adjusted EBITDA margin of 31.8%. Adjusted EBITDA for the full year increased 14.5% year-over-year to a record $304.1 million, representing a margin of 36.5%. SG&A for the fourth quarter was $32.4 million, or 16.7% of revenue compared to $33.4 million, or 15.8% of revenue in the prior year quarter. The increase in SG&A as a percentage of revenue was primarily due to lower revenues year over year.

Revenues for the full year increased 16, 3% year over year to a record $833 3 million, mainly attributable to a strong rebound in multifamily and commercial activity resilient demand for our single family residential products and market share gains compared to prior year.

Looking at the profit drivers on slide number 12 and 13.

Adjusted EBITDA for the fourth quarter 2023 was 62 million, representing an adjusted EBITDA margin of 31, 8% adjusted.

Adjusted EBITDA for the full year increased 14, 5% year over year to a record of 304.1 million representing a margin of 36.5%.

SG&A for the fourth quarter was $32 4 million or 16, 7% of revenue compared to $33 4 million or 15, 8% of revenue in the prior year quarter.

The increase in SG&A as a percentage of revenue was primarily due to lower revenues year over year for the full year SG&A as a percentage of total revenues was 15.7% an improvement of 140 basis points over the prior year.

Santiago Giraldo: For the full year, SG&A as a percentage of total revenues was 15.7%, an improvement of 140 basis points over the prior year. Fourth quarter gross profit was $83 million, representing a 42.6% gross margin. This compared to gross profit of $110.2 million, representing a 52.2% gross margin in the prior year quarter. The year-over-year change in gross margin mainly reflected an unfavorable FX impact related to functional currency and a steep revaluation of the Colombian peso of approximately 15% year-over-year. Additionally, gross margin was impacted by lower revenues and an increase in the mix of installation versus product revenue during the quarter.

Fourth quarter gross profit was 83 million, representing a 42.6% gross margin.

These compared to gross profit of $110 2 million, representing a 52.2% gross margin in the prior year quarter.

The year over year change in gross margin, mainly reflected an unfavorable FX impact related to functional currency and a steep revaluation of the Colombian peso of approximately 15% year over a year.

Additionally, gross margin was impacted by lower revenues and an increase in the mix of installation versus product revenue during the quarter.

Santiago Giraldo: Gross profit for the full year increased 11.9% to a record $391 million, representing a 46.9% gross margin and in line with our target range of 47% to 49% for the full year 2022. As a reminder, we estimate that each movement of 5% in FX equates to approximately 150 basis points in operating margin. Now, looking at our strong cash flow and improved leverage on slide number 14. For the full year, we generated another very strong year of operating cash flow of $139 million. This was driven by higher profitability and strong working capital. The full year included capital expenditures of $78 million, which included payments for previously purchased land for future potential capacity expansion.

Gross profit for the full year increased 11, 9% to a record 391 million, representing a 46.9% gross margin and in line with our targeted range of 47% to 49% for the full year 2023.

As a reminder, we estimate that each movement of 5% in FX equates to approximately 150 basis points in operating margins.

Now looking at our strong cash flow and improved leverage on slide number 14.

For the full year, we generated another very strong year of operating cash flow of 139 million.

This was driven by higher profitability and strong working capital management there.

The full year included capital expenditures of 78 million, which included payments for previously purchased land for future potential capacity expansion Capex.

Santiago Giraldo: CAPEX also included a significant portion of previously disclosed investments in facilities and operational infrastructure related to our entry into the vinyl window market. Given our higher installed capacity, we expect a meaningful decrease in capital expenditures in 2025. Our impressive cash generation has allowed us to unlock additional value in our business through share repurchases and increases in our cash dividends. We return capital to shareholders through $23.5 million in share repurchases during the year, leaving roughly $27 million of remaining purchase power under the current authorization. Additionally...

Capex also included a significant portion of previously disclosed investments in facilities and operational infrastructure related to our entry into the vinyl window market.

Given our higher installed capacity, we expect a meaningful decrease in capital expenditures in 2024.

Our impressive cash generation has allowed us to unlock additional value in our business through share repurchases and increases in our cash dividend, we returned capital to shareholders through $23 5 million in share repurchases during the year, leaving roughly 27 million of remaining purchase power on their current <unk>.

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Santiago Giraldo: Given the visibility afforded by our record backlog as of the year-end and the expectation for continuous strength in cash flow, our Board of Directors has approved a 22% dividend increase to a quarterly payment of $0.11 per share. This reflects our commitment to return incremental cash to shareholders. We ended the year at a record low net leverage ratio of 0.1x net debt to LTM adjusted EBITDA, down from 0.2x in the prior year. As of December 31st, we had a cash balance of $130 million and availability under our committee revolving credit facilities of $170 million, resulting in total liquidity of approximately $300 million.

Given the visibility afforded by our record backlog as of the yearend and the expectation for continued strength and cash flow. Our board of directors has approved a 22% dividend increase to a quarterly payment of 11 cents per share. This reflects our commitment to return incremental cash to shareholders.

We ended the year at a record low net leverage ratio of 0.1 times net debt to LTM adjusted EBITDA down from 0.2 times in the prior year.

As of December 31st we had a cash balance of 130 million and availability under our committed revolving credit facilities of $170 million, resulting in total liquidity of approximately 300 million overall, we remain very pleased with our efforts to grow our cash generation capabilities.

Santiago Giraldo: Overall, we remain very pleased with our efforts to grow our cash generation capabilities, which in turn has provided us with multiple levers to drive additional value in our business. On slide 15, I would like to reiterate our exceptional track record of creating value compared to the individual. On average, over the past three years, our stronger profitability and meaningful step-up in cash flow generation have driven significant above-average returns. When comparing our ROE and ROIC metrics to those of U.S. building product peers,

Which in turn has provided us with multiple levers to drive additional value in our business.

On slide number 15, I would like to reiterate our exceptional track record of creating value compared to the industry.

On average over the past three years, our stronger profitability and meaningful step up in cash flow generation have driven significant above average returns.

When comparing our Aro <unk> and Aro I see metrics to those of you is building product peers.

Santiago Giraldo: The returns on reinvestments into our business plus dividends have driven substantially higher value to our shareholders, further validating our growth strategy and capital allocation priorities. As you can see on slide 17, the upward trajectory of our revenue and adjusted EBITDA remains positive, and there is a lot of runway for growth. Our recent capacity additions and entrance into the vinyl window market have provided us with the capabilities to produce over $1.2 billion in annual revenues, including installation.

Their returns on reinvestment into our business plus dividends have driven substantially higher value to our shareholders further validating our growth strategy and capital allocation priorities.

As you can see on slide 17, the upward trajectory of our revenue and adjusted EBITDA remains positive and there's a lot of runway for growth.

Our recent capacity additions and entrance into the vinyl window market provided us with the capabilities to produce over $1 2 billion of annual revenues, including installation.

Santiago Giraldo: We remain as confident as ever in our ability to achieve another year of exceptional growth and above market returns in 2024 and beyond. Now, moving to our outlook on slide 18. As Chris mentioned earlier, our key markets remain largely resilient, and we have witnessed positive trends indicating improving demand. We remain confident that 2024 has strong potential to be another year of double-digit revenue growth based on the visibility afforded by our backlog and by the different avenues for growth in our single family residential business, including the new vinyl initiative, showroom openings, and geographical expanse. That being said,

We remain as confident as ever in our ability to achieve another year of exceptional growth and above market returns in 2024 and beyond.

Now moving to our outlook on slide 18.

As Chris mentioned earlier, our key markets remain largely are resilient and we have witnessed positive trends, indicating improving demand. We remain confident that 2024 has strong potential to be another year of double digit revenue growth based on the visibility afforded by our backlog and by the different.

Avenues for growth in our single family residential business, including the new vinyl initiative showroom openings and geographical expansion.

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Santiago Giraldo: Given the current lack of clarity on U.S. macroeconomic factors, mainly the trajectory of interest rates going forward, we believe it is more appropriate and prudent to provide explicit guidance ranges for full year 2024 revenue and adjusted EBITDA at a later date. In addition to potentially having better clarity on macroeconomic indicators, in the coming months, we should be better able to assess the pace of growth in the single-family residential business and the timing of invoicing on certain projects. This includes projects in backlog, as well as single-family residential, where we already see improving trends, as well as a healthy amount of interest for our new line of vinyl products.

Given the current lack of clarity on U S. Macroeconomic factors, mainly the trajectory of interest rates going forward. We believe it is more appropriate and prudent to provide explicit guidance ranges for full year 2020 for revenue and adjusted EBITDA at a later date.

In addition to potentially have even better clarity on macroeconomic indicators in the coming months, we should be better able to assess the cadence of growth in the single family residential business and the timing of invoicing in certain projects.

This includes projects in backlog as well as single family residential where we already see improving trends as well as a healthy amount of interest for our new line of vinyl products.

Santiago Giraldo: In place of explicit ranges, we will provide some additional color on our growth outlook. In regards to margins for the year, we expect gross margins to step up from the levels seen in the last two quarters of 2023 based on a stable FX rate and the expected operating leverage resulting from a sequential increase in revenues throughout the year. While we assume FX rates will remain stable with current levels based on internal expectations and the economy's projections, as a reminder, we estimate that every 5% movement in FX has an approximate 150 basis points impact on adjusted EBITDA margins. Therefore, despite the expected quarterly improvement in gross margin after Q1 for the full year 2024, it is reasonable to assume gross margin will be lower than the 47% level seen in the full year 2023. This is predicated on two main factors. First, a stable FX rate since the beginning of 2024 results in a Colombian peso that is, on average, 10% stronger than the average FX rate for 2023 based on the current and projected 2024 FX level.

In place of explicit ranges, we will provide some additional color on our growth outlook.

In regards to margins for the year, we expect gross margins to step up from the levels seen in the last two quarter of 2023 based on a stable FX rate on the expected operating leverage resulting from a sequential increase in revenues throughout the year, while we assume FX rates will remain stable with current levels based on internally.

Spectation and economies projections as a reminder, we estimate that every 5% movement in FX has an approximate 150 basis points impact on adjusted EBITDA margins. Therefore, despite the expected quarterly improvement in gross margin after Q1 for the full year 2024.

It is reasonable to assume gross margin will be lower than the 47% levels seen in the fall 2023 year.

This is predicated on two main factors first a stable FX rate seen at the beginning of 2024, resulting in a Colombian peso that is on average 10% stronger than the average FX rate for 2023 based on the current and projected 2024 FX level.

Second we anticipate an increase mix of revenues from installation compared to 2023.

Santiago Giraldo: Second, we anticipate an increased mix of revenues from installation compared to 2020. Based on the timing of projects, scheduled maintenance of our facilities in January, and the expected ramp-up period of our vinyl products, we anticipate the first quarter of 2024 to be roughly similar sequentially to Q4 2023 in terms of revenues, with a higher degree of installation mixed sequentially. The first quarter of the year is expected to be the seasonal low quarter of the year, then increasing sequentially thereafter. Finally, cash flow from operations is expected to remain strong for the full year.

Based on the timing of projects scheduled maintenance of our facilities in January and the expected ramp up period of our vinyl products. We anticipate the first quarter of 2024 to be roughly similar sequentially to Q4 2023 in terms of revenues with a higher degree of installation mix C.

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The first quarter of the year is expected to be the seasonal low quarter of the year than increasing sequentially thereafter.

Finally cash flow from operations is expected to remain strong for the full year free cash flow is expected to improve in 2024, given the majority of capital expenditures related to facility automation expansion and vinyl related investments having being completed.

Santiago Giraldo: Free cash flow is expected to improve in 2024 given the majority of capital expenditures related to facility automation, expansion, and vinyl-related investments haven't been completed. With all of this in mind, we continue to be very excited about our business prospects and growth opportunities for this year and beyond. As discussed, we have several avenues to expand our market share for years to come. In summary, 2023 was another milestone year for Tecnoglass.

With all of this in mind, we continue to be very excited about our business prospects and growth opportunities for this year and beyond.

As discussed we have several avenues to expand our market share for years to come.

In summary, 2023 was another milestone year for techno glass demand for our innovative product portfolio remained resilient and we've made great progress against our growth strategy through geographic expansion, new product introductions, and our entrance into the attractive vinyl window market.

Jos Manuel Daes: Demand for our innovative product portfolio remains resilient, and we've made great progress against our growth strategy through geographic expansion, new product introductions, and our entrance into the attractive vinyl window market. As we look to 2024, we are optimistic in our ability to continue growing faster than the market while unlocking additional value in our business through our highly efficient cost structure, targeted investments, and strategic positioning in attractive U.S. markets. With that, we will be happy to answer your questions. Operator, please open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

We look to 2024, we are optimistic in our ability to continue growing faster than the market, while unlocking additional value in our business through our highly efficient cost structure targeted investments and strategic positioning in attractive U S markets with that we will be happy to answer your questions.

<unk>. Please open the line for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the sarkies one moment. Please while we poll for your questions.

Operator: You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your question. Our first questions come from the line of Sam Darkash with Raymond James. Please proceed with your question. Good morning, Jose Manuel, Chris, Santiago, how are you? Good morning, Sam.

Our first questions come from the line of Sam Dark cash with Raymond James. Please proceed with your questions.

Good morning, Jose Manuel Chris Santiago, how are you.

So I've got three questions. If you forgive me I'm so.

Samuel John Darkatsh: So I've got three questions, if you'll excuse me. First, you mentioned, Santiago, the first quarter sales expected to be flattish with the fourth quarter, with the installation element higher. So could you help us in that vein? What might you be pegging for realistic gross margins for the quarter? Yeah, in gross margins, Sam. I would see something in line with Q4, perhaps. I would expect that over the quarter, given the fact that we're going to have more mix.

First you mentioned in Santiago, the first quarter sales are expected to be flattish with the fourth quarter with the installation element higher so could you help us in that vein, what you might be pegging for real estate gross margins and EBITDA for the quarter.

Yeah and in gross margin, Sam I would see something in line with our Q4, perhaps I would expect that over the quarter.

Being the fact that we're going to have more mix, there's going to be a little bit of a headwind there but for many of you that perspective, we wanted to wait and see what the cadence of the orders from their from the residential side are looking like.

Santiago Giraldo: There's going to be a little bit of a headwind in there, but from an EBITDA perspective, we wanted to wait and see what the cadence of the orders on the residential side are looking like. And then we'll be able to determine that, but it should be kind of in line with Q4 all around. From an FX perspective, if you look at what's happened in the last six months, FX is really stable. The main impact was year over year. As you recall, 2022 had a very depreciated peso, but in the last six months, it's been rather stable.

And then we'll be able to determine that but it should be kind of in line with with with Q4 Q4, all around from an FX perspective, if you look at what's happened in the last six months.

He's been really stable the main impact was year over year as you'll recall 2022.

Uh huh very depreciated peso, but in the last six months. He has been rather stable. So I think from a quarter over quarter comparison, the FX pressure, he's he's really behind us.

Santiago Giraldo: So I think from a quarter over quarter comparison, the FX pressure is really behind us. So I would expect something more in line with Q4 and then sequentially growing thereafter, as we said on the call. And that's based on what we're expecting from the timing of deliveries and also from the timing of how the vinyl initiative is ramping up. And the other thing is that, as you know, in January, we had scheduled maintenance where we only had about 20 days, 20 working days. So that has an impact on there as well, which we did not have in January of last year. Yeah, because that's normally in December, right?

So I would expect something more in line with with Q4, and then sequentially growing thereafter, as we said on the call and that's based on what we're expecting from the timing of deliveries and also from the timing of how the vinyl and he said he was he's ramping up and the other thing is that as you know in January we have a scheduled maintenance.

That's where we only had about 20 days 20 working days, so that has an impact in there as well, which we did not have in January of last year.

Yeah, because that's normally in December right yeah.

Santiago Giraldo: Yes, more in December, so this time is going to be a little bit unusual. Got it. So the gross margin and EBITDA, similar to the fourth quarter, or just gross margin. I was trying to get a sense of EBITDA also, sorry. I think EBITDA could be in line or slightly lower based on the mix of revenues and, as I was saying, just ramping up throughout the year.

Yes, more in December and so at this time he is gonna be a little bit unusual.

So the gross margin and EBITDA similar to fourth quarter or just gross margin, but I was trying to get a sense of EBITA also sorry.

I think EBITDA could be in line or slightly lower based on the mix of revenues.

And then as I was saying just ramping up throughout the year.

Santiago Giraldo: And then I respect the reticence to talk about EBITDA for the entirety of 24 because of macro uncertainty. If you just thought that the sales growth would be 10%, which is the low end of your double-digit growth expectations, how should we think about what prospective EBITDA might look like under that scenario? I would consider two things about that.

Got it and then.

Respect a reticence to talk about EBITDA for the entirety of the 24.

Because of macro uncertainty, but it.

If you just thought that the sales growth would be 10%, which is the low end of your double digit growth expectations. How should we think about what perspective EBITDA might look like under that scenario.

I would consider two things on that you're going to get operating leverage on higher sales.

Santiago Giraldo: You're going to get operating leverage on higher sales. But then you're going to have the effect of FX, which for 2023 was at 43.25. And what we're projecting for 2024 is in line with current conditions, which is 4000. So you're talking about the effect of being stronger by about 8 to 10 percent.

But then you're going to have the effect of FX, which for 2023 was at 43 25, and what we're projecting for 'twenty 'twenty four is in line with current conditions, which is 4000, so you're talking about the peso being stronger by about 8% to 10%.

Santiago Giraldo: As we discussed earlier, and we alluded to on the call this morning, for every 5% movement on FX, you have about 150 basis points of impact on operating margins, right? So at the end of the day, you're gonna have operating leverage helping out with double-digit growth, but then you're gonna have the impact of FX for the full year, which we see stable, but then eight to 10% stronger year over year versus 2023. So if you kind of back into it, I think we can, there's a chance that we can grow EBITDA, but it's probably going to be more in line year over year based on mainly FX and mix. Got it, so we would use a normal, sorry, you'd use a normal incremental margin on the 10% volume growth and then apply a 300 basis point or so headwind from FX. Is that the way to think about it holistically?

As we discussed earlier and we alluded on the on the call. This morning for.

For every 5% movement on FX, you have about 150 basis points of impact to operating margins right. So at the end at the end of the day.

Youre going to have operating leverage helping out with double digit growth, but then you're going to have the impact of FX for the full year, which we see stable, but then 8% to 10% stronger year over year versus 2023.

So if you if you kind of back into it I think we can there's a chance that we can grow EBITDA, but he's going to be probably more in line year over a year based on on mainly FX and mix.

Got it so we would use a normal [noise] sorry would you use a normal incremental margin on the 10% volume growth and then apply a 300 basis point or so headwind from from FX is that the way to think about it holistically, yeah, and if you look about the guidance or the high level color that we're giving on gross margins.

Santiago Giraldo: Yeah, and if you look at the guidance for the high-level color that we're giving on gross margins, we ended up at 47%. And if you do kind of the math on gross margins that we're talking about for 2024 and discuss mid-40s gross margins, you already kind of have that effect baked in there, right? I mean, you have a 300 basis points effect on FX, which gets you to about 44%.

We ended up at 47% and if you do kind of the math.

One on gross margins that we're talking about for 'twenty 'twenty four and discussing meet mid Forty's gross margins youre already kind of have that effect baked in there right. I mean, you have a 300 basis points effect on on FX, which gets you to about 44% the difference from there and he is going to be how much operating lever.

Santiago Giraldo: The difference from then is going to be how much operating leverage can we get? How fast is this residential initiative going to ramp up? So that's going to be the upside. And obviously, we can get more operating leverage on those higher revenues. But then you kind of offset that with the fact that we're going to have more installation mix. So those are the three variables that are kind of playing a part in there. All in all, I think that the mid-40s is probably the run rate and the adequate way to project gross margin. And then, my last question, thank you for that, Santiago.

Can we get how fast is the rest of your NGL and he said he was gonna going to ramp up so that's going to be the upside and obviously, we can get more operating leverage on those higher revenues, but then you you kind of offset that with the fact that we're going to have more installation mix. So those are the three variables that are that are kind of playing a part in there.

All in all I think that mid forty's, he's he's probably that the run rate and the adequate way to project gross margins.

And then my last question. Thank you for that sounds Yoga. My last question lots of price increase announcements from U S window single family window manufacturers and a lot of your competitors of late.

Santiago Giraldo: My last question: lots of price increase announcements from U.S. single-family window manufacturers and a lot of your competitors of late. Are you anticipating raising prices for single-family resi in line with those announcements, or are you looking to keep prices flattish and maybe pick up some share as a result? Well, we don't have any plans to increase prices because, on the contrary, we have... We have good sources for aluminum and

Are you anticipating raising prices for single family Rajeev.

In line with those announcements or are you looking to keep pricing flattish and maybe pick up some share as a result.

Well, we're we don't know how really plus two crews.

Because.

To the contrary we have.

We have a good sources for aluminum and glass.

Jos Manuel Daes: And we see no price increases on that end, so... Our clients are very happy with our price point. And actually, February was a better than expected month in order, so we're very happy with where we are right now. We're not going to increase prices, at least not in the... This was my life.

We see the operation cruises.

So.

Our clients are very happy with our approach point.

Actually.

One was the birth of a spectrum bulbs.

The order so we're really happy with where we are right where the river cruise prizes.

The.

Jos Manuel Daes: Very helpful. Thank you, gentlemen. Thanks, sir. Thank you. Our next questions come from the line of Stanley Elliott with Stiefel. Please proceed with your question. Hey, good morning, everybody.

Bruce balls or bugs.

Very helpful. Thank you gentlemen.

Thanks Anna.

Thank you. Our next question is coming from the line of Stanley Elliott with Stifel. Please proceed with your questions.

Hey, good morning, everybody. Thank you for the question.

Stanley Stoker Elliott: Thank you for the question. On the vinyl initiative. Can you talk about how much you're assuming that vinyl would contribute to the double-digit revenue growth you guys are targeting for the year? Yeah, it's basically weighted towards the second half, first of all, because what is taking place right now is the delivery of sampling and testing of the product. So bear that in mind.

On the on the vinyl initiative can you talk about how much you're assuming the vital would contribute to the double digit revenue growth you guys are targeting.

For the year.

Yes, it's basically a weighted towards the second half first of all because what is taking place right now is the delivery of sampling and testing of the product. So.

Bear bear that in mind, but we are seeing that contributing more meaningfully in the in the after the second.

Santiago Giraldo: But we are seeing that contributing more meaningfully after the second quarter of the year to the range of probably $20 to $25 million in total orders. Now, if it ramps up better than expected, that's where you're going to see the upside come from. But early indicators on feedback and what's going on right now are encouraging, Stan. Great. And then, could you remind us again kind of what you're thinking about from a CapEx perspective for the coming year now that a lot of that heavy lift is done, and then how are you all thinking about, you know, maybe accelerating a buyback at this point? Yeah, that's going to be one of the strongest points for 2024.

The quarter over the year to the range of probably $20 million to $25 million in total orders now if he ramps up bettered unexpected that's where you're going to see the upside come from.

But early.

Early indicators on feedback and what's going on right now are encouraging and Stan.

Great and then could you remind us again kind of what's your thinking about from a capex perspective for the coming year now a lot of that heavy lifting is done and then.

How are you all thinking about you know maybe accelerating a buyback at this point.

Yeah, that's gonna be one of the strongest points four to 420 24 Ah we see probably the best free cash flow year that the company has ever had and that's predicated on the fact that we again are or are seeing double digit growth and Capex do you expect it to essentially go down by half.

Santiago Giraldo: We see probably the best free cash flow year that the company's ever had. And that's pretty based on the fact that we again are seeing double-digit growth and capex is expected to essentially go down by half, I would say, to the range of 40 to 45 million. So that's got that's going to give us a lot of flexibility to do many things, including being opportunistic on the buyback. As you know, we still have roughly half of the program available to us. And if it makes sense, the free cash flow is going to be there to get another approval if it makes sense.

I would say to a range of 40 to 45 million. So that's got that was gonna gave us a lot of flexibility to do many things, including being opportunistic on the buyback as you know we still have roughly half of the program available to us and if it makes sense that free cash flow is going to be there too.

To get another approval if it makes sense. So we'll definitely be opportunistic on that end.

Santiago Giraldo: So we'll definitely be opportunistic on that end. Perfect. And last for me, you know, with kind of a lot of moving parts this year, how should we think about SG&A, maybe on a dollar basis or a percent of revenues, you know, however you want to frame that out, but just to kind of give us some direction there. Not a whole lot of changes, I would say, in there, Stan, other than the adjustments that you have to do on salaries locally, which are to the order But nothing really out of the ordinary.

Perfect and last for me you know what kind of a lot of moving parts. This year, how should we think about SG&A, yeah, maybe on a dollar basis or a percent of revenues.

However, you want to frame that out, but just to kind of give us some direction there.

I'm not a whole lot of changes Ah I was saying, they're saying other than the adjustments that you have to do on salaries locally which are to the order of 8%, but other than that you know the only moving pieces are on their transportation on commission side, which are the variable expenses.

Related to higher sales.

But nothing really out of the ordinary I wouldn't say flattish, but I I would imagine that growing slightly.

Santiago Giraldo: I wouldn't say flattish, but I would imagine that it is growing slightly less than revenues. And that's also based on the fact that we have some non-recurrent expenses in 2023, which we do not expect in 2024. So to that extent, I would imagine that we can generate operating leverage on those higher sales. Perfect. Thanks so much for the color.

Slightly less than revenues and that's also based on the fact that we have some nonrecurring expenses in 2023, which we do not expect and in 24, so to that extent I would imagine that we can generate operating leverage on those higher sales.

Perfect. Thanks, so much for the color I appreciate it and best of luck.

Yep. Thanks.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Stanley Stoker Elliott: I appreciate it and best of luck. Yep, thank you. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Tim Wojs with Baird. Please proceed with your questions.

Our next questions come from the line of Tim lows with Baird. Please proceed with your questions.

Hey, guys good morning.

Hmm.

Maybe just on the the underlying kind of residential business I guess, what what do you think has kind of changed over the last three to four months and.

Timothy Ronald Wojs: Maybe just on the underlying kind of residential business, I guess, you know, what do you think has kind of changed over the last three to four months? And I think, Jose Manuel, you said that February was a little bit better. I mean, has that business kind of gotten back to growth? I'm just kind of curious as you kind of look at expectations and order rates and things, you know. What have you been hearing from your customers around kind of the underlying residential business? One of the financial businesses... We expect to grow because... We are moving upward. We were only selling a lot from, let's say, St. Petersburg, south of Florida. And now we're moving all the way up to the Georgia Carolinas, and also Tampa. The Panhandle.

Jose Manuel you you said that February was a little bit better I mean has that business kind of gotten back to growth I'm just kind of curious as you kind of look at expectations in order rates and things you know what what have you been hearing.

From your customers around kind of the underlying residential business.

Yeah.

Well, there's still a there's this.

We expect.

To grow because we're moving upward.

We're only showing a lot.

Probably true.

Petersburg so slowly.

No were buoyed older.

All the way up to the Georgia are alive.

And also Hum.

The <unk> hub.

Jos Manuel Daes: So we expect that market to grow. It was a stall for three, four months. I mean, not bad, but it wasn't growing because a lot of housing projects were delayed because of the high interest rate.

So we use third BELBUCA to grow it was the story for <unk>.

For Bose I mean, those bad, but it wasn't growing because.

Hello.

How's your projects were delayed because of the higher interest rate.

Jos Manuel Daes: But lately, it seems that the interest rate went down like a point. And people are enthusiastic, and, like I just said, this month... was a very good month for me in February. We're very happy. And I think the trend, I mean, we just went to the show in Vegas, and the acceptance of our new products in Northern Florida and outside of Florida has been tremendous, so we're very happy. Okay, okay, that's good. And then Santiago, just on the cadence of kind of growth through the year, I guess how. I'm just trying to kind of understand, maybe like, how we should think about the sequential ramp. You know, would you kind of expect it to be fairly linear through the year, or is there more of a, I guess, H, you know, second half waiting for some of these sequential improvements at this point?

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The trade Oh, we just went to the show it very good.

The acceptance of our new Provost for Northern Florida.

Florida.

So those are we're very happy.

Okay.

Okay. Okay. That's good and then just on the on the cadence of kind of growth through the year I guess, how I'm just trying to kind of understand maybe like how we should think about the sequential ramp.

When you kind of expect it to be fairly linear through the year or is there more of a I guess H second half waiting to kind of some of these sequential improvement at this point.

I would expect sequential improvement each quarter.

Jos Manuel Daes: I would expect sequential improvement each quarter. Typically, you know that Q2 and Q3 are the best times of the year, but that's again going to depend on how the vinyl initiative and the geographical expansion on the residential site ramp up. But I would model it, as we were saying, Q1 in line with Q4 is going to be the seasonal low quarter, given the fact that we had almost half a month of January of invoicing, and then ramping up the rest of the year is how we're modeled in this outcome.

Typically you'd know that Q2, and Q3 are the best out of the year, but that's again going to depend on how the vinyl initiative and in the geographical expansion on the residential side ramp up but I would I would model. It is as we were saying Q1 in line with with with Q4 is gonna be the seasonal low quarter.

Given the fact that we had almost half a month of January of invoicing.

And then ramping up the rest of the year is how were muddled in the south.

Okay. Okay very good thanks, guys.

Santiago Giraldo: Okay, okay. Very good. Thanks, guys. All right, thanks.

Alright, thank you.

Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Mr. Jose Manuel diets for closing remarks.

Jos Manuel Daes: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Mr. Jose Manuel Daes for closing remarks. Okay, thanks everyone for participating on today's call. We expect to keep giving good news to our investors. And I think these next two, three years are going to be fabulous for the company.

Okay.

It was a busy busy.

Today's call.

We expect to keep the give.

Good news to it.

That's true.

Uh huh.

Uh huh.

Two three years ago every Fabio newsworthy Copa.

[noise].

Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

[music].

Operator: Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Thank you for watching.